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Ease(y) does it: Exchange Control changes opens way for higher offshore exposure

Over the last two decades, South Africans have seen the gradual easing of the stringent exchange controls, the most recent being after the budget speech. We have summarised the key aspects that will have an impact so you can effectively guide your clients.
4 min read

Over the last two decades South Africans have seen the gradual easing of the stringent exchange controls that were in place prior to the democratic elections of 1994. For private individuals, the first move came in June 1997, when these investors were given permission to make limited investments in their own names outside of South Africa. The amount was R400 000 per individual.

Fast-forward to February 2022 and you can see how far we’ve come. As part of the recent budget speech, hidden in Annexure F of the Budget Review, various exchange control reforms were announced. Instead of having to wade through the fine print in the 11 circulars distributed by the South African Reserve Bank Financial Surveillance Department (FinSurv), we’ve summarised the key aspects that have an impact on individual investors so that you can guide your clients in those important offshore conversations.

Foreign gifts and inheritances

Prior to the budget speech, South African residents needed to repatriate any gifts received offshore from a resident or non-resident, whether this was cash or assets, unless approval was received from FinSurv. No more! In addition, if you inherit foreign assets from a South African estate, you won’t need to report this to FinSurv, but you would still need to declare these for tax purposes*.

The same goes for anyone who owns authorised foreign assets and wants to lend them, or dispose of them, to other South African residents. This no longer requires prior written permission from FinSurv.
*Important to note: If these assets were previously held in contravention to South African exchange control legislation, they would still need to be regularised.

Effective date: 23rd of February 2022, non-retrospectively
Circular link: Resbank

R10m rand FIA-cap, no more

Under the Single Discretionary Allowance all South African residents were able to expatriate R1m of their assets annually without prior permission from the South African Reserve Bank. They also could apply to FinSurv to invest or move a further R10m, if they were tax-compliant. FinSurv will now consider applications in excess of that R10m cap. These investments have to be via foreign domiciled and registered trusts.

Effective date: 23rd of February 2022
Circular link: Resbank 

Emigrated residents: cash balances under R100 000

Remaining cash balances of up to R100 000 of individuals are no longer tax residents of South Africa can be transferred offshore without any approval from SARS.

Effective date: 23rd of February 2022
Circular link: Resbank 

Transfer your stocks

Almost a fifth of the companies on the JSE’s Main Board are listed on another stock exchange as well (e.g. Investec, SABMiller). After the Budget Review, South African residents can now export any locally owned multi-listed securities they own to the foreign share exchange, provided that FinSurv is notified and all tax and anti-money laundering rules are complied with. The value is limited to the annual allowed FIA of R10m and a confirmation or approval letter is required from FinSurv. The process that needs to be followed is outlined in the circular (see link), since the transactions will not result in actual flow of funds from the country.

Effective date: 23rd of February 2022
Circular link: Resbank

Prudential limits and the impact on investors

Foreign investment limits for South African institutional investors (prudential limits) have been increased to 45%. Previously these were set at 30% for pension funds and 40% for CIS managers, life insurers and discretionary financial services providers, with an additional 10% allowance for African assets.

These limits have now been combined into 45% of total retail assets under management and will apply to all registered and qualifying institutional investors. These institutional investors can now also open foreign currency accounts (FCAs) with Authorised Dealers, and are therefore asked to convert their customer foreign currency accounts (CFCs).

Individual investors will benefit as this increases the scope and breathing room for some investment and saving providers who were very close to their upper limits, with some funds even having to close to new investments. The standardisation of the limits to all funds (including pension money), is a welcome development.

Effective date: 23rd of February 2022
Circular link: Resbank

What this means for you and your clients

With these changes, the South African government has shown its commitment to continued foreign exchange control relaxation. As a wealth manager of the future, you can continuously offer your clients offshore opportunities that match their unique financial goals and vision. All this facilitated by INN8’s Investment Platform and its truly offshore capabilities. Seamless and elegant technology underpin our collaboration approach, which means we provide superior service.

We are changing the way investments are done.

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