Surprising relaxation of SA Exchange Controls
From a Forex point of view, the market was caught by surprise last week by the Minister of Finance, Mr Pravin Gordhan’s announcement to make sweeping changes on the Exchange Control front.
As a start, the individual foreign investment allowance of R2m was doubled to R4m. This is a once-off limit which allows individuals, who are over the age of 18 years, to transfer funds offshore for investment purposes. In order to take advantage of this allowance, individuals need to obtain Tax Clearance from the SA Revenue Service specifically for foreign investment purposes. We have seen quite a bit of activity in this regard as a result of the Rand’s recent strength.
In addition, people who have emigrated from SA, and who have remaining blocked assets in SA, may “top-up” their settling-in allowance within the revised foreign capital allowance. This means that if a family emigrated prior to the recent changes, they would have been entitled to a settling-in allowance of R4m. This limit has now been increased to R8m. To the extent that they have remaining assets in SA, emigrants may transfer the difference offshore without incurring any penalties.
Further good news for individuals is that the single discretionary allowance of R500,000 per annum has been increased to R750,000 per annum. This allowance can be used for a number of different purposes including donations, maintenance, travel, study and gifts. It’s fair to say that the predominant use of the discretionary allowance is to cover travel expenses, but remember that specific conditions apply depending on the type of transaction, for example, if you are using the allowance for travel purposes, proof of travel is required and any unused portion of the forex purchased must be converted back to Rand within 30 days of returning to SA.
Apart from the increased limits mentioned above for individuals, a number of changes were announced that have an impact on local companies. The changes are geared to reduce the regulatory burden on SA businesses and to effectively move to prudential reporting, which is a self-regulating environment incorporating specific reporting requirements.
A major change was implemented last year February whereby local companies looking to expand their operations offshore, were able to have such plans authorised by a local bank provided that the relevant investment did not exceed R50m. Previously these would all have been the subject of an application to the SA Reserve Bank (SARB). In terms of the R50m dispensation, once authorised, the proposed investments would then be reported to the SARB. Exciting news is that this limit has now been increased to R500m. Additional flexibility has also been granted to companies structuring their investments within the SA Development Community (SADC), commonly referred to as SADC “loop” structures.
Further easing includes the abolishment of the 180 day rule for Customer Foreign Currency (CFC) accounts, meaning that foreign currency credited to such an account may be retained in the account indefinitely. The advance payment limit of R250,000 for imports has also been abolished and companies may hold foreign bank accounts, subject to certain conditions and reporting requirements. In addition, certain changes have been made to the local borrowing restrictions to simplify the process.
As is evident from the above, these changes are significant. We have seen a number of changes over the past few years, as part of the previous Minister of Finance, Mr Trevor Manuel’s policy of gradual easing of Exchange Controls. However, it could be said that we have not seen such sweeping changes being effected at a single point during this time.
Whilst the exchange rate of the Rand weakened against the major international currencies immediately after the announcement, the fact that the current Government has shown its support of the policies previously implemented by Mr Manuel, should boost international sentiment and support of the Rand in the longer term.
The abovementioned changes are effective from 27 October 2009. We have a dedicated Forex team who would be able to assist you with any queries that you may have in this regard.
Chantal Robertson
