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TRADE AND INVESTMENT OPPORTUNITIES IN SOUTH AFRICA

Foreign Exchange Control

The responsibility for exchange control policy has always vested with the Minister of Finance. The Minister delegated certain powers and functions to the Exchange Control Department of the South African Reserve Bank, which implements and administers such policy on behalf of the government. The Minister of Finance also appointed certain banks to act as authorised dealers in foreign exchange. Being appointed as an authorised dealer gives a bank the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Exchange Control Department.

Non-residents may freely invest in the Republic, provided that suitable documentary evidence is presented that such transactions are being concluded at arm’s length and at fair market-related prices and financed in an approved manner. Financing must be in the form of the introduction of foreign currency, rands from a non-resident account or local financial assistance to affected persons and non-residents.

Investors are advised to ensure that share certificates are endorsed as ‘non-resident’. A record should be kept of funds introduced into South Africa. For every purchase of exchange, irrespective of the amount involved, authorised dealers are required to report to the South African Reserve Bank details of payments received from foreign partners by South African residents.

Authorized dealers may allow the transfer of dividends, profit and/or income distributions from quoted companies, non-quoted companies and other entities to non-residents in proportion to their percentage shareholding and/or ownership. Authorised dealers may also allow the transfer of dividends, profit or income distributions by ‘affected persons’ who have local financial assistance at their disposal, provided that the relative distribution will not cause the entity to be placed in an over-borrowed position in terms of the formula requirements. The local sale or redemption proceeds of non-resident-owned assets in the Republic may be regarded as being freely remittable. Such proceeds may also be freely used in the Common Monetary Area (CMA) by non-residents for investment and other purposes and may, accordingly, be credited to non-resident accounts.
Authorized dealers may approve applications by residents to avail of inward foreign loans and foreign trade finance facilities from any non-resident, subject to adherence to specific criteria applicable to such loans being recorded via the loan reporting system. For any other request which falls outside the applicable criteria, an application must be submitted to the Exchange Control Department for consideration. Approval is normally granted, provided the loan is for a period of at least one month and a market-related interest rate is charged, i.e. up to prime plus 3% for rand-denominated loans and up to the base lending rate plus 2% for foreign-denominated loans which are not shareholder-related funds, with shareholder funds being restricted to prime.

A South African-registered entity that is 75% or more foreign-controlled is restricted in the amount that it may borrow or access from South African lenders and is known as an ‘affected company’. The borrowing or facility limit for local financial assistance is based on a pre-set formula. Non-resident wholly owned subsidiaries may borrow locally up to 300% of total shareholder investment. This excludes emigrants, the acquisition of residential property by non-resident or affected persons and any other financial transactions, for example portfolio investments by non-residents, hedging, etc. In such cases, a ratio of 100% applies. Effective capital includes paid-up equity capital, preference shares, undistributed earned profit, shareholders’ loans from abroad and, in certain instances, the hard-core shareholders’ trade credit.

The percentage of effective capital that may be borrowed is:
% South African interest
300% + (-------------------) X 100%
% Non-resident interest

The Exchange Control Department will not permit the remittance of profits or repayment of loans where, as a result of the remittance, the local financial assistance limit will be exceeded and will require local financial assistance to be reduced before remittance.

Royalties, and license and patent fees to non-residents, may be approved, provided the authorised dealer is satisfied that the payments fall within the terms of the relative agreement and, where applicable, comply with any conditions laid down in the authority granted by Exchange Control and/or the dti and the application is accompanied by an auditor’s statement showing the amount due has been correctly calculated. Current account payments, such as management fees and other fees for services provided, may be paid by authorised dealers on presentation of an invoice, provided that such payments are not calculated as a percentage of sales, profits, purchases or income.
Source: South African Reserve Bank.

 
 
 
Ms. TSD Nxumalo Consul-General
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