SOUTH AFRICAN RESERVE BANK
EXCHANGE CONTROL MANUAL (UNOFFICIAL VERSION)
UPDATED October 2007 DISCLAIMER
This manual is issued to assist Authorised Dealers in Foreign Exchange, their customers and other interested parties by providing a general understanding of the purpose, scope and operation of the exchange control system in the Republic of South Africa and in the Common Monetary Area. It is not intended to have the force of law or any other legal status. Since Exchange Control norms, policy, limits and conditions may change according to circumstances, Authorised Dealers must, in all instances, refer to the Exchange Control Regulations and the Rulings issued by the Exchange Control Department of the South African Reserve Bank in respect of all transactions which may be undertaken by Authorised Dealers. Accordingly, this manual merely serves as a general guideline and does not replace or supersede the Exchange Control Regulations or Rulings, nor the norms and policies as applied by the Exchange Control Department of the South African Reserve Bank from time to time. For the legal definitions and provisions applicable to the administration of exchange control, reference should be made to the Exchange Control Regulations, the Orders and Rules and the Rulings issued thereunder. All enquiries of an exchange control nature must be directed to an Authorised Dealer in Foreign Exchange and any request to Exchange Control is required to be channelled through an authorised dealer who must obtain full details applicable to the request to enable him to place a comprehensive request before the control.
www.docstoc.com/profile/socialnetworx http://socialnetworx.flixya.com
Page 2 of 120
CONTENTS Section A. Definitions……………………………………………………………………………..................................................... A B. Purpose of Manual...………………………………………………………………....................................................B C. Historical Background……………………………………………………………..................................................... C D. Institutional Arrangements………………………………………………………................................................. D D.1 Legislation, Regulations, Orders and Rules D.2 Delegation of Powers D.3 Liaison with Department of Finance D.4 Functions of Authorised Dealers D.5 Applications to Exchange Control D.6 Organisation of Exchange Control Department D.7 Exchange Control Territory D.8 Resident and Non-resident Status E. General Policy Approach to Exchange Control…………………….…………............................................. E F. General Requirements, Procedures and Norms Applied with respect to Particular Types of Transactions………………….…………...................................................................................................... F F.1 Introduction F.2 Current Payments by Residents…………………………………….…….……............................................... G 2.1 Payments for merchandise imports 2.1.1 General requirements 2.1.2 Required procedures and documents 2.1.3 Purpose of control 2.1.4 Matters to be referred to Exchange Control 2.1.5 Norms applied and factors considered 2.1.6 Advance payments and/or cash with order requests
Page 3 of 120
2.1.7 Payments by means of credit and/or debit cards 2.1.8 Acquisition of patents, copy-rights, trademarks, franchises and/or intellectual property in general (October ’06) (i) 2.2 Personal and business matters……………………………………….…………............................................... H 2.2.1 Purpose of control 2.2.2 Personal facilities 2.2.2.1 Travel allowances and associated facilities 2.2.2.2 South African Residents proceeding abroad on a temporary basis 2.2.2.3 Study facilities 2.2.2.4 Conference, congress, seminar and examination fees 2.2.2.5 Medical and dental expenses 2.2.2.6 Subscriptions 2.2.2.7 Export of South African Reserve Bank notes 2.2.3 Payments of a business nature………………..……………….………...................................................... I 2.2.3.1 Remittance of dividends profits and income from the RSA 2.2.3.2 Royalties and fees arising from the use of copyrights, designs, patents and trademarks 2.2.3.3 Directors' fees to non-residents 2.2.3.4 2.2.3.5 2.2.3.6 Legal fees to non-residents 2.2.3.7 Other fees 2.2.3.8 Advertising fees/ exhibition/trade fair expenses 2.2.3.9 Payments to visiting artistes, entertainers and sportsmen 2.2.3.10 Payments to foreign crew members calling at South African ports 2.2.3.11 Allowances for business travel
Page 4 of 120
2.2.3.12 Air fares for overseas visitors 2.2.3.13 Freight payments and ships and aircraft disbursements 2.2.3.14 Transfer abroad of reinsurance premiums 2.2.3.15 Technical service payments 2.2.3.16 Registration of drugs 2.2.3.17 Registration of agrochemical products 2.2.3.18 Tender documentation 2.2.3.19 Tender guarantees/bid bonds 2.2.3.20 Performance guarantees 2.2.3.21 Court judgement payments 2.2.3.22 Refunds 2.2.3.23 Advance payment guarantees 2.2.3.24 Transportation costs and cash floats 2.2.3.25 Rental and lease payments F.3 Payments by "Temporary Residents" in the RSA…………….………………........................................... J 3.1 Payments by embassies, high commissions, legations, consulates-general, consulates and official overseas representatives 3.2 Payments by other foreign nationals who have taken up temporary residence in the Republic 3.2.1 Norms applied 3.2.2 General requirements (October ’07) (ii) F.4 Receipts of Foreign Currency on Current Transactions………………………........................................ K 4.1 Purpose of control 4.2 Receipts from merchandise exports 4.2.1 General requirements 4.2.2 Sales periods and credit
Page 5 of 120
4.2.3 Sale of currency 4.2.4 Special stipulations 4.2.4.1 Exports on a consignment basis 4.2.4.2 Replacement goods, short shipments and goods under guarantee 4.2.4.3 Export of defective goods for replacement 4.2.4.4 Export of advertising matter and trade samples 4.2.4.5 Return of goods for which no payment has been made 4.2.4.6 Temporary export of goods to Angola, Botswana, Democratic Republic of the Congo, Malawi, Mauritius, Mozambique, Tanzania, Zambia and Zimbabwe 4.2.4.7 Export of philatelic and numismatic items (Excluding Krugerrand coins) 4.2.4.8 Temporary exportation of motor vehicles, caravans, trailers, horse-boxes and motor/sail boats. 4.2.4.9 Export of motor vehicles in the possession of non-residents leaving the Common Monetary Area for any other country 4.2.5 4.2.6 4.2.7 Setting off foreign liabilities against foreign accruals 4.3 Other exports 4.3.1 Service receipts 4.3.2 Disposal of patents, copy-rights, trademarks, franchises and/or intellectual property in general F.5 Transfer Payments…………………………………………………………………….................................................L 5.1 Gifts 5.1.1 General requirements 5.1.2 Matters to be referred to Exchange Control 5.2 Donations 5.3 Alimony (November ’04 (iii) (October ‘07) (iv)
Page 6 of 120
5.4 Maintenance 5.4.1 General requirements 5.4.2 Matters to be referred to Exchange Control 5.4.3 Factors to be considered 5.5 Legacies and distributions from estates…………………………….……………......................................... M 5.5.1 Estates of persons regarded as permanent residents of the RSA at the time of death 5.5.1.1 Legacy transfers 5.5.1.2 Export of jewellery 5.5.1.3 Export of personal effects 5.5.1.4 Export of other assets 5.5.2 South African estates of persons, including emigrants, domiciled outside the CMA at the time of death 5.5.2.1 Legacy transfers 5.5.2.2 Export of jewellery and personal effects 5.5.3 Inheritances by South African residents from non-resident estates 5.6 Inter vivos trusts…………………………………………………….………………................................................. N 5.6.1 Purpose of control 5.6.2 Norms applied and factors considered 5.6.3 Own-asset trust 5.6.3.1 Established prior to emigration 5.6.3.2 Established subsequent to emigration 5.6.4 Third-party funded trust 5.6.4.1 Emigrants 5.6.4.2 Original non-residents 5.6.5 Required procedures 5.7 Wedding expenses and Bar/Bat Mitzvah ceremonies
Page 7 of 120
F.6 Capital Transactions…………………………………………………………………................................................ O 6.1 Foreign investment by South African residents 6.1.1 Private individuals (natural persons) 6.1.2 South African companies 6.1.2.1 Norms applied and factors considered 6.1.2.2 Reporting requirement 6.1.2.3 Repatriation of profits and dividend credits 6.1.2.4 Expansion of business abroad and remission of funds 6.1.2.5 Transfer of required funds 6.1.3 Loans by residents to non-residents 6.1.4 Portfolio investments 6.1.4.1 Portfolio investments by residents 6.1.4.2 Portfolio investments by South African institutional investors 6.1.5 Share incentive schemes offered by foreign companies 6.1.6 Trade finance 6.1.7 Borrowing abroad by residents 6.1.7.1 Control over borrowing abroad by residents 6.1.7.2 Purpose of control 6.1.7.3 Authority to Authorised Dealers 6.1.7.4 Categories of loan finance 6.1.7.4.1 Loans from non-resident banks 6.1.7.4.2 Loans from non-resident shareholders to affected persons 6.1.7.4.3 Loans from other non-residents 6.1.7.5 Fraudulent practices involving purported foreign loan facilities 6.1.8 The debt standstill arrangements…………………..…………………….................................................. P
Page 8 of 120
6.2 Capital transactions of non-residents………………………...……..…...……........................................... Q 6.2.1 Local financial assistance to affected persons and non-residents 6.2.1.1 General restriction 6.2.1.2 Purpose of control 6.2.1.3 General requirements 6.2.1.4 Authority to Authorised Dealers 6.2.1.5 Matters to be referred to Exchange Control 6.2.1.6 Applications to Authorised Dealers 6.2.1.7 Security given by non-residents 6.2.1.8 Loans from non-resident shareholders 6.2.2 Disinvestment from the RSA 6.2.3 The financial rand system…………………………………………………..................................................... R 6.2.4 Securities control……………………………………………………………....................................................... S 6.2.4.1 Definitions 6.2.4.2 Control on dealings in non-resident owned securities 6.2.4.3 Form of control 6.2.4.4 Purpose of control 6.2.4.5 General requirements Securities held on behalf of non-residents in certificated form Securities purchased by non-residents and not dematerialised or immobilised by a CSD 6.2.4.6 Duties of banks, CSDPs, Settlement Agents, Members of the JSE and Transfer Secretaries (October ’07) (v) 6.2.5 Emigration facilities……………………………….…………………………..................................................... T 6.2.5.1 Purpose of control 6.2.5.2 Qualification for emigration facilities
Page 9 of 120
6.2.5.3 Application for emigration facilities 6.2.5.4 Facilities for which emigrants qualify Cash allowance Foreign capital allowance Export of household and personal effects and motor vehicles 6.2.5.5 Authority to Authorised Dealers 6.2.5.6 Matters to be referred to Exchange Control 6.2.5.7 Time and method of provision of exchange 6.2.5.8 Control of blocked South African assets 6.2.5.9 Purposes for which emigrants' blocked funds may be used 6.2.5.10 Effect of emigration on emigrants' borrowings in South Africa 6.2.5.11 Effect of emigration on the local borrowings of a South African company in which an emigrant retains an equity interest 6.2.5.12 South African income accruing to emigrants 6.2.5.13 Emigration of a Lloyd's of London member 6.2.5.14 Income tax refunds 6.2.5.15 Retirement annuity policies 6.2.6 Transactions of immigrants………………………………………………..................................................... U 6.2.6.1 6.2.6.2 Requirements upon taking up permanent residence 6.2.6.3 Concessionary periods applicable to immigrants 6.2.6.4 Income on foreign assets accruing to immigrants 6.2.6.5 Other concessions available to immigrants F.7 Sundry Topics………………………………………………………………………….................................................. V 7.1 Hedging 7.1.1 Hedging operations
Page 10 of 120
7.1.2 Hedging instruments 7.1.3 Hedging transactions 7.2 Forward Exchange Contracts 7.2.1 Purchases of Exchange 7.2.1.1 Foreign currency against rand 7.2.1.2 Foreign currency against foreign currency 7.2.1.3 Surrender/extensions by means of swaps 7.2.1.4 7.2.1.5 Currency futures/currency options 7.2.2 Sales of Exchange 7.2.2.1 General 7.2.2.2 Foreign currency against rand 7.2.2.3 Foreign currency against foreign currency 7.2.2.4 Surrender/extensions by means of swaps 7.2.2.5 7.2.2.6 Currency futures/currency options (October ’06) (vi) 7.3 Foreign bank accounts 7.3.1 Purpose of control 7.3.2 Norms applied and factors considered 7.3.3 Customer foreign currency accounts 7.4 Purchase and sale of gold 7.5 Importation and exportation of bank notes 7.5.1 Foreign currency bank notes 7.5.2 South African Reserve Bank notes
Page 11 of 120
7.6 Insurance by residents of the Republic 7.7 Merchanting trade 7.8 Barter and counter trade 7.9 Inward Listings by foreign entities on South African exchanges……………................................... W 7.9.1 Introduction 7.9.2 General 7.9.3 Measures applicable to inward listed debt instruments, derivative instruments and equity issues on the JSE Limited 7.9.3.1 Types of instruments 7.9.3.2 Acquisition issue 7.9.3.3 Issue of shares for cash 7.9.3.4 Capital raising through new debt listings 7.9.3.5 Rights offers 7.9.3.6 Suspension of listings 7.9.3.7 Main index inclusion 7.9.3.8 Denomination of debt instruments, equity issues and derivative instruments 7.9.4 Measures applicable to inward listed debt instruments on BESA 7.9.4.1 Denomination of debt instruments 7.9.4.2 Types of instruments 7.9.4.3 Capital raising through new listings 7.9.5 Special dispensation to local brokers to facilitate the trading of inward listed shares (October ’07) (vii)
Page 12 of 120
A. Definitions ADLA means an Authorised Dealer in foreign exchange with limited authority, which include Bureaux de Change, who are authorised by the Treasury to deal in foreign exchange for the sole purpose of facilitating travel related transactions. AFFECTED PERSON means a body corporate, foundation, trust or partnership operating in the Republic, or an estate, in respect of which: (i) 75% or more of the capital, assets or earnings thereof may be utilised for payment to, or to the benefit in any manner of, any person who is not resident in the Republic; or (ii) 75% or more of the voting securities, voting power, power of control, capital, assets or earnings thereof, are directly or indirectly vested in, or controlled by or on behalf of, any person who is not resident in the Republic. AUTHORISED DEALER means, in relation to any transaction in respect of gold, a person authorised by the Treasury to deal in gold and, in relation to any transaction in respect of foreign exchange, a person authorised by the Treasury to deal in foreign exchange. BLOCKED ACCOUNT is an account to which exchange control restrictions have been applied in terms of the Regulations. BUSINESS AND TECHNICAL SPECIFICATIONS DOCUMENT means the document containing all the rules and technical specifications pertaining to the reporting of cross-border foreign exchange transactions. CAPITAL GOODS mean tangible items (property, plant and equipment) that: (i) are held for use in the production or supply of goods and services, for rental to others or for administrative purposes; and (ii) are expected to be used during more than one period. CUSTOMS means Customs and Excise, a division of SARS. C.F.C. ACCOUNT means a customer foreign currency account conducted by residents in the nostro administration of an Authorised Dealer, in terms of the provisions of the Rulings or in terms of a specific authority granted by Exchange Control. Funds standing to the credit of such an account are deemed to be local assets denominated in a foreign currency. The applicant has no right to these funds except to facilitate certain approved pay-ways or forced conversion to Rand, which Rand proceeds the resident then becomes entitled to. CIRCULARS mean exchange control circulars issued by Exchange Control to Authorised Dealers and/or ADLAs and other role players, setting out the conditions, permissions and limits applicable to foreign exchange transactions, which may be undertaken by Authorised Dealers, ADLAs and/or on behalf of their customers, as well as amendments to related administrative responsibilities.
Page 13 of 120
CMA means the Common Monetary Area, which consists of Lesotho, Namibia, South Africa and Swaziland. CROSS-BORDER FOREIGN EXCHANGE TRANSACTION means the purchase or sale of foreign exchange with or for Rand. (October ‘07)A1 (June ‘05)A2 DOCUMENTARY EVIDENCE (i) Whenever documentary evidence is called for in any section of the Rulings, Authorised Dealers shall be obliged to ensure that such documentary evidence, which shall be obtained and scrutinised in connection with a relevant commercial or other transaction involving the purchase or sale of foreign exchange either spot or forward, shall, in terms of accepted trade usage, or established accounting, commercial or legal practice, be the best evidence for purposes of: (a) Identifying the nature, category or class of the relevant transaction; (b) proving and verifying the obligation(s) of each resident, who is a party to the relevant transaction, to make payment(s) of foreign exchange or to place such foreign exchange to the credit of any non-resident, who is a party to the relevant transaction and/or proving and verifying the right(s) of each resident, who is a party to the relevant transaction, to receive payment(s) of foreign exchange from or have such foreign exchange placed to its credit by any non-resident, who is a party to the relevant transaction; (c) proving and verifying the amount(s) and timing of each foreign exchange payment or credit referred to in (b) above; and (d) recording and establishing the name and address of each non-resident, who is a party to or who is involved in the relevant foreign exchange transaction. (ii) If the relevant transaction involving foreign exchange, as referred to in subsection (i) above, is recorded in a written agreement to which the relevant resident(s) and non-resident(s) are parties, the term “documentary evidence”, as utilised in the Rulings and which shall be obtained and scrutinised by Authorised Dealers in connection with foreign exchange transactions, shall, without derogating from the generality of the provisions contained in subsection (i) above, mean: (a) The original of such written agreement duly signed by or on behalf of the parties thereto; and (b) such further supporting or supplementary documents which shall in terms of established accounting, commercial or legal practice be required and generated to give practical effect to the relevant transaction; which supporting or supplementary documents shall include, but not necessarily be limited to relevant confirmatory letters, invoices, receipts, bills of lading or other documents of title, carriage contracts, letters of credit, guarantees, insurance contracts, permits, licences and/or bills of exchange.
Page 14 of 120
Such original written agreement and supporting or supplementary documents, shall as a minimum requirement, identify and prove the various essential elements of the relevant foreign exchange transaction stipulated in subsections (i)(a), (b), (c) and (d) above. (October ‘06)A3 (iii) If the relevant transaction involving foreign exchange is not recorded in a written agreement contemplated in subsection (ii) above, the term “documentary evidence”, as utilised in the Rulings and which shall be obtained and scrutinised by Authorised Dealers in connection with foreign exchange transactions, shall, without derogating from the generality of the provisions contained in subsection (i) above, mean the supporting or supplementary documents of the nature specified in subsection (ii)(b) above, provided that such supporting or supplementary documents shall, as a minimum requirement, identify and prove each of the essential elements of the relevant foreign exchange transaction referred to in subsections (i)(a), (b), (c) and (d) above. (iv) The directives contained in subsections (i), (ii) and (iii) above, shall not relieve Authorised Dealers from the duty of obtaining and scrutinising, in connection with any relevant foreign exchange transaction, such documents as may be specified and named in any of the sections of the Rulings or in any authority granted by Exchange Control. Where the original set of documents is not available, Authorised Dealers may accept those produced by photocopying, faxing or printed copies of electronic documents. EMIGRANT means a South African resident who is leaving or has left the Republic to take up permanent residence in any country outside the CMA. EMIGRANT BLOCKED ACCOUNT means the account of an emigrant from the CMA to which exchange control restrictions have been applied. EXCHANGE CONTROL means the Exchange Control Department of the South African Reserve Bank (responsible for the administration of exchange control on behalf of the Treasury). F.C. ACCOUNT means a foreign currency account conducted by residents (natural persons only) and non-residents in the nostro administration of Authorised Dealers in terms of the provisions of the Rulings or a specific authority granted by Exchange Control. FINANCIAL ASSISTANCE includes the lending of currency, the granting of credit, the taking up of securities, the conclusion of a hire purchase or a lease, the financing of sales or stocks, discounting, factoring, the guaranteeing of acceptance credits, the guaranteeing or acceptance of any obligation, a suretyship, a buy-back and a leaseback, but excluding: (i) The granting of credit by a seller in respect of any commercial transaction directly involving the passing of ownership of the goods sold from seller to purchaser; and (ii) the granting of credit solely in respect of the payment for services rendered. FOREIGN EXCHANGE means any currency other than currency, which is legal tender in the Republic, but excludes the currencies of Lesotho, Namibia and Swaziland. Foreign exchange must be deemed to include any bill of exchange, letter of credit, money order, postal order, and promissory note,
Page 15 of 120
Rand to or from a Non-Resident Account, traveller ’s cheque or any other instrument of foreign exchange. FOREIGN NATIONALS mean natural persons from countries outside the CMA who are temporarily resident in the Republic, excluding those on holiday or business visits. GOLD as referred to in Regulations 2 and 5 includes all forms of gold other than wrought gold, as well as ingots, amalgam, concentrates or salts of gold buttons and trade scrap. Gold as referred to in Regulation 3 includes wrought gold and gold coins. IMMIGRANTS mean natural persons who immigrated from countries outside the CMA with the firm intention of taking up or having taken up permanent residence in the Republic. (October ‘07)A4 INTEGRATED FORM means the electronic or paper format of a contract between an Authorised Dealer and its customer resulting in a balance of payments reporting obligation and includes a declaration to the effect that the information provided is true and correct. ITAC means International Trade Administration Commission of South Africa established in terms of Section 7 of the International Trade Administration Act (Act No. 71 of 2002). LOAN REPORTING SYSTEM means the electronic system used by Authorised Dealers to report authorised new inward foreign loans and foreign trade finance facilities to Exchange Control. NON-RESIDENT means a person (i.e. a natural person or legal entity) whose normal place of residence, domicile or registration is outside the CMA. NON-RESIDENT AREA means all countries other than those included in the CMA. NON-RESIDENT ACCOUNT means the account of a non-resident conducted in the books of an Authorised Dealer. PASSENGER TICKET means a ticket issued in respect of travel arrangements, inclusive of electronically issued tickets (“e-tickets”). RAND means the monetary unit of the Republic as defined in Section 15 of the South African Reserve Bank Act, 1989 (Act No. 90 of 1989). REGULATIONS mean the Exchange Control Regulations, 1961 as promulgated by Government Notice R.1111 of 1961-12-01, as amended from time to time. REPORTING SYSTEM means the electronic cross-border foreign exchange transaction reporting system used to transmit data to Exchange Control in an agreed format. REPUBLIC means the Republic of South Africa. RESIDENT means any person (i.e. a natural person or legal entity) who has taken up permanent residence, is domiciled or registered in the Republic. For the purpose of the Rulings, this excludes
Page 16 of 120
any approved offshore investments held by South African residents outside the CMA. However, such entities are still subject to Exchange Control Rules and Regulations. RESIDENT ACCOUNT means the account of a person resident, domiciled or registered in the Republic, including that of a CMA resident. RESIDENT TEMPORARY ABROAD means any resident who has departed from the Republic to any country outside the CMA, with no intention of taking up permanent residence in another country, but excluding those residents who are abroad on holiday or business travel. RULINGS mean the Exchange Control Rulings issued to Authorised Dealers and ADLAs by Exchange Control under the powers delegated by the Minister of Finance which contain the permissions, conditions and limits applicable to the transactions in foreign exchange, which may be undertaken by Authorised Dealers, ADLAs and/or on behalf of their customers, as well as details of related administrative responsibilities. SADC means the Southern African Development Community consisting of Angola, Botswana, Democratic Republic of the Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. SARS means the South African Revenue Service. (June ‘05)A5
SECURITIES include quoted stocks, shares, warrants, debentures and rights, as well as unquoted shares in public companies, shares in private companies, Government, Municipal and Public utility stocks, non-resident owned mortgage bonds and/or participations in mortgage bonds and shortterm debt instruments. The terms script and share certificates include any temporary or substitute documents of title such as Letters of Allocation, Warrants, Letters of Allotments, Orphan Certificates, Balance Receipts and any other receipts for script. TREASURY means, in relation to any matter contemplated in the Exchange Control Regulations, the Minister of Finance or an officer in National Treasury who, by virtue of the division of work in National Treasury, deals with the matter on the authority of the Minister of Finance.
Page 17 of 120
(October '97) B1
B. Purpose of Manual As set out in the disclaimer, the purpose of this manual is to give guidance to Authorised Dealers in foreign exchange, their clients and other interested parties regarding the operation of the exchange control system in the Republic of South Africa. The other member countries of the Common Monetary Area follow essentially the same system. The main matters to be dealt with are the following: • the current general policy approach to exchange control; • the duties of the Authorised Dealers in terms of the Exchange Control Regulations, Orders and Rules and the Exchange Control Rulings as amended from time to time; • the procedures to be followed by Authorised Dealers in exercising their functions and performing their duties, including submitting applications to Exchange Control on matters which they are not permitted to authorise; • the information required when submitting applications; • the norms applied by Exchange Control in arriving at decisions on matters outside the authorities granted to Authorised Dealers; • the supervisory function of Exchange Control; and • the methods of communication between Exchange Control and the Authorised Dealers. It should be stressed, as set out in the disclaimer, that the Exchange Control Regulations, Orders and Rules and the Exchange Control Rulings form the basis of the exchange control system. This Manual serves only to explain the working of the exchange control system; it does not replace the Regulations, the Rulings nor the Circulars by which they are amended.
Page 18 of 120
(March ’01)C1
C. Historical Background Exchange control in the form of the Emergency Finance Regulations was first introduced in South Africa at the outbreak of the Second World War in 1939. The Regulations were at first largely limited to transactions with non-sterling area countries but later included transactions with members of the Sterling Area as well. The present control measures were introduced by way of the Exchange Control Regulations, as promulgated by Government Notice R1111 of 1 December 1961 and amended up to Government Notice No. R.885 in Government Gazette No. 20299 of 23 July 1999 and Orders and Rules 1961, as published in Government Notice R1112 of 1 December 1961 and amended up to Government Notice R.791 in Government Gazette No. 18970 of 5 June 1998, issued in terms of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933). A deterioration of the capital account of the balance of payments during 1961 induced the South African authorities to block the repatriation of the proceeds of non-resident owned securities. As a result a second exchange rate for the Rand, being the price in foreign currency at which blocked balances were being traded between non-residents, was brought about. Direct transferability of such balances was allowed from 1976. A market in these blocked balances, known as securities rand, developed. The rate for the securities rand generally stood at a substantial discount to the official rate. The amount of the discount, after allowing for the investment currency premium in the United Kingdom, corresponded to the difference between the Johannesburg and London prices of South African securities listed on both stock exchanges. In view of its concern about the disincentive for foreign investment which was inherent in the securities rand system the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa (De Kock Commission) in 1978 recommended that the securities rand system be broadened to include other assets and be replaced by the Financial Rand system for capital transactions while there would also be a Commercial Rand for ordinary current transactions. This recommendation was accepted with some qualifications. The Financial Rand system, like the blocked and securities rand systems before it, laid down the terms and conditions on which the Rand proceeds of sales of assets owned by non-residents in South Africa could be reinvested or transferred to another non-resident. The sale of a South African asset by a non-resident to a resident yielded a Rand balance designated Financial Rand . To exchange this balance for foreign currency, through the intermediation of the market, another non-resident, wishing to acquire Financial Rand, had to be found. This seller transferred his Rand balance to the buyer, who in turn settled the purchase consideration in foreign currency. The transaction therefore did not directly influence South Africa's foreign exchange reserves. Under the new system non-residents could freely purchase quoted stocks and shares on the JSE Securities Exchange South Africa while other investments through that medium required the prior approval of Exchange Control. The exchange rate for the Financial Rand was determined by supply and demand in the Financial Rand market and was normally well below the exchange rate of the so-called Commercial Rand.
Page 19 of 120
The De Kock Commission regarded the Financial Rand system as an interim stage and a further step towards the longer-term objective of a market determined unitary exchange rate of the Rand with limited exchange controls over residents only. From 7 February 1983 exchange controls over nonresidents were abolished. This implied the disappearance of the Financial Rand and the dual exchange rate system. Steps were also taken to relax, simplify and "streamline" the exchange control regulations relating to residents, in accordance with the De Kock Commission's recommendations. (April ’01) C2 During July-August 1985 political developments and foreign reactions thereto, coupled with the withdrawal or non-renewal of credit lines extended by a number of foreign banks to South African banks or their clients, caused severe downward pressure on the exchange rate of the Rand. As a result the Government announced the closure of the foreign exchange market and the JSE Securities Exchange South Africa from 28 August to 1 September 1985. This step was followed by the introduction of a four-month standstill period for most foreign debt repayments. Alongside the existing controls over current payments the Financial Rand system was reintroduced with effect from 2 September 1985. The reintroduction of the Financial Rand system meant that, as before, the local sale or redemption proceeds of non-resident owned South African assets could not be converted into foreign currency at the Commercial Rand rate of exchange but had to be retained in South Africa with Authorised Dealers in foreign exchange in the form of Financial Rand balances. Such balances were, however, transferable between non-residents and eligible for reinvestment in South African quoted securities and other investments as approved by the authorities. South African residents who had to meet foreign debt repayment obligations were generally required to pay the amounts concerned in foreign currency into so-called special restricted foreign currency accounts maintained with an Authorised Dealer in foreign exchange. The bank concerned was then required to make a corresponding deposit in foreign currency with the South African Reserve Bank. A series of consultations between South African representatives and major foreign creditor banks were held for clarifying technical aspects of the debt moratorium and for preparing its eventual replacement with arrangements for the orderly repayment of foreign debt. This resulted, inter alia, in a partial restructuring of South Africa's foreign debt and culminated in the conclusion in 1994, of the final debt arrangements negotiated between the Republic and the major creditor banks, the implementation of which resulted in the amount of affected foreign indebtedness being reduced to zero as of 15 August 2001. As a step along the indicated path of gradually abolishing exchange control, all such controls over non-residents were abolished by the termination on 13 March 1995 of the dual exchange rate system resulting in the disappearance of the Financial Rand. In terms hereof, the local sale proceeds of non-resident owned South African assets are regarded as freely transferable from the Republic. In accordance with the principle of relaxing exchange controls permission was granted, in June 1995, to South African institutional investors (long term insurers, pension funds and unit trusts) to exchange through approved asset swap transactions part of their South African portfolio for foreign securities. At first a limit to enter into asset swaps by institutional investors of 5% of total assets was applied and in June 1996, this was raised to 10% of total assets. At the same time they were
Page 20 of 120
permitted to transfer abroad 3% of their net inflow of funds generated during the 1995 calendar year within the overall limit of 10% of total assets. In March 1997 this latter concession of 3% was extended to the net inflow of funds during 1996 and the institutions that qualify for asset swaps were broadened to include regulated fund managers registered with the Financial Services Board. The 10% limit applied to each individual unit trust was dispensed with and the unit trust management company itself could apply to acquire foreign portfolio investment by way of asset swaps for up to 10% of total assets under management. (February ’06) C3 With effect from 1 July 1997, portfolio managers that were registered with the Financial Services Board as well as stockbroking firms which were members either of the JSE Securities Exchange South Africa, the Bond Exchange of South Africa or the South African Futures Exchange and had approval to offer private client asset management services by the Committee/Executive Committee of the Exchange concerned could also apply to acquire foreign portfolio investments by way of asset swaps for up to 10% of the total assets under their management. Qualifying institutional investors could, in addition to the 3% foreign currency transfers referred to above, also apply to the Control to avail of foreign currency transfers in 1997 of up to 2% of the net inflow of funds during the 1996 calendar year, to be invested on registered stock exchanges in any SADC member country. This dispensation was also subject to the overall limit of 10% of total assets applicable to asset swaps. In March 1998 the overall limit of 10% was increased to 15% and the 3% pertaining to the foreign currency transfers was increased to 5% based on the net inflow of funds during the 1997 calendar year. Simultaneously the 2% pertaining to SADC countries was increased to 10%. In February 1999 the respective limits of 5% and 10% pertaining to foreign currency transfers within the overall limit of 15% of South African assets was extended and long term insurers, pension funds and unit trusts through unit trust management companies could effect foreign currency transfers during 1999 based on the net inflow of funds during the 1998 calendar year. With effect from 23 February 2000 unit trusts through unit trust management companies could acquire portfolio investments up to 20% of their total assets under management whilst the limits of 15% of total assets for long term insurers and pension funds and 15% of total assets under management for fund managers were retained. The definition of assets applicable to pension funds, long term insurers and fund managers changed from total assets employed in South Africa to total assets or total assets under management. In addition, long term insurers, pension funds and unit trusts through unit trust management companies could effect foreign currency transfers in 2000 of up to 10% of the net inflow of funds during the 1999 calendar year, subject to the overall limits of 15% and 20% of their total assets applicable to asset swaps. It was decided to dispense with the asset swap mechanism as from 21 February 2001. The cash flow dispensation to institutional investors in terms of which foreign exchange could be transferred from South Africa to acquire foreign portfolio investments, based as a percentage of the net inflow of funds during the previous calendar year, subject to the overall limits on institutional
Page 21 of 120
foreign asset holdings of 15% and 20% respectively, expired at the end of 2001 and was not renewed. From 2003-07-31, as an interim step towards prudential regulation, the exchange control limit on foreign portfolio investment by institutional investors has been applied to an institution’s total retail assets. The foreign exposure of retail assets may not have exceeded 15% in the case of retirement funds, long-term insurers and investment managers registered as institutional investors for exchange control purposes, and 20 % in the case of collective investment scheme management companies. On 2005-10-25 the foreign exposure limit on collective investment schemes was increased from 20 per cent to 25 per cent of total retail assets, and for investment managers from 15 per cent to 25 per cent of total retail assets. This would further enable South African residents to diversify their investment portfolios through domestic channels and enhance the role of South African fund managers in facilitating the flow of funds to the continent. From 2006-02-10 Institutional investors will, on application, be allowed to invest an additional 5% of their total retail assets by acquiring foreign currency denominated portfolio assets in Africa through foreign currency transfers from South Africa or by acquiring inward listed securities. (February ’06) C4 In March 1997, the Minister of Finance announced that from 1 July 1997 individuals would be allowed to invest a limited amount of their savings in any manner abroad and in fixed property in SADC countries. Alternatively, they would be allowed to hold foreign currency deposits with South African Authorised Dealers in foreign exchange or with foreign banks outside South Africa within a defined limit. The abolition of quantitative limits for current account transactions, with the exception of travel allowances and a few minor other discretionary transactions, was also announced. In June 1997, permission was granted to private individuals resident in South Africa who are taxpayers in good standing and over the age of eighteen years, to invest up to R 200 000 abroad. This amount was increased to R 400 000 in March 1998 and to R500 000 during February 1999. During February 2000 it was further increased to R750 000 and on 15 February 2006 the amount was increased to R2 million. As far as South African corporates investing abroad were concerned the amount that could be remitted from South Africa was increased from R 20 million to R 30 million per new investment and to R 50 million in respect of new investments in SADC countries in 1997. In March 1998 these amounts were increased to R 50 million and R 250 million respectively. From 23 February 2000 Corporates were, on application, allowed to use part of their local cash holdings to finance up to 10% of approved new foreign investments where the cost of these investments exceeded the current limits. In addition to the aforegoing corporates wishing to invest abroad could also apply for permission to make use of corporate asset/share swaps to finance these investments. Furthermore, South African corporates could utilise part of their local cash holdings to repay up to 10% of outstanding foreign debt raised to finance foreign investments, provided the foreign debt has been in existence for the minimum period of two years.
Page 22 of 120
The amounts of R50 million and R250 million referred to above were, on 21 February 2001, increased to R500 million and R750 million respectively. The latter amount not only applies to investments in the South African Development Community but also to investments anywhere in Africa. On 2002-10-29 the existing limit of R750 million per investment into Africa (including SADC) was increased to R2 billion per new investment. And on 2003-02-26 the R500 million for investment into countries outside Africa was increased to R1 billion per new investment. In additions dividends repatriated from abroad by South African corporates were eligible for an exchange control credit, which could, on application, be retransferred abroad for the financing of new approved foreign direct investments or new approved expansions. With effect from 2004-10-26 the exchange control limits applicable to new approved foreign direct investments by South African corporates have been abolished. South African corporates were allowed to retain foreign dividends declared after 2004-10-26 abroad. Foreign dividends repatriated to South Africa after 2004-10-26 may be transferred offshore again at any time for any purpose.
Page 23 of 120
D. Institutional Arrangements D.1 Legislation, Regulations, Orders and Rules Section 9 of the Currency and Exchanges Act (Act No. 9 of 1933) empowers the President to make regulations in regard to any matter directly or indirectly relating to or affecting or having any bearing upon currency, banking or exchanges. Any regulations made under this section may provide for the empowering of such persons as may be specified therein to make orders and rules for any purpose for which the President is authorised to make regulations. The regulations made in terms of the Act are contained in the Exchange Control Regulations, as amended. Orders and Rules, as amended, are furthermore issued under the Exchange Control Regulations. D.2 Delegation of Powers The Minister of Finance has in terms of Exchange Control Regulation 22E, delegated to the Governor of the Reserve Bank and/or a Deputy Governor of the Reserve Bank all the powers, functions and duties assigned to and imposed on the Treasury (as defined in Exchange Control Regulation 1) under the Exchange Control Regulations with the exception of the powers, functions and duties assigned to and imposed on the Treasury by Regulations 16, 20 and 22 (save that this exception does not include the powers, functions and duties contained in Exchange Control Regulations 22A, 22B, 22C and 22D). The Minister of Finance has also, in terms of Exchange Control Regulation 22E, delegated to the General Manager of the Exchange Control Department of the Reserve Bank, the Deputy General Manager and the Assistant General Manager of the Exchange Control Department of the Reserve Bank and/or any officer of the Reserve Bank, who in terms of the internal rules and regulations of the Exchange Control Department of the Reserve Bank, is an authorised signatory of the Exchange Control Department of the Reserve Bank, all the powers, functions and duties assigned to and imposed on the Treasury under the Exchange Control Regulations with the exception of the powers, functions and duties assigned to and imposed on the Treasury by Regulations 16, 20 and 22 (which exceptions include the powers, duties and functions contained in Exchange Control Regulations 22A(1)(a), 22A(1)(c), 22A(2), 22A(3), 22B, 22C(1), 22C(2)(b) and 22C(3) and 22D). The Exchange Control Department of the Reserve Bank has some discretion. It is, however, not exercised arbitrarily but is based upon a set of norms, which will be explained in this manual, and is subject to the policy guidelines laid down by the Minister of Finance. D.3 Liaison with National Treasury Liaison with National Treasury is maintained directly or through the Technical Committee on Exchange Control. The Technical Committee, consisting of officials of National Treasury and Exchange Control as well as officials in other departments that may be co-opted, was formed to give consideration on a continuous basis to adjustments in the exchange control system and to clear principles on day-to-day problems encountered. Where needed, reference is made to the Minister of Finance. (April '07) D1
Page 24 of 120
D.4 Functions of Authorised Dealers In terms of Paragraph 3 of the Orders and Rules certain banks were appointed as Authorised Dealers in Foreign Exchange. Their function is to assist Exchange Control in administering exchange control. All applications to Exchange Control have to be made through an Authorised Dealer. A number of branches of the Authorised Dealers and certain other financial institutions have been appointed as authorised banks to administer securities control. The Exchange Control Rulings, issued by the Exchange Control Department of the South African Reserve Bank, set out the authorities granted to Authorised Dealers and the rules and procedures to be followed by the Authorised Dealers in dealing with day-to-day matters relating to exchange control. These are amended as required and supplemented by circulars. The Exchange Control Rulings are, in fact, a technical handbook for use by the Authorised Dealers, containing authorities, instructions and conditions applicable to the wide range of transactions that they may undertake on behalf of their clients. Because of the technical nature of the terminology contained therein, which is applied by the Authorised Dealers in the context of their foreign currency operations, the Rulings are generally not made freely available to the public. This manual, which is non-technical in nature, is intended to convey the essence of what is covered by the Rulings. D.5 Applications to Exchange Control Where an Authorised Dealer is not empowered to approve the purchase or sale of foreign currency in terms of the authorities set out in the Rulings, an application must be submitted to Exchange Control through the head office of the bank concerned. The norms applied by the Control in deciding on applications with respect to different types of transactions are discussed in Chapter 5 of the Manual. The matters regarding which applications should be submitted to Exchange Control are inter alia the following : outward capital transfers by residents above the limits; outward loan transfers by residents; loans from non-residents to residents; local financial assistance to foreign controlled companies above the limits stipulated for Authorised Dealers, and dividend distributions by such companies; and transfers by emigrants above the limits. Exchange Control expects the Authorised Dealers to verify that any conditions laid down by the Control have been complied with. While Exchange Control must, of course, be guided by the current official policy and the norms developed over the years they are prepared to consider requests where the circumstances and the
Page 25 of 120
reasons advanced in support of the application may justify special consideration. In considering any request placed before it, the Control takes into account not only the merits of the particular case and the circumstances giving rise thereto, but also equality of treatment of all similar requests. Any request can, however, only be considered properly if the Control is in possession of all the relevant information. It is therefore the duty of Authorised Dealers to establish the bona fides of the applicant and to verify the content and ensure that all applications are fully detailed and presented in an acceptable form. Based on the merits of the case the authorised dealer will indicate whether the application carries his recommendation or not. (August '02) D2 An application to Exchange Control should state clearly : the client's reason for wishing to undertake the transaction; the circumstances justifying a departure from the normal authority; what benefits, if any, will accrue to the applicant or to South Africa either in the short or the long term; and whether there might be subsequent transactions. Whether there are any other direct or indirect underlying, related or connected transactions or arrangements of any nature whatsoever. Where applications to the Control involve groups of companies or trusts in which there is a direct or indirect non-resident interest, the application should be supported by a family tree reflecting the percentage shareholding of each member of the group. The full percentage shareholding of each company or trust must be accounted for. The resident and non-resident companies should be clearly distinguished. Where an urgent reply to an application is required it should be clearly indicated by what date the reply is required. Where it is necessary to receive a reply within a very short period it is advisable to send an application per telex, per telefax or by special delivery. When two or more authorities are required simultaneously by the same applicant for different purposes, e.g. local financial assistance facilities, travel allowances or dividend remittances, separate applications should be submitted with adequate cross references. This procedure will ensure that a reply to one request is not held up as a result of a delay in reaching a decision on another matter. If Exchange Control raises any queries in reply to an application, it is in the interest of the Authorised Dealer and applicant concerned that an answer is given without undue delay. Interviews with Exchange Control should be requested only in those cases where there are considered to be special circumstances warranting an oral presentation or explanation in addition to the written submission. Except in cases of extreme urgency the Control would wish to be furnished,
Page 26 of 120
before the interview, with the written, telex or telefax application to enable them to acquire sufficient background information to facilitate expeditious and meaningful discussions with the applicant. Interviews with Exchange Control are held in the head office of the South African Reserve Bank in Pretoria and are usually attended by a senior officer of the Authorised Dealer concerned to assist the applicant in the discussions. D.6 Organisation of Exchange Control Department On a functional level, the Exchange Control Department consists of the following functional divisions. Operations, which includes the processing of applications and the inspections of Authorised Dealers and Corporates. Information Flow, which incorporates the collection of data in respect of all cross border foreign exchange flows. Analysis, of the data for statistical and management information purposes. Investigations of alleged exchange control contraventions. (August '02) D3 D.7 Exchange Control Territory Different exchange control rulings apply to the transactions of residents of the Common Monetary Area (CMA) and non-residents thereof. The CMA comprises of the Republic of South Africa, Lesotho, Namibia and Swaziland. There are no exchange control restrictions between the members of the CMA and they form a single exchange control territory. Lesotho, Namibia and Swaziland have their own exchange control authorities as well as their own acts or regulations and rulings but in terms of the Common Monetary Area Agreement their application must be at least as strict as that of the RSA. Accordingly investments and transfers of funds from the RSA to other CMA countries do not require the approval of Exchange Control. Settlements by residents of the RSA with the Non-resident Area may be made to and from a nonresident account and in any foreign currency. D.8 Resident and Non-Resident Status A South African resident is a person (i.e. a natural person, body corporate, foundation, trust or partnership) whether of South African or any other nationality who has taken up residence, is domiciled or registered in the RSA. A non-resident is a person (i.e. a natural person or legal entity) whose normal place of residence, domicile or registration is outside the CMA. For exchange control purposes rand accounts can fall into one of the following categories : resident accounts are the accounts of persons resident, domiciled or registered in the CMA;
Page 27 of 120
non-resident accounts are the accounts of persons resident, domiciled or registered outside the CMA; and emigrant blocked accounts are the accounts of emigrants of the CMA to which exchange control restrictions have been applied. Non-resident accounts may be credited with all authorised payments by South African residents, with the rand equivalent of foreign currency introduced into South Africa and by transfer from other non-resident accounts. Such accounts may be debited with payments to CMA residents for any purpose (other than loans); for payments to non-residents for any purpose, that is, by transfer to another local non-resident account, or for remittance to any country outside the CMA; for the cost of purchases of any foreign currency; and for payments to the account holder while temporarily resident in South Africa for short periods. Emigrant blocked accounts must be credited with any cash held at the time of departure and with the proceeds of any other South African asset held at the time of departure and subsequently sold and with any capital accruals flowing from such assets. Such funds may not be transferred from South Africa or to another emigrant blocked account in South Africa, but may be retained on deposit with an Authorised Dealer, used within certain limits for the holder's living expenses while visiting South Africa, or for other specified payments to residents, or be invested in any securities that are quoted locally; such securities may not, however, be exported and sold abroad. Blocked accounts are accounts to which exchange control restrictions have been applied in terms of the Exchange Control Regulations, for example for the receipt of funds which have been precluded from being transferred outside the RSA. (August '02) D4
Page 28 of 120
E. General Policy Approach to Exchange Control Exchange Control Regulation 2 stipulates that "except with permission granted by the Treasury, and in accordance with such conditions as the Treasury may impose, no person other than an authorised dealer shall buy or borrow any foreign currency or any gold from, or sell or lend any foreign currency or any gold to any person not being an authorised dealer" and "an authorised dealer shall not buy, borrow or receive or sell, lend or deliver any foreign currency or gold except for such purposes or on such conditions as the Treasury may determine." The legal framework of exchange control is therefore one of a total prohibition to deal in foreign exchange except with the permission of and on the conditions set by the Treasury. The economic policy underlying exchange control is, however, not totally prohibitive, since such an approach would not be conducive to the conduct of normal international trade and payments. The main purpose of exchange control is to: Ensure the timeous repatriation into the South African banking system of certain foreign currency acquired by residents of South Africa, whether through transactions of a current or of a capital nature; and Prevent the loss of foreign currency resources through the transfer abroad of real or financial capital assets held in South Africa. The balance of South Africa’s foreign currency is known as the country’s foreign exchange reserves which are primarily earned by means of foreign borrowings as well as the export of goods (including gold) and services abroad. These foreign exchange reserves are mainly utilised for the payment of goods and services imported into the country and for the servicing of the country’s foreign debt. Foreign exchange reserves are essential for any country and a lack thereof results in the country concerned not being able to develop properly. It is important that the available foreign exchange reserves are applied in the best interest of the country. This means that it is essential that each time any of the foreign currency reserves are utilised, equivalent value in the form of goods and services, debt reduction or approved foreign assets is received. Exchange control, therefore, constitutes an effective system of control to these ends by monitoring the movement of financial and real assets (money and goods) into and out of South Africa, while at the same time avoiding interference with the efficient operation of the commercial, industrial and financial systems of the country. (April '07) E1
Page 29 of 120
(October '97) F1
F. General Requirements, Procedures and Norms Applied with respect to Particular Types of Transactions F.1. Introduction In setting out the rules and procedures pertaining to Exchange Control the Manual will distinguish between: • current transactions; • capital transactions; and • transfer payments. The above further subdivided according to: • transactions of residents: outward payments; and inward receipts. • transactions of non-residents: outward payments; and inward receipts. • transactions not specifically falling in the above categories regarding resident and non-resident status: immigrants; emigrants; and temporary residents in South Africa.
Page 30 of 120
F.2 Current Payments by Residents The requirements dealt with in this section apply to transactions of residents. The accounts and remittances by foreign representatives in the RSA are discussed in a later section. In terms of Exchange Control Regulation 2 the general rule regarding outward payments is that Authorised Dealers may sell foreign currency only for permissible purposes and on such conditions as the Treasury may determine. Persons or organisations purchasing exchange from Authorised Dealers must state accurately the purpose for which the foreign currency is required and supply any additional information the Authorised Dealers may request in connection with the transaction concerned. It should, of course, be borne in mind that no foreign exchange commitments may, in terms of the Regulations, be entered into by residents without prior approval. For every sale of exchange, irrespective of the amount involved, Authorised Dealers are required to report to the Reserve Bank details of payments made to foreign parties by South African residents. The Cross Border Foreign Exchange Transaction Reporting System has been designed in line with international standards for managing BoP data and is used among other things, to assist in compiling South Africa's Balance of Payments. It is important that an accurate description of the payment to be made is provided to the Authorised Dealer to enable the right Balance of Payments category to be selected. 2.1 Payments for merchandise imports 2.1.1 General requirements Authorised Dealers may, without reference to Exchange Control, provide foreign exchange to their customers for goods received in South Africa except for those cases mentioned in section 2.1.4 hereunder. Further foreign exchange may also be provided by Authorised Dealers to pay for: Bona fide freight charges; insurance cover; buying commissions and retainer fees payable to agents; other incidental charges directly related to imports; interest payments of up to the applicable base rate plus 2 percent for credit shorter than one year; and final settlement of imports e.g. amounts due in respect of weight adjustments, quality allowances, etc. against documentary evidence. (October '07) G1
Page 31 of 120
2.1.2 Required procedures and documents Authorised Dealers should ensure that a covering Import Permit issued by ITAC, is available or is not required, before establishing documentary credits, stand-by letters of credit, arranging to guarantee payments (e.g. giving an undertaking of suretyship by signing a bill of exchange other than as drawer or acceptor, or a promissory note other than as maker, i.e. an aval) or making payment or entering into forward contracts in connection with the importation of goods into the Republic. Authorised Dealers may grant applicants exchange facilities in payment of imports from abroad for philatelic purposes. No import permit will be issued in cases of this nature but the applicant will be furnished with a letter of authority by the Authorised Dealer concerned. Matters relating to the importation of Medals, Medallions, Pendants and other similar non-currency articles, must be referred to the South African Directorate of Import and Export Control. Authorised Dealers may, however, grant applicants foreign exchange facilities in payment of other numismatic imports, excluding South African gold coins minted in 1962 and thereafter, imported from abroad. No import permit will be issued in cases of this nature but the applicant will be furnished with a letter of authority by the Authorised Dealer concerned. Exchange Control grants authority for the importation and the repatriation of foreign and South African Reserve Bank notes. Authorised Dealers may only effect foreign exchange payments for imports against the following documentation: Commercial invoices issued by the supplier; and any one of the transport documents as prescribed by the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits (UCP 600) and its supplement for electronic presentation, the eUCP, evidencing transport of the relative goods to the Republic; or the FIATA Forwarder’s Certificate of Receipt, evidencing the transport of the relative goods to the Republic. In lieu of certain transport documents, arrival notifications issued by shipping companies may be tendered. Imports from Botswana may, however, be paid for against the commercial invoice issued by the supplier and the consignee’s copy of the SAD 500 Customs Declaration Form, bearing an original stamp of the Botswana Customs authorities. Authorised Dealers may, for the purposes of this subsection, accept either original documents or those produced by photocopying, faxing or printed copies of electronic documents. To both expedite and relieve the parties concerned of the onerous task of viewing large volumes of documents the Control will, on application, consider requests to grant dispensation to certain companies from the requirement to submit supporting documentation to their Authorised Dealer
Page 32 of 120
for every foreign exchange transaction related to an import transaction - the Imports Undertaking dispensation. (October '07) G2 2.1.3 Purpose of control Control over payments for merchandise imports is exercised in order to enforce the import restrictions imposed by the Department of Trade and Industry and to establish that: the relevant goods were indeed imported and received in South Africa; the goods were in the correct quantities and of the correct description and quality; the prices were correct (the deliberate overcharging and overpayment of imports could constitute a contravention of Exchange Control Regulations 3(1)c and 10(1)c, read together); and the funds in payment were not transferred too soon. 2.1.4 Matters to be referred to Exchange Control Advance payments for imports The transfer of funds in anticipation of purchases in countries outside the Republic should be refused by Authorised Dealers since, in general, the Exchange Control is not prepared to provide foreign exchange in payment of imports prior to the date of shipment or despatch of the goods to South Africa. In deserving cases an application may be lodged with the Control. The Exchange Control Rulings, however, make provision for advance payments of up to 1/3 of the ex-factory cost of capital goods imported to be allowed by Authorised Dealers provided it is a condition of sale which can be substantiated against submission of documentary evidence to the bank concerned. Any requests for advance payments in excess of 1/3 of the ex-factory cost of capital goods to be imported have to be referred to Exchange Control. Importation and sale of gold coins All applications for the importing into the Republic and sale within the Republic of gold coins, must be referred to Exchange Control for prior consideration and approval. Gold coins includes all gold coins, wholly or predominantly made of gold, and which have been cast in the shape of a disc or a coin and which are imported from outside the Common Monetary Area, but does not include items which may be made of gold or partly made of gold and which are properly classified as medals, medallions or pendants (see point 2.1.2).
Page 33 of 120
Exchange Control will only grant authority for the importation into the Republic and sale within the Republic of gold coins or gold coin sets, where such gold coins or gold coin sets are to be acquired by bona fide numismatists/collectors. In this regard Exchange Control will : only grant approval where the ultimate acquirer of the gold coins is identified in the application and confirms in writing that he/she is a numismatist and that the coins are being acquired for purposes of their collection and will not be sold within the Republic other than to another bona fide numismatist; and consider each application on its merits. Although the importation into the Republic of all gold coins (including so-called South African gold coins), is subject to the prior approval of the Control, the sale within the Republic of gold coins which are regulated by virtue of the provisions of (October '06) G3 (October '06) G3 the South African Reserve Bank Act, No. 90 of 1989, is not subject to the approval of Exchange Control. 2.1.5 Norms applied and factors considered Applying the norm that transfers in payment of imports should not be made sooner than needed, the Control takes into account the following factors when considering requests for prepayment: are the goods custom-made for the importer? Prepayment may be demanded in view of the unsaleability of such goods if not paid for; is it trade practice in the particular field to demand prepayment? do the conditions of supply warrant prepayment? are the progress payments based on actual expenditure by the supplier? the amount involved and the time lag for manufacture from the date of expenditure to the date upon which final payment is made; are foreign credit lines available to compensate for prepayment? In most countries finance for the export of capital goods is available; and what credit from the supplier himself or other import finance is available? 2.1.6 Advance payments and/or cash with order requests Authorised Dealers may provide foreign exchange, within a limit of R250 000 per transaction, in respect of advance payments and/or cash with order to cover the cost of permissible imports, other than capital goods, against the production of documentary evidence supplied by the overseas
Page 34 of 120
supplier evidencing that the order would otherwise be refused and/or that such payment is normal in the trade concerned. 2.1.7 Payments by means of credit and/or debit cards Cardholders in whose name one or more credit and/or debit cards have been issued will be allowed to make permissible foreign currency payments for small transactions e.g. imports over the Internet, by means of such credit and/or debit cards. Permissible transactions are those which may be effected by an Authorised Dealer in terms of the Exchange Control Rulings and clarity must therefore be obtained from an Authorised Dealer. Payments are limited to Rand 20000 per transaction. Cardholders will, however, not be absolved from ad valorem excise and custom duties or from complying with the requirements imposed by the customs authorities. NOTE : It is illegal for South African residents to participate in foreign lotteries, sweepstakes and betting organisations. The use of credit (or debit) cards to facilitate payment for these purposes is, therefore, irregular and a contravention of the Exchange Control Regulations. This could lead to not only the withdrawal of all credit cards of the holder but also to prosecution in terms of the aforementioned Regulations. 2.1.8 Acquisition of patents, copy-rights, trademarks, franchises and/or intellectual property in general The acquisition of any of the aforegoing requires prior Exchange Control approval. Applications should be supported by the agreement or contract of purchase. If not evident therefrom, a clear explanation of how the values were arrived at must accompany the application. (June '05) G4
Page 35 of 120
2.2 Personal and business matters 2.2.1 Purpose of control In accordance with the general objective of Exchange Control described in Chapter 4 the purpose of control over foreign payments for services is not to prohibit or limit the payments per se. The aim is to ensure: that foreign exchange is used for the purpose stated and not for capital transfers; and that the payments are reasonable in terms of accepted practice in the particular field of activity. Authority is delegated to the Authorised Dealers to approve certain current payments for invisibles without limitation and for others up to established limits. These limits are based upon: empirical evidence on the historical level of foreign exchange expenditures of a particular category; and the availability of foreign exchange at a particular time. The transfers for invisible items can be classified according to whether they are mainly of a personal nature or of a business nature. 2.2.2 Personal facilities 2.2.2.1 Travel allowances and associated facilities Definition of Passenger Ticket A ticket issued in respect of travel arrangements, inclusive of electronically issued tickets (“etickets”). General Requirements Travel facilities may be provided by way of travellers’ cheques, foreign bank notes and credit and/or debit cards. In the event of travellers’ cheques being issued, such cheques must be signed in the presence of the issuing official and unsigned travellers cheques may under no circumstances be made available. Authorised Dealers are required, prior to making foreign exchange available to travellers issued with passenger tickets, to record the mode of transport, the reference number issued, the date of departure as well as the destination on their integrated forms. Should a traveller use a mode of transport where a passenger ticket is not issued, Authorised Dealers must likewise record, on their integrated forms, the mode of transport, the date of departure, the destination as well as the name of the border post from where the traveller will exit South Africa. (October '04) H1
Page 36 of 120
The prospective traveller must provide the Authorised Dealers with a written undertaking that: - Travel will commence within 60 days from the date of the request to be accorded foreign exchange; - foreign exchange will not be purchased from an Authorised Dealer in excess of the applicable limits; and - in the event of the travel arrangements being cancelled, foreign exchange accorded will be resold to an Authorised Dealer within 30 days of cancellation. Persons eligible to receive foreign exchange allowances for travel outside the CMA, within the limits described hereunder, fall into the following categories: permanent residents of the RSA i.e. persons whether of South African or other nationality who have taken up residence or are domiciled in the Republic; emigrants from South Africa i.e. persons who have been resident in the Republic for at least five years and who are leaving to take up permanent residence in any country outside the CMA; persons who have applied for but have not yet been granted permanent residence in South Africa (funds tendered in payment must be savings from local earnings or the proceeds of foreign exchange imported into the country, and these persons must have declared their foreign assets and liabilities to Exchange Control); and nationals of countries outside the CMA who are not permanent residents of the Republic but are in the country for a lengthy period (funds tendered in payment must be savings from local earnings or the proceeds of foreign exchange imported into the country). Not eligible to receive foreign exchange travel allowances are: residents of Lesotho, Namibia and Swaziland who should apply to their own exchange control authorities; South African residents studying abroad; nationals of countries outside the CMA who are not permanent residents but are in South Africa to fulfil a temporary engagement, e.g. entertainers and sportsmen; and nationals of countries outside the CMA who can be regarded as purely temporary visitors to South Africa. Limits per calendar year The total amounts of foreign exchange which may be availed of for travelling expenses during a calendar year for one or more visits outside the CMA are listed below: Limits:
Page 37 of 120
Adult R 160 000 Child under 12 years of age R 50 000 (October '04) H2 In according a person a travel allowance the foreign exchange made available per applicant may be provided in any form. In addition, Common Monetary Area residents travelling overland to and from Namibia, through Botswana, may be provided with Botswana Pula up to an amount of R5 000 per annum over and above the limits mentioned above. Significance of calendar year Travel facilities not availed of during any one calendar year may not be carried forward to the following year. However, where an allowance is provided in one year but the visit extends over the year end, a full allowance may still be provided for any subsequent travel during the second year, provided the traveller has first returned to the RSA. Use of credit and/or debit cards A resident in whose name one or more bank credit and/or debit cards have been issued may use such cards to avail of up to 100% of the authorised, prescribed or remaining travel allowance applicable to the journey of such resident. Matters to be referred to Exchange Control Applications for travel allowances exceeding the abovementioned limits should be referred to Exchange Control. Norms applied and factors considered In applying the norm that the allowances should be used for the purpose stated and should be reasonable, Exchange Control will inter alia take the following factors into account: the duration of the visit abroad; the age of the applicant (elderly people may need more comforts) and physical ability or disability; the purpose of the visit, which may influence the costs, e.g. for accommodation; the countries to be visited; the composition of the estimated expenditure; the extent to which current allowances have already been availed of; and
Page 38 of 120
any other special circumstances pertaining to the request. (October '07) H3 Advance payments for land arrangements Tours, hotel accommodation, vehicle rental and tickets Persons eligible for a travel allowance who are not utilising the services of a travel agent or a tour operator, may, prior to the purchase of a passenger ticket, be provided with exchange to make advance payments or payments in full in respect of: Tours, hotel accommodation and vehicle rental; and costs of admission to drama, music, religious and similar festivals and sports events. subject to compliance with the conditions in the following paragraph. Foreign exchange to meet the expenses indicated in the above paragraph may be made available only against production of documentary evidence in the form of an invoice or pro forma invoice from the foreign beneficiary. The advance payments mentioned above must be deducted from the permissible travel allowance. Specified Multi Purpose Documents (MPD's) and Miscellaneous Charges Orders (MCOs) To provide for the payment of excess baggage charges travellers may, when purchasing passenger tickets in the RSA, be issued with Specified MPD's and/or MCO against payment in Rand. The Specified MPD and/or MCO must be clearly endorsed: "For payment of Excess Baggage Charges only - refundable only in Republic of South Africa". The amount of the Specified MPD and/or MCO need not be deducted from the traveller's travel allowance. 2.2.2.2 South African Residents proceeding abroad on a temporary basis Such persons qualify for the following: a subsistence allowance in the amount of R160 000 per adult and R50 000 per child under 12 years of age. Should the maximum allowance not be availed of on departure, the balance may be accorded during the same calendar year. No further foreign exchange may be accorded without the specific prior approval of the Exchange Control, except for the dispensation as outlined in point 5.1.1; and to export household and personal effects motor vehicles, caravans, trailers, motorcycles, stamps and coins (excluding coins that are legal tender in the Republic) per family unit or single person within the overall ensured value of R1 million.
Page 39 of 120
Forms N.E.P. must be attested to cover the export of the relevant goods. Authorised Dealers may also authorise the export on Form N.E.P. of farming implements per family unit or single person proceeding into SADC member countries for farming purposes where the insurance value does not exceed R1 million. (October '07) H4 Such persons must furnish an undertaking that: all goods exported on departure together with all accumulated foreign assets, where such foreign assets were acquired with funds transferred from the Republic, or the sale proceeds thereof will be repatriated on resumption of residency in the Republic; and local credit cards will not be utilised whilst temporarily abroad. Temporary exportation of personal effects and jewellery General requirements On their departure abroad all travellers resident in the RSA are required to present to the customs authorities a Form N.E.P. (declaration in respect of goods leaving the CMA without the accrual of foreign exchange proceeds), attested by an Authorised Dealer, at all times where the total value of goods in their possession exceeds R50 000. Should the value of the goods taken by the traveller exceed R200 000 the specific approval of Exchange Control must be obtained before an N.E.P. is attested. For valuation purposes the insurance value of the goods is accepted. A Form N.E.P. must be completed in duplicate and signed by the owner of the goods before attestation by an Authorised Dealer. The duplicate is to be retained by the traveller for presentation to Customs on return in order to verify that the goods had been taken abroad and not purchased overseas. This procedure is a protection for the traveller. Where items of jewellery are to be taken by the traveller a Form N.E.P. may only be attested provided the Authorised Dealer is satisfied that: the articles to be exported are fully manufactured and not crudely produced; and the amount of jewellery to be carried is reasonable in relation to the traveller's financial means and standing. Matters to be referred to Exchange Control An authorised dealer may attest a Form N.E.P., except where the insurance value of the goods to be taken by the traveller is in excess of R200 000, when the specific approval of Exchange Control must be obtained.
Page 40 of 120
If there is any doubt as to: the nature and value of the articles to be exported; the integrity of the applicant; or the purpose for which the jewellery is to be exported, the specific approval of Exchange Control must be obtained before a Form N.E.P. is attested. Temporary exportation of motor vehicles, caravans, trailers, horse-boxes and motor/sail boats overland and of ocean going yachts by residents. (See section 4.2.4.8) (August '02) H5 Renewal of passports, obtaining visas, copies of birth/death certificates, testimonials, degrees and/or diplomas Transfers to meet costs relating to the renewal of passports and in respect of the cost of obtaining visas as well as copies of birth/death certificates, testimonials, degrees and/or diplomas is allowed. Such requests will be acceded to against the submission of documentary evidence confirming the amount involved. 2.2.2.3 Study facilities General requirements Foreign exchange facilities for study purposes may be made available by Authorised Dealers on the basis indicated hereunder. Facilities are restricted to applications by permanent residents of the RSA who are taking full-time courses at schools, universities or similar educational institutions abroad. The documentation listed hereunder must be submitted to the Authorised Dealer: official documentary evidence from the institution concerned confirming that the student has been enrolled for a full-time course for the period claimed; evidence of the tuition and academic fees in the form of a letter or prospectus from the institution concerned; and the marriage certificate of a student being accompanied by a spouse. The documents, other than the marriage certificate, must be stamped "Exchange Provided" and returned to the applicant, who must be advised to retain them for at least five years. Facilities which may be provided
Page 41 of 120
When the above requirements have been met the Authorised Dealer may provide the facilities listed hereunder: Facility Payment of tuition and academic fees Living allowance Travel allowance Basis of Provision Transfer funds direct to the institution concerned in respect of the fees for the academic year or shorter period involved. R160 000 per annum for a student or R320 000 per annum for a student accompanied by a spouse who is not studying. To cover travelling expenses during vacation periods an allowance of R50 000 per annum per person and those accompanied by their spouse with up to R100 000 per annum.
Page 42 of 120
(August '03) I1
2.2.3 Payments of a business nature 2.2.3.1 Remittance of dividends, profits and income from the RSA Requirements for quoted companies For a non-resident shareholder (a foreign company, entity or person that has never been resident in the RSA): Dividends/profits/income distributions are remittable in proportion to the percentage shareholding/ownership. Dividends/profits/income distributions by affected persons who have local financial assistance at their disposal may be remitted, provided the relative distribution will not cause the entity to be placed in an overborrowed position in terms of the formula requirements. For an emigrant shareholder (a former resident of the Republic): a dividend declared out of income earned from normal trading activities subsequent to the date of emigration, is remittable; and a dividend declared out of capital gains, or out of income earned from normal trading activities prior to the date of emigration remains subject to the blocking procedure. Requirements for non-quoted companies and other business entities For a non-resident shareholder (a foreign company, entity or person that has never been resident in the RSA) Dividends/profits/income distributions are remittable in proportion to the percentage shareholding/ownership. Dividends/profits/income distributions by affected persons who have local financial assistance at their disposal may be remitted, provided the relative distribution will not cause the entity to be placed in an overborrowed position in terms of the formula requirements. For an emigrant shareholder Any non-quoted entity in the RSA, wishing to transfer a dividend, profit or income to an emigrant shareholder, partner or member is required to produce an auditor's report as well as a representation letter, which must be in the prescribed form, signed by a director or senior officer of the paying entity stating that the dividend/profit/income distribution is payable from income which is typical of the ordinary trading activities of the entity and that no portion of the net income after taxation out of which the dividend/profit/income distribution has been declared, arises from
Page 43 of 120
surpluses as a result of the revaluation of assets or profits accruing from the realisation of any assets other than trading assets, and that the net remittable income has been earned since the date of emigration. 2.2.3.2 Royalties and fees arising from the use of copyrights, designs, patents and trademarks General requirements Agreements by South African companies to pay royalties, licence and patent fees to non-residents in respect of the local manufacturing of a product, are subject to the approval from the Department of Trade and Industry. (October '03) I2 Accordingly such companies must submit to the Department of Trade and Industry three copies of the draft royalty agreement as well as a completed questionnaire (Form DTP 001), which is obtainable from the aforementioned Department or any commercial bank. The Department of Trade and Industry will communicate their decision to the licensee, or Exchange Control where applicable which will enable an approach to a bank directly to transfer the royalty payments. Agreements by South African companies to pay royalties, licence and patent fees to non-residents where no local manufacturing is involved, are subject to the approval of Exchange Control Any royalty payment eventually made to the non-resident licensor must be substantiated by an auditor's report confirming the basis of calculation and that it is in terms of the agreement. Any advance payments of royalties, even if recoupable from future royalties payable, are invariably declined. Exchange Control is also not in favour of minimum payments should the royalty not reach a certain amount during a specific period - the royalty payable should be in proportion to the production and sales achieved. Norms applied and factors considered Royalty payments are usually calculated as a percentage of the manufacturing cost or a percentage of the net ex-factory selling price, excluding any taxes such as value added tax. A distinction is made by the government department concerned between royalty agreements covering consumer goods and those for intermediate and capital goods. For consumer goods a royalty of up to 4% of the ex-factory selling price is regarded as acceptable. In the case of intermediate and capital goods a payment of up to 6% may be considered favourably. The government department concerned considers all cases on merit and the following factors, inter alia, are taken into account: the strategic importance of the product; the economic importance of the product in the furthering of industrial development by means of import replacement, export promotion or expansion of the domestic market and its contribution to the national income and employment;
Page 44 of 120
the new technological know-how entering the country through the manufacturing process in question; the domestic content of the particular product; the financial interest of the licensor in the local venture; the duration of the contract; and the nature of any restrictions contained in the agreement, e.g. on the exportation of South African products. Royalties and rentals on cinematograph films/video's and royalties and fees on records (Defined as any disc, tape, perforated roll or other device in or on which sounds are embodied so as to be capable of being automatically reproduced therefrom or performed, produced and sold under licence) and royalties on musical works. (May '98) I3 Authorised Dealers may approve applications by South African residents to make payments in the prescribed manner to persons outside the Common Monetary Area in respect of royalties and fees per title on cinematograph films/video's, records reproduced and musical works sold under licence in the Common Monetary Area, subject to certain conditions as accepted in the trade which specific information is available from the Authorised Dealers. 2.2.3.3 Directors' fees to non-residents Authorised Dealers may authorise the transfer to non-residents directors' provided: the application is accompanied by a copy of the Resolution of the board of the remitting company confirming the amount to be paid to the beneficiary; and it can be shown that the beneficiary is permanently domiciled outside the CMA. 2.2.3.4 2.2.3.5 2.2.3.6 Legal fees to non-residents Authorised Dealers may approve applications for the payment of amounts due by South African residents, of solicitors' and counsels' fees and court costs incurred in countries outside the CMA. Documentary evidence should be produced to support the applications. 2.2.3.7 Other fees Authorised Dealers may approve, against the production of documentary evidence confirming the amount involved, applications by South African residents to effect payments for services rendered by non-residents, provided that the fees payable are not calculated on the basis of a percentage of turnover, income, sales or purchases.
Page 45 of 120
Foreign exchange may also be provided in advance against an advance payment guarantee issued by the beneficiary's bankers. Authorised Dealers must satisfy themselves from the production of documentary evidence, supplied by the overseas supplier of the services to be rendered, that the service would otherwise be refused and that such payment is normal in the service industry concerned. 2.2.3.8 Advertising fees/exhibition/trade fair expenses Authorised Dealers may allow the transfer to non-residents against production of documentary evidence confirming the amount involved. 2.2.3.9 Payments to visiting artistes, entertainers and sportsmen General requirements Applications by South African residents to engage foreign artists, entertainers, sportsmen, etc., and for such persons to remit their net earnings from the Republic on completion of their contracts may be approved by Authorised Dealers provided they view the relevant contracts. (January '99) I4 The transfer of the non-resident's net earnings on departure may be effected by Authorised Dealers provided they view documentary evidence from the Revenue Authorities confirming that all tax commitments have been met. Matters to be referred to Exchange Control In all cases where an advance payment is required in terms of the contract an application must be submitted to Exchange Control before any commitment is entered into. The following information must be included in the application: full name and address of the South African resident concerned; full details of the non-resident performer; the number of performances to be given; an indication of who will bear the cost of incidental expenses, such as airfares, accommodation, internal transportation, etc; an indication of who is responsible for the discharge of the local tax liability; and confirmation that the branch will view documentary evidence from the Revenue Authorities that all local tax commitments have been met before transferring the net income of the nonresident performer. 2.2.3.10 Payments to foreign crew members calling at South African ports The reasons for the presence of foreign crew members in South Africa must be established whether they are working under contract or whether they are merely at a South African port
Page 46 of 120
overnight. In the first case they have to be treated in terms of the provisions for temporary residents. Under no circumstances may foreign bank notes be made available to seamen against payment in South African Reserve Bank notes. The issue of foreign bank notes against the advance receipt of currency (drafts, etc) from abroad will be allowed. Generally, local agents of overseas shipping companies will seek annual authorities from the Control. 2.2.3.11 Allowances for business travel General requirements See section 2.2.2.1 Omnibus travel facilities Authorised Dealers may approve applications by firms/companies for omnibus travel facilities up to R2 000 000 per calendar year, for allocation at the discretion of the firm/company. Authorised Dealers must, however, view an official letter from the firm/company concerned authorising the proposed business visits to be undertaken. Representatives availing of this facility also qualify for the travel allowance referred to in section 2.2.2.1 (May '98) I5 Matters to be referred to Exchange Control Any request to avail of additional omnibus travel facilities must be submitted to Exchange Control. Applications for the renewal of omnibus business travel allowances should be submitted during November/December of each year. Such authorities are only valid for a calendar year. Should it be necessary for various members of the staff, the names of whom may not necessarily be known in advance, to be sent abroad on business by a firm/company during any one calendar year, possibly at short notice, an application may be submitted in the name of the firm/company concerned requesting an overall annual allowance to be allocated at the discretion of the company. Norms applied and factors considered The purpose of the control is to ensure that: the expenditures are indeed incurred; they are reasonable in current conditions in the countries visited; and they are of benefit to the national economy, inter alia in promoting exports or ensuring essential imports. With this in view applications to Exchange Control should include the following information: a budgeted projection of estimated expenses; the countries to be visited;
Page 47 of 120
the estimated number of visits to be undertaken; the number, designation and names (if possible) of employees who would undertake the visits; the purpose of the visits; the turnover of the company during the last three years; and the nature of its activities, e.g. export, import, etc. Applications for the renewal of omnibus business travel allowances must be supported by the following information regarding visits undertaken in terms of the previous omnibus facility granted: the amount of exchange utilised by each individual and subsequently resold; the duration of each visit; he names and designations of the representatives involved; and an indication of the success of the visits. (October '06) I6 2.2.3.12 Air fares for overseas visitors General requirements The Rulings stipulate that where a resident of the CMA wishes to pay for the cost of a passenger ticket for a single or return journey commencing outside the CMA to the CMA payment for such ticket may either be transferred directly to a foreign travel agent or to an overseas airline company. Alternatively, the ticket may be issued and paid for Rand in the Republic or the ticket may be issued abroad against a Prepaid Ticket Advice (PTA) paid for in Rand. Matters to be referred to Exchange Control Requests for the payment of air fares for overseas visitors should be referred to Exchange Control when payment is required to cover the cost of the fare of a non-resident for travel between destinations outside the CMA. However, if such payment represents the sale proceeds of foreign currency introduced or Rand from a Non-Resident Account, Exchange Control approval need not be obtained. 2.2.3.13 Freight payments and ships and aircraft disbursements Inward freight payable in foreign currencies Authorised Dealers may provide foreign currency for imports into the Republic on a c.i.f. basis on the conditions set out in section 2.1. Authorised Dealers may also authorise payments to the country or
Page 48 of 120
monetary area of residence of the carrier concerned in respect of freight on imports into the Republic on a f.o.b. basis against the submission of documentary evidence. Inward freight payable in rand to non-South African shipping and airline companies Local agents and branches of non-South African carriers may accept rand in respect of inward freight against evidence of the commitment and confirmation that the relative goods have been or are to be imported on a f.o.b. basis. These funds will be eligible to meet local disbursements by the non-South African carriers concerned. Any surplus, after meeting local disbursements, will be eligible for transfer to the country or monetary area of domicile of the carrier according to the Exchange Control Rulings. In selling exchange to local agents of non-South African carriers Authorised Dealers should call for audited statements of freight collections less disbursements in the Republic in order to satisfy themselves that the funds are eligible for transfer. Outward freight Payments may be made to non-resident owners or charterers of carrying vessels, aircraft or vehicles provided it can be satisfactorily established that the relative goods have either been sold on a c. and f. (cost and freight) or c.i.f. (cost, insurance, freight) basis against payment in an approved manner, or are being exported on consignment or under cover of an attested Form N.E.P. Ships and aircraft disbursements Authorised Dealers may permit payments in respect of the normal operational commitments incurred outside the RSA by ships and aircraft owned or chartered by South African residents for commercial purposes. Documentary evidence of the charges involved should be submitted by the applicant. (October '07) I7 2.2.3.14 Transfer abroad of reinsurance premiums Authorised Dealers may permit the transfer abroad of reinsurance premiums, excluding reinsurance premiums in respect of currency risks, by and on behalf of locally registered insurance companies provided the underlying transactions were entered into in the normal course of "reinsurance" as defined in the Insurance Act. Similarly the transfer of insurance premiums, excluding reinsurance premiums in respect of currency risks, by local tribunalised agents to Lloyds of London, in respect of cover placed in its entirety with Lloyds underwriters through a broker at Lloyds, may be permitted. The transfer of insurance premiums, excluding reinsurance premiums in respect of currency risks, by local agents tribunalised by Lloyds of London, in respect of cover placed through a broker at Lloyds which is not in its entirety underwritten by an underwriter at Lloyds, may also be permitted provided the prior approval of the Registrar of Insurance has been obtained. 2.2.3.15 Technical service payments
Page 49 of 120
Authorised Dealers may approve, against the production of documentary evidence applications by South African residents to effect payment of fees due in respect of non-residents brought to South Africa for the specific purpose of installing or repairing specialised machinery and equipment or for commissioning and supervising the installation thereof as well as training local personnel in this connection. 2.2.3.16 Registration of drugs Authorised Dealers may approve, against the production of documentary evidence, applications by pharmaceutical companies registered in the Republic to effect payment of fees due in respect of the registration of drugs outside the Common Monetary Area. 2.2.3.17 Registration of agrochemical products Registration fees in respect of agrochemical products registered outside the CMA. 2.2.3.18 Tender documentation Authorised Dealers may on application approve payment, against the production of documentary evidence, of tender documents to be acquired by South African residents. 2.2.3.19 Tender guarantees/bid bonds Authorised Dealers may issue, on behalf of South African residents, tender guarantees and/or bid bonds in favour of non-residents, in support of tenders and/or bids for the supply of goods or for construction contracts. 2.2.3.20 Performance guarantees Authorised Dealers may issue performance guarantees in favour of South African residents against counter-guarantees from banks and/or the applicants' parent companies outside the Republic provided they are satisfied that reimbursement would be received in an approved manner from the foreign guarantor should they be required to effect any payments under the guarantee. Authorised Dealers may also issue, on behalf of South African residents, performance guarantees in favour of non-residents in support of successful tenders for the supply of goods or in respect of the fulfilment of services under construction contracts provided: (May '98) I8 they are reasonably satisfied that the applicant is in a position to meet his obligations under the contract; documentary evidence of the contract, and the guarantee required thereunder, is exhibited by the applicant; and that in the event of such guarantee being implemented, Authorised Dealers may effect the transfer of funds under advice to Exchange Control. Such advice should contain full particulars of the circumstances in which the guarantee was implemented.
Page 50 of 120
When approving applications of this nature, Authorised Dealers should ensure that the sale proceeds of the goods or profits earned under construction contracts are transferred to the Republic by the applicant in terms of Exchange Control Regulation 6. 2.2.3.21 Court judgement payments Authorised Dealers may approve against documentary evidence confirming the amounts involved, applications by South African residents who are under legal obligation to make payments to nonresidents in terms of or as a result of any judgement granted by a court in the Republic. 2.2.3.22 Refunds Authorised Dealers may approve, against the production of documentary evidence confirming the amount involved, applications by South African residents to effect payment for refunds in respect of order, tour reservations, registration fees, erroneous payments and overpayments by non-residents. 2.2.3.23 Advance payment guarantees Authorised Dealers may issue on behalf of South African residents, advance payment guarantees provided they are satisfied that the advance payment is received in an approved manner and that no goods have been exported or services rendered from the Republic. 2.2.3.24 Transportation costs and cash floats Authorised Dealers may approve, against the production of documentary evidence confirming the amount involved, applications by South African residents to effect payment in respect of ship disbursements, landing fees, fuel costs, emergency repair costs, toll fees and other fees related to the transport of goods. In cases where the South African resident must effect these payments on a regular basis in cash to non-residents or on behalf of non-residents, Authorised Dealers may accord South African residents with a cash float in foreign currency not exceeding the equivalent of R50000 at any one time. The cash float may only be replenished against the presentation of documentary evidence confirming the utilisation of foreign currency from the cash float for these purposes. 2.2.3.25 Rental and lease payments Authorised Dealers may approve, against the production of documentary evidence confirming the amount involved, applications by South African residents to effect rental and lease payments abroad in respect of capital goods utilised in South Africa or utilised outside the Republic to fulfil construction contracts in SADC member countries.
Page 51 of 120
F.3 Payments by "Temporary Residents" in the RSA Official foreign representatives and other foreign nationals temporarily resident in the Republic (see section 3.2) are for Exchange Control purposes treated as residents. 3.1 Payments by embassies, high commissions, legations, consulates-general, consulates and official overseas representatives The term official foreign representatives includes ambassadors, consuls, trade representatives and members of their staff except those regarded as residents of the Republic. The banking accounts of embassies, consulates and other official foreign representatives must be conducted on a resident basis. The remittance of official funds by embassies and consulates to their own countries may be permitted provided the Authorised Dealers concerned are satisfied that the transactions take place in the normal course of official business. Official foreign representatives may be permitted to retransfer to their home countries funds which accrued to them from that source, irrespective of whether such remittances are made for the purpose of discharging obligations or for investment. Foreign representatives may also be permitted to export personal and household goods and vehicles brought into the CMA or purchased by them while in the CMA with funds introduced from abroad. 3.2 Payments by other foreign nationals who have taken up temporary residence in the Republic Foreign nationals are, for Exchange Control purposes, natural persons of countries outside the CMA who have taken up temporary residence in the Republic excluding those who are purely on temporary visits. 3.2.1 Norms applied The norm applied by Exchange Control is that contract workers should, while they are in the RSA, be treated more or less like residents in order to avoid unnecessary administrative procedures which would have resulted from treating them as non-residents. That implies, for example, that they can keep bank accounts or obtain funds from financial institutions for the purchase of a house in the same way as a resident. 3.2.2 General requirements On taking up temporary residence in the Republic foreign nationals (see section 3.2) are required to declare to an Authorised Dealer whether or not they are in possession of any foreign assets and if so, provide an undertaking to the effect that they will not place such assets at the disposal of a third party normally resident in the Republic. They will also be required to declare that they have not applied for similar facilities through another Authorised Dealer.
Page 52 of 120
They will furthermore be required to provide the Authorised Dealer with an original and valid permit issued by the Department of Home Affairs substantiating their temporary residence in the Republic. The income earned on the foreign assets of such foreign nationals is not required to be transferred to the Republic. (May '98) J1 Authorised Dealers may permit such foreign nationals: (a) to conduct their banking on a resident basis (see section 3.2.1) (b) to deal with their foreign assets in any manner; (c) to simultaneously conduct resident as well as non-resident banking accounts; and (d) to transfer abroad funds accumulated during their stay in South Africa provided the individuals can substantiate the source of such funds and that the value of such funds is reasonable in relation to their income generating activities in the Republic during the period. (May '98) J2
Page 53 of 120
F.4 Receipts of Foreign Currency on Current Transactions 4.1 Purpose of control Regulation 6 requires all persons resident in the Republic to sell to an Authorised Dealer within thirty days of accrual, foreign currency to which they may become entitled. This regulation covers not only the proceeds of exports, but also the proceeds of any asset sold abroad. The scope of this regulation applies to all foreign currency accruals from any source. The purpose of the control over the receipt of foreign currency for both visible and invisible exports is to ensure: That accruals are indeed received in the RSA; and that there is no unnecessary delay in the transfer of receipts. The receipt in the RSA of the proceeds of merchandise exports is controlled through a Form F.178 and the Cross Border Foreign Exchange Transaction Reporting System. The Cross Border Foreign Exchange Transaction Reporting System has been designed to international standards for managing BoP data enabling Authorised Dealers to report to the Reserve Bank payments received by South African residents from foreign parties. In summary it can be said that the main forms for the control of current transactions are the Authorised Dealers integrated form used for the Cross Border Foreign Exchange Transaction Reporting System (outward payments and inward receipts) and the Form F178 (merchandise exports). The information received is used for the following purposes: The Research Department of the South African Reserve Bank uses the data from the Cross Border Foreign Exchange Transaction Reporting System in the calculation of invisible items of the balance of payments, namely monthly summaries of payments and receipts per category and monthly summaries of these items per country: The forms record the transactions and are used as evidence thereof. They are used for control purposes, for instance to reconcile receipts with these From Form F.178, i.e. to confirm that the funds brought in correspond with the declared value of the products exported. 4.2 Receipts from merchandise exports 4.2.1 General requirements The Form F178 is completed by the exporter (in practice often by his shipping agent) for every transaction or consignment except for: Exports to countries within the CMA; and
Page 54 of 120
exports, irrespective of the origin of the goods involved, if the value thereof does not exceed R50000 (August ’02) K1 The Form F178 contains a description of the goods and their value. There must be a minimum of three copies. The set bears a unique number. The forms are taken to the exporter's bank where the original is attested (stamped and signed) and returned with a copy. The bank retains a copy for control purposes. Customs require the original Form F178 as part of the essential export documentation without which the goods cannot leave the country. Customs subsequently pass the form on to Exchange Control, where the information is stored in a computer. The use of Form F178 is prescribed where the relevant export from South Africa will result in the accrual of foreign exchange to the exporter and to the country. Where the "export" will not result in a payment from abroad, the owner/exporter must complete the Form N.E.P. (No Exchange Proceeds). This relates to the taking out of personal possessions, goods exported for repair, etc. Authorised Dealers must scrutinise the export declarations on Forms F178 and N.E.P. with a view to ensuring that the transaction value or insurance value of the goods exported is reasonable in relation to current market prices for the commodity concerned. Where any doubt exists in this respect, supporting documentary evidence of contract notes in regard to insurance cover taken and/or correspondence should be called for. When the foreign currency proceeds of the exports are received through the banking system and converted into rand, the receipt of such payment by the South African exporter is reported to the Reserve Bank via the Cross Border Foreign Exchange Transaction Reporting System. All information provided to the Control by way of the Form F.178 and the Cross Border Foreign Exchange Transaction Reporting System is treated with the utmost confidentiality as is all other information forwarded to Exchange Control. The control over the foreign exchange proceeds of merchandise exports is monitored by comparing the information on the related Form F178 and the subsequent information received via the Cross Border Foreign Exchange Transaction Reporting System. Exchange Control queries discrepancies through the bank which attested the Form F178. The Control would, on application, be prepared to consider requests absolving Authorised Dealer(s) of certain companies from the responsibility of ensuring that such entities’ exports have resulted in the timeous accrual of foreign currency. In terms of the Exports Undertaking dispensation, this responsibility will rest with the company concerned. 4.2.2 Sales periods and credit Exporters are obliged to sell goods exported within a reasonable time but not later than six months from the date of shipment and to receive the full currency proceeds not later than six months from the date of shipment. Authorised dealers may, however, without reference to Exchange Control, authorise exporters to grant credit up to a total of twelve months to foreign importers provided that
Page 55 of 120
they are satisfied that the credit is necessary in the particular trade or that it is needed to protect an existing export market or to capture a new one. Any extension beyond twelve months must be approved by Exchange Control. 4.2.3 Sale of currency Exporters and all other residents entitled to sell or to procure the sale of foreign currency should offer for sale to a bank the full foreign currency proceeds within thirty days of accrual. This rule applies to all accruals, including loan funds and other capital receipts. (June ’06) K2 Exporters should furthermore report in writing to the attesting bank the non-receipt of the full currency proceeds within the period stated on Form F178 as well as the failure to sell the goods exported within six months from the date of shipment. Where payment is received in the RSA in an approved manner or the Authorised Dealer is satisfied that payment will be so received, the dealer may allow the remittance of selling commissions payable to independent agents abroad. 4.2.4 Special stipulations Special stipulations with respect to the export of goods in various circumstances are made in the Rulings, for example: 4.2.4.1 Exports on a consignment basis It is not the objective to prevent the export of goods on consignment where it is the normal practice in a particular trade, but Authorised Dealers should exercise special care in permitting exports on this basis. The provision of Regulation 11 stipulating that goods not sold within six months of shipment or such shorter period as an Authorised Dealer may determine, may be assigned to the Treasury, should be brought to the attention of the exporter. 4.2.4.2 Replacement goods, short shipments and goods under guarantee Authorised Dealers may attest Forms N.E.P. covering goods to be shipped in replacement of rejected or defective goods previously shipped or in completion of a previous short shipment, provided they are satisfied that: the full invoice value of the original shipment has been or will be received from the consignee; the exporter is bound by guarantee or trade practice to make good the deficiency without charge; and the replaced goods are being destroyed, re-imported or sold abroad for payment in an approved manner.
Page 56 of 120
4.2.4.3 Export of defective goods for replacement Authorised Dealers may permit South African residents, under cover of Forms N.E.P., to re-export to the original supplier defective goods which have been paid for, provided it can be proved from documentary evidence that the foreign supplier has agreed: to replace the consignment on a "no charge" basis with goods of an equivalent value (in such cases the applicant must, if necessary, have a permit to cover the importation of the replacement goods); or to refund the cost of the defective goods in full. In the case of manufactured goods registered with Customs and Excise for re-export to their country of origin for repairs or adjustments, Authorised Dealers may make exchange available if they are satisfied from the production of documentary evidence that the funds are required for repairs or adjustments and not for replacements. 4.2.4.4 Export of advertising matter and trade samples Authorised Dealers may attest Forms N.E.P. covering the export of advertising matter and trade samples on a "no charge" basis provided they are satisfied that the goods are being shipped purely for advertising/promotional purposes. (May ’98) K3 4.2.4.5 Return of goods for which no payment has been made Authorised Dealers may attest Forms N.E.P. covering the return of goods to the original supplier free of counter-value or re-exports for the latter's account. Prior to attesting the Form N.E.P. Authorised Dealers must ensure that the documents covering the original import of the goods have been stamped "No Payment for Import to be Provided" and that no payment has been made for the goods in question. 4.2.4.6 Temporary export of goods to Angola, Botswana, Democratic Republic of the Congo, Malawi, Mauritius, Mozambique, Tanzania, Zambia and Zimbabwe Authorised Dealers may attest Forms N.E.P. covering the temporary export to the abovementioned countries of used equipment, irrespective of country of manufacture, which is required by South African residents to enable them to fulfil construction contracts, provided the equipment is the contractor's own property and has not been purchased specifically for re-export. Where requests are agreed to, Authorised Dealers should ensure that the equipment is returned on completion of the contract. 4.2.4.7 Export of philatelic and numismatic items (excluding Krugerrand coins) Export of philatelic items
Page 57 of 120
The export of postage stamps and philatelic items is regarded as a normal export transaction subject to the Form F178 procedure. Authorised Dealers may attest Forms NEP covering the temporary export of postage stamps and philatelic items for exhibition purposes provided that these items are returned to South Africa within a period of six months. Export of numismatic items Authorised Dealers may, without reference to Exchange Control, allow South African residents to export gold coins, (excluding Krugerrand coins), currency coins and numismatic items within an overall limit of R300 per applicant per calendar year subject to the Form F178 procedure. All other matters relative to numismatic items must be referred to Exchange Control. Any applications for amounts in excess of R300 requires Exchange Control approval. Such applications are considered on merit. Authorised Dealers may attest Forms NEP covering the temporary export of gold coins, currency coins and numismatic items for exhibition provided that these items are returned to South Africa within a period of six months. In lieu of monetary gifts or gift parcels, Authorised Dealers may attest Forms N.E.P. in respect of the export of Krugerrand coins or the equivalent in fractional Krugerrand coins up to an amount of R30 000 as gifts by South African residents to non-residents. 4.2.4.8 Temporary exportation of motor vehicles, caravans, trailers, horse-boxes and motor/sail boats. A traveller may be allowed to take a motor vehicle, caravan, trailer, horse-box and/or a motor/sail boat from the Republic temporarily when visiting Angola, Botswana, Democratic Republic of the Congo, Malawi, Mauritius, Mozambique, Seychelles, Tanzania, Zambia and Zimbabwe, provided the Authorised Dealer concerned is satisfied that the items will be brought back to the Republic within a period of 6 months. (May ’98) K4 A Form N.E.P. must be attested in triplicate for this purpose and Authorised Dealers should view the relative registration and insurance documents before doing so. A copy of the Form N.E.P. must be retained by the traveller for presentation to the Customs Authorities when the items are returned to the Republic. South African residents may be allowed to export a yacht from the Republic on a temporary basis for the purpose of undertaking cruises outside South African waters, provided the Authorised Dealer concerned is satisfied that the yacht will be brought back to the Republic within a period of twenty four months and provided the insured value thereof does not exceed R1 million. A Form N.E.P. must be attested in triplicate for this purpose and Authorised Dealers should view the following documentation before doing so: owner's registration certificate; insurance documents verifying the insured value;
Page 58 of 120
a certificate from the Cruising Association of South Africa, the "Flight Plan" together with a letter of support from them; and a sworn affidavit from the registered owner that the vessel will be returned to South Africa as far as possible in accordance with the flight plan. A copy of the Form N.E.P. must be retained by the traveller for presentation to the Customs Authorities when the yacht is returned to the Republic. The Authorised Dealer concerned must also inform the applicable parties that while the yacht may be chartered abroad, it may not be sold abroad without the approval of the Exchange Control Department of the South African Reserve Bank. Authorised Dealers may accord foreign exchange to the crew members and/or any passengers of the yacht proceeding temporarily abroad in accordance with the normal travel allowances authorised in section 2.2.2.1. No further foreign exchange may be accorded to such persons without the specific approval of the Exchange Control Department of the South African Reserve Bank. 4.2.4.9 Export of motor vehicles in the possession of non-residents leaving the Common Monetary Area for any other country The exportation of motor vehicles belonging to non-residents who have purchased the vehicles in the CMA and who wish to export their motor vehicles from the CMA either temporarily or permanently should be covered by a completed Form F178. In this regard Authorised Dealers must satisfy themselves that the purchase price of the vehicle was introduced into the CMA in an approved manner. 4.2.5 4.2.6 (July ’03) K5 4.2.7 Setting off foreign liabilities against foreign accruals Setting-off of foreign commitments against foreign accruals, whether of a current or capital nature, is prohibited unless prior Exchange Control approval has been obtained. Local entities who are involved in international trade can, however, set-off the cost of imports against the proceeds of exports as well as the proceeds of services and a range of other transactions, through the Customer Foreign Currency Account System referred to in section 7.3.3. 4.3 Other exports 4.3.1 Service receipts
Page 59 of 120
Service receipts (as in the case of the proceeds of merchandise exports) must, except if credited to a C.F.C account, be surrendered within thirty days from the date of accrual, unless exemption is obtained. 4.3.2 Disposal of patents, copy-rights, trademarks, franchises and/or intellectual property in general The disposal of any of the aforegoing requires prior Exchange Control approval. Applications should be supported by the agreement or contract of sale. If not evident therefrom, a clear explanation of how the values were arrived at must accompany the application. The transfer of South African owned intellectual property by way of sale, assignment or cession and/or the waiver of rights in favour of non-resident in whatever form, directly or indirectly, is not allowed without the prior approval of Exchange Control. (July ’07) K6
Page 60 of 120
F.5 Transfer Payments Transfer payments, also known as unrequited transfers, are payments not made in consideration of goods and services currently produced but represent a unilateral transfer of income or capital from one person or group to another. 5.1 Gifts 5.1.1 General requirements South African residents may be permitted to transfer monetary gifts and loans within a limit of R30 000 per applicant during a calendar year to non-resident individuals and to resident individuals who are overseas temporarily, excluding those residents who are abroad on holiday or business travel. In lieu of monetary gifts applicants may be permitted to export gift parcels containing goods other than gold or gold jewellery, subject to the same limit of R30 000. Authorised Dealers may also, in lieu of monetary gifts or gift parcels, attest Forms N.E.P. in respect of the export of Krugerrand coins or the equivalent in fractional Krugerrand coins up to an amount of R30 000 as gifts by South African residents to non-residents. 5.1.2 Matters to be referred to Exchange Control Applications regarding gifts of more than R30 000 should be referred to Exchange Control. 5.2 Donations Applications by official or recognised charitable, religious or educational bodies for the transfer of funds to such bodies in countries outside the Common Monetary Area should be submitted to Exchange Control with full particulars of the underlying request. Authorised Dealers may, however, allow their customers to transfer up to R10 000 per annum per beneficiary to missionaries, provided a letter from an official or recognised religious body is viewed confirming that the person is a missionary abroad. 5.3 Alimony Authorised Dealers may permit transfers to non-residents for alimony against production of a court order. Where the applicant wishes to effect a monthly payment in excess of the amount stipulated, Authorised Dealers may transfer up to an amount of R9 000 per month over and above the amount awarded by the court. (January '07) L1 5.4 Maintenance 5.4.1 General requirements
Page 61 of 120
Provided the Authorised Dealer has viewed original documentary evidence from a magistrate or civic official, or, in the absence of such official, from a priest, minister of religion, medical doctor or principal of a school, in the town or city where the beneficiary is resident, stating: • the full names of the beneficiary; • the address of the beneficiary; • the family relationship with the remitter in the RSA (this relationship may only be father, mother, brother or sister); and • confirming that the beneficiary is in need Maintenance transfers at a rate not exceeding R9000 per receiving family per month may be permitted quarterly in advance. New documentary evidence must be called for after one year, and thereafter on an annual basis if the transfers are to continue. 5.4.2 Matters to be referred to Exchange Control It is necessary to submit an application to Exchange Control for an amount in excess of the limit or for the benefit of a person outside the stated family relationship. 5.4.3 Factors to be considered The following information should be furnished to Exchange Control: • a breakdown, expressed in rand, of the beneficiary's monthly living expenses; • the financial circumstances of the beneficiary; • the manner in which the beneficiary maintained himself/herself until then; and • any other information confirming the necessity for assisting the beneficiary with maintenance transfers. (February '03) L2
Page 62 of 120
(June '06) M1
5.5 Legacies and distributions from estates 5.5.1 Estates of persons regarded as permanent residents of the RSA at the time of death 5.5.1.1 Legacy transfers Cash bequests and the cash proceeds of legacies and distributions from such estates due to beneficiaries permanently resident outside the Common Monetary Area, including emigrants, may be remitted abroad. Where South African securities in the estate are specifically bequeathed to a non-resident legatee, such securities should be endorsed “Non-Resident” and may thereafter be exported to the legatee. Where the beneficiary is an emigrant, it would be incumbent upon Authorised Dealers to ensure that the emigrant has been formally redesignated as a non-resident, before effecting transfers in terms of the aforegoing. Where no such record can be established, the matter must be referred to Exchange Control. In all cases where such an estate holds authorised foreign assets, distribution of foreign assets may be effected, provided that all foreign administrative and related costs have been met from the foreign portion of the estate. 5.5.1.2 Export of jewellery Authorised Dealers may attest Forms N.E.P. covering the export of jewellery, including articles of gold jewellery, inherited by non-residents, including emigrants, from deceased estates in the Republic, provided documentary evidence is produced to show that the articles to be exported were, in fact, bequeathed to the beneficiary in terms of the deceased's will or otherwise in terms of the Liquidation and Distribution Account approved by the Master of the Supreme Court. 5.5.1.3 Export of personal effects Provided the Authorised Dealer is satisfied that the items to be exported were inherited on the basis indicated in the preceding paragraph, a Form N.E.P. may be attested for the export of effects of a purely personal nature such as clothing and household effects. 5.5.1.4 Export of other assets For permission to export other assets it is necessary to apply to Exchange Control, who would in normal circumstances and provided the values are reasonable, permit the export of such goods. 5.5.2 South African estates of persons, including emigrants, domiciled outside the CMA at the time of death
Page 63 of 120
5.5.2.1 Legacy transfers Cash bequests and proceeds of legacies due to non-resident beneficiaries may be remitted to them. 5.5.2.2 Export of jewellery and personal effects The export to non-resident beneficiaries of jewellery and personal effects may be dealt with on the same basis as indicated under distributions from estates of persons who at the time of death were regarded as permanent residents of South Africa. (June '03) M2 5.2.3 Inheritances by South African residents from non-resident estates As from 1998-03-17 South African residents need not declare foreign inheritances to an Authorised Dealer and may retain the capital and any income generated thereon abroad. This does of course not absolve South African beneficiaries of non-resident estates from any other obligation, i.e. tax obligation.
Page 64 of 120
5.6 Inter vivos trusts An inter vivos trust ("between living persons") is created during a person's lifetime as opposed to a trust mortis causa ("in anticipation of death") or a testamentary trust. The trust operates like a conduit through which assets pass to the beneficiaries during the lifetime and/or after the death of the donor. 5.6.1 Purpose of control Exchange Control recognises that inter vivos trusts are normally established for legitimate purposes, inter alia for estate planning, but it is possible that such trusts could sometimes be used to export capital from the RSA. Consequently in December 1985 Exchange Control directed that all requests for the transfer of income and capital distributions due to beneficiaries permanently resident outside the CMA, including former residents, must be referred for consideration. The object is firstly to ensure that in terms of current Exchange Control policy a non-resident is entitled to such a distribution and secondly to prevent the export of capital disguised as income distributions through the trust. 5.6.2 Norms applied and factors considered The basic approach adopted by Exchange Control is that income distributions due to non-residents or emigrants must be credited to one of the following accounts: • the emigrant's blocked account in respect of pre-emigration net income; • the emigrant's income receiving account in respect of post-emigration income; • a blocked account in terms of the requirements of Exchange Control Regulation 4(2); or • a non-resident transferable account. However, trusts funded from own assets get more favourable treatment than third-party funded trusts. When determining the policy to be adopted with respect to a particular trust the source of financing, i.e. identifying the funder of the trust, is very important. Consequently in the rest of this text reference is always made to the "funder" and not the donor although in certain instances they may be one and the same person. Where a trust was established by an emigrant prior to the date of emigration and funded by the emigrant from his or her own assets and not from financing by a third party, Exchange Control will consider allowing the concomitant income generated subsequent to emigration to be transferred to the emigrant. Distributions from trusts established by a South African resident in favour of a party who has never been a resident must be placed to the credit of a blocked account in terms of Regulation 4(2) since Exchange Control will not recognise the creation of a liability of this nature against the foreign
Page 65 of 120
currency reserves of the RSA, although the trust may be allowed to remain in existence. This also applies to trusts created in favour of previous residents. (October '97) N1 5.6.3 Own-asset trust 5.6.3.1 Established prior to emigration Income distributions will be allowed to be transferred. Capital distributions would only be allowed for credit to an emigrant's blocked account, in other words they would not be transferable. 5.6.3.2 Established subsequent to emigration May only be established with prior Exchange Control approval. It should be clearly understood that approval will not be granted if the emigrant could, at any stage, obtain a better title to the income or the capital of the trust than what the emigrant would have had, should the donation to the trust have remained in the emigrant's name and blocked in terms of Section B.5(E)(iii) of the Exchange Control Rulings. Income distributions will be allowed to be transferred. Capital distributions would only be allowed for credit to the emigrant's blocked account, in other words it would not be transferable. 5.6.4 Third-party funded trust The rules differ according to whether the beneficiaries are emigrants or non-residents as well as the timing of establishment and the nature of the funding thereof. 5.6.4.1 Emigrants Income will be allowed to be distributed should the funding of the trust have taken place at least five years before the date of emigration. If the funding took place within a period of five years prior to emigration, then all income distributions to such an emigrant will only be allowed to a blocked account in terms of Regulation 4(2). Capital distributions would be dealt with on the following basis: • where the funder is still alive - to a Regulation 4(2) blocked account; • where the funder has died - to a non-resident transferable account or transferred directly in instances where the emigrant beneficiary had not benefited from the trust in any way; or • to an emigrant's blocked account in instances where the emigrant had been receiving income from the trust.
Page 66 of 120
In cases where the trust was founded and funded long before the emigration of the beneficiary, the Control will adopt a more lenient attitude than in the case where the trust was established or funded shortly before emigration. In terms of current policy, where the trust was funded within a period of five years prior to emigration, Regulation 4(2) will be applied to capital and income distributions whereas, with trusts funded more than five years prior to emigration, income transfers will normally be allowed. (October '97) N2 5.6.4.2 Original non-residents Income and capital distributions should be credited to a Regulation 4(2) blocked account during the lifetime of the funder. On the death of the funder the distributions from the trust become a legacy. The following dispensation applies: Own-asset trust The assets in the trust will devolve on the heirs of the funder and will be transferable to any beneficiary regarded, for Exchange Control purposes, as a non-resident. Third-party funded trust In instances where a beneficiary has a vested interest in the trust recognised by Exchange Control, capital distributions made to emigrant beneficiaries will be credited to an emigrant's blocked account and the income that accrues on it can be transferred. In instances where the beneficiary has no vested interest, capital distributions will be allowed. Similarly capital distributions made to original non-residents can be transferred. 5.6.5 Required procedures Applications to Exchange Control for the remittance abroad of capital and income distributions in favour of non-residents/emigrants should be accompanied by: • a copy of the original trust deed plus all subsequent amendments thereto; • the financial statements (audited, if available) of the trust and of all the underlying non-quoted company investments which are 75% or more directly/ indirectly non-resident controlled i.e. "affected persons" as defined in Exchange Control Regulation 1. (For very old trusts this information is required for at least the last five financial years prior to emigration. For more recently established trusts the information is required from inception to date.); • a list of the full names and domicile of the shareholders in the "affected person" and the percentage held. Where a shareholder is a private company or close corporation, the same breakdown of ownership is required. Where the shareholder is a trust, provide a copy of the trust
Page 67 of 120
deed and state who the capital and income beneficiaries are (full names), the domicile of those beneficiaries and the percentage of their interests; • full details of all forms of financing made available to the trust and its underlying investments since inception/acquisition to date such as: • by whom the financing was made available as well as the relationship of the funder or donor to the beneficiaries; • the nature of the financing, e.g. loans or preference shares, and the extent of such financing; and • any further information the client or the Authorised Dealer may consider apposite to enable Exchange Control to reach a decision. (June '98) N3 This information is required in respect of all financing notwithstanding whether loans have been repaid or preference shares redeemed in the interim. The information is also required in respect of all capital distributions made to an emigrant within a period of five years prior to the date of emigration. The trustees of any trust wishing to effect any income transfer to any non-resident and/or emigrant beneficiary will be required to submit an auditor's report as well as a representation letter. It should be noted that only the printed forms issued by Exchange Control will be accepted in support of an application. Once Exchange Control have determined that income distributions may be remitted to the nonresident beneficiary, authority will be granted for the transfer of net current income for the period for which audited financial statements (or those signed by the trustees) are held. Subsequent requests for income transfers may be dealt with by the Authorised Dealer in terms of Exchange Control directives given at the time of the original authority. In all instances where consideration is being given to income transfers, cognisance is taken of any local financial assistance at the disposal of the trust and its underlying non-quoted company investments that are "affected persons", as defined. The policies, local borrowing formula and ratios pertaining to affected persons are strictly adhered to in this regard. In determining whether a trust is an affected person, Exchange Control deem a discretionary trust to have a 100% non-resident interest by virtue of the discretionary powers of the trustees unless the Control is otherwise satisfied by virtue of past and continuing distribution policies of the trustees. 5.7 Wedding expenses and Bar/Bat Mitzvah ceremonies Authorised Dealers may transfer against the production of documentary evidence confirming the amount involved, funds in respect of wedding expenses and Bar/Bat Mitzvah ceremonies within a limit of R50000 per occasion.
Page 68 of 120
(May '98) N4
Page 69 of 120
F.6 Capital Transactions 6.1 Foreign investment by South African residents 6.1.1 Private individuals (natural persons) Authorised Dealers may allow private individuals (natural persons) who are tax-payers in good standing and over the age of 18 years, to invest up to a total amount of R2 million outside the CMA, but, prior to the transfer of any funds, a duly completed "TAX CLEARANCE CERTIFICATE (IN RESPECT OF FOREIGN INVESTMENTS)", issued by the South African Revenue Service, must be presented to the bank. In addition the Exchange Control Department is prepared to consider applications by private individuals to invest in fixed property in SADC member countries, against submission of a Tax Clearance Certificate. Income earned abroad and own foreign capital introduced into the Republic on or after 1997-07-01 by private individuals resident in South Africa may be transferred abroad, provided the Authorised Dealer concerned is satisfied that the income and/or capital had previously been converted to Rand, by viewing documentary evidence confirming the amounts involved. The sale proceeds of South African assets received from non-residents and export proceeds are, therefore, not eligible for retransfer abroad by private individuals resident in South Africa. Where a five percent levy was paid in terms of the Amnesty dispensation, the foreign capital repatriated to South Africa may also not be retransferred abroad. Definitive guidelines in this regard will be available from an Authorised Dealer. In this regard it should be noted that funds invested abroad in terms of the private individual foreign investment dispensation or any other permissible funds held abroad e.g. a foreign inheritance or income earned after 1997-07-01, may not be re-invested directly or indirectly back into the Common Monetary Area for any purposes whatsoever. Such funds may, however, be used to invest in approved inward listed shares and /or debt instruments on the bond and securities exchanges. South African residents may, furthermore, invest domestic funds in such listed instruments without restriction (See point 7.9). 6.1.2 South African Companies 6.1.2.1 Norms applied and factors considered Requests by companies to invest overseas, are considered in the light of the national interest. In terms of the declared policy approach to Exchange Control, as set out on page E1, the purpose of exchange control over direct investment abroad is to prevent the loss of foreign currency reserves through the transfer abroad of real or financial capital assets held in South Africa and to help avoid undue pressures on the country's gold and foreign exchange reserves. On the positive side such investment must result in a longer-term benefit to the economy, such as the promotion of exports of both goods and services, including technology, through the protection of existing markets and the
Page 70 of 120
development of new ones and the protection of essential imports of goods and technology. The Exchange Control requirement is that South African companies must acquire a significant equity interest of at least 25 per cent. This is aligned with the threshold for African investments and will assist South African companies to engage in strategic international partnerships. (October '07) O1 Applications fall broadly into two categories, namely the establishment of subsidiary companies and joint ventures which are normally self-sufficient and branches and offices generating no or very little income. Requests for making direct investments abroad should include information on the following matters: • The business plan of the applicant; • full details of the longer term monetary benefits (excluding dividend flows) to be derived by the Republic on a continuous basis, substantiated by cash flow forecasts. The benefits could include: The promotion of exports (quantify if possible); the ability to render services better, e.g. to handle bigger construction contracts abroad or to better exploit the products, technology, knowledge or ideas of residents; and the safeguarding of domestic interests, such as essential imports of goods and technology; • a pro forma Balance Sheet of the offshore entity reflecting the financial position immediately prior to and after the investment from the Republic; • the names and domicile of the shareholders (the Control would not allow individual residents to hold shares in their own names and would require such shares to be registered in the name of a South African registered company); • the proposed financial structure of the entity to be acquired or to be established, i.e. issued share capital, loan funds, guarantees to be issued from the Republic or credit facilities to be availed of abroad and the respective amounts involved; etc.; • the manner in which the funds required will be employed; and • an estimate of the annual running expenses of the offshore entity. 6.1.2.2 Reporting requirement All companies establishing subsidiaries, branches, offices or joint ventures abroad are required to submit financial statements on these operations to the Control annually. In certain instances regular progress reports are also required. 6.1.2.3 Repatriation of profits and dividend credits
Page 71 of 120
Dividends repatriated from abroad by South African companies during the period 2003-02-26 to 2004-10-26 (dividend credits) automatically form part of domestic funds and may be allowed to be retransferred abroad for the financing of approved foreign direct investments or approved expansions, but may not be transferred abroad for any other purpose. With effect from 2004-10-27 the South African holding company may retain dividends declared by their offshore subsidiaries offshore and it may be used for any purpose, without any recourse to South Africa. Foreign dividends repatriated to South Africa after 2004-10-26 may be retransferred abroad at any time and used for any purpose, provided there is no recourse to South Africa. Such funds may, however, under no circumstances be utilised to fund investments/loans into the Common Monetary Area for any purpose whatsoever via a loop structure, except if invested in approved inward listed instruments based on foreign reference assets or issued by foreign entities, listed on the JSE Limited or the Bond Exchange of South Africa, respectively. (January '07) O2 6.1.2.4 Expansion of business abroad and remission of funds Where it is required to remit funds from the RSA on a regular basis to finance the operation, an annual application should be submitted to Exchange Control supported by: A report on the operations of the past year; and an up-to-date financial statement of the foreign concern. The expansion of a foreign venture by way of an acquisition or the establishment of any additional foreign entities is treated on the same basis as outlined above. Applications in this regard should provide full reasons for the need for the proposed expansion. If the foreign expansion entails the restructuring or merging of the offshore entities, the following information will be required: A family tree of the offshore group of entities before and after the restructuring/merger; and pro forma balance sheets of each foreign entity reflecting its financial position before and after the restructuring/merger. Approval will normally be granted provided that the expansion/restructuring complies with the norms outlined above and provided no profits held offshore will be capitalised in the books of the new foreign group. Corporate entities which have existing approved subsidiaries abroad may expand such activities abroad without prior Exchange Control approval, provided such expansion is financed by foreign borrowings (with no recourse to or guarantee from the RSA) or by the employment of profits earned by that subsidiary, subject to the expansion being in the same line of business and that benefit to the RSA can be demonstrated. The local parent company is required to place their proposed plans for the expansion of the investment on record with the Control at an early stage.
Page 72 of 120
6.1.2.5 Transfer of required funds A detailed breakdown of the initial establishment costs, minimum share capital, e.g. $1000, (depending on the legal requirements of the host country) and running expenses (of a current nature) in respect of each foreign entity must be supplied. Companies are allowed, on application, to transfer funds from South Africa for each new and approved foreign investment, provided a longer term benefit to South Africa can be demonstrated. The Exchange Control Department of the South African Reserve Bank reserves the right to stagger capital outflows relating to very large foreign investments in order to manage any potential impact on the foreign exchange market. Companies may, on application, raise foreign finance on the strength of their South African balance sheet to make foreign acquisitions. Interest payments on loans raised abroad to finance or partly finance new approved foreign investments must continue to be repaid from offshore resources. (April ‘06) O3 As further alternate mechanisms of financing offshore investments, or to repay existing offshore debt, applications by companies to engage in corporate asset/share swap transactions and requests for share placements offshore by locally listed companies will be considered. Authorised Dealers may also extend foreign currency-denominated facilities to South African companies for the financing of approved foreign direct investments. Purchase consideration of additional shares in existing offshore entities or the expansion of existing business ventures offshore. Where corporates wish to purchase additional shares in existing offshore entities or expand their existing business venture offshore, the Exchange Control Department of the South African Reserve Bank will, on application, consider such requests. Transfer of equipment/machinery from the RSA into the foreign venture. Consideration will be given to requests for the export of equipment/machinery from South Africa and for the value thereof to be capitalised in the foreign venture. Factors that will be taken into account in considering such requests include the value of the equipment/machinery, the relationship of the value to the overall capitalisation required, whether the items are second-hand or new and whether they were imported or manufactured locally. As an alternative the applicants may wish to show the value as repayable shareholders loan. The latter case (preferred by the Control) would have to be repaid within a period of 18 - 24 months. Foreign loans A loan with a foreign bank raised in the name of the foreign subsidiary, to finance current expenses of an offshore entity or day-to-day working capital, excluding trade financing to and from South Africa:
Page 73 of 120
Repayments of the foreign loan may, with prior approval, be met from the foreign company's profits; and if guaranteed from South Africa and the guarantee is implemented, funds may only be remitted with prior Exchange Control approval. 6.1.3 Loans by residents to non-residents Corporates Loans by South African corporates to non-residents are subject to the approval of Exchange Control, which will usually only be given in exceptional circumstances if the loan is related to an approved foreign investment by a company. Individuals An individual may transfer loans within a limit of R30 000 per applicant during a calendar year to persons normally resident outside the Republic or to South African residents who are temporarily overseas for the sole purpose of study. (April ‘06) O4 6.1.4 Portfolio investments 6.1.4.1 Portfolio investments by residents The export of capital for portfolio investments, for instance in quoted stocks and shares, is prohibited, except as provided for in section 6.1.1. 6.1.4.2 Foreign portfolio investments by South African institutional investors As an interim step towards prudential regulation, retirement funds, long-term insurers, collective investment scheme management companies and investment managers are allowed to transfer funds from South Africa for investment abroad. The exchange control limit on foreign portfolio investment by institutional investors is applied to an institution’s total retail assets. The foreign exposure of retail assets may not exceed 15% in the case of retirement funds and long-term insurers and 25% in the case of collective investment scheme management companies and investment managers registered as institutional investors for exchange control purposes. Institutional investors will, on application, be allowed to invest an additional five per cent of their total retail assets by acquiring foreign currency denominated portfolio assets in Africa through foreign currency transfers from South Africa or by acquiring approved inward listed instruments based on foreign reference assets or issued by foreign entities, listed on the JSE Limited or the Bond Exchange of South Africa, respectively (See point 7.9). It should be noted that compliance with the exchange control limits on foreign portfolio investment does not preclude an institution from also having to comply with any relevant prudential regulations as administered by the Financial Services Board.
Page 74 of 120
Foreign assets, for exchange control purposes, are defined as the sum of foreign- currency denominated assets and Rand-denominated foreign assets, acquired indirectly through investment with another domestic institution. To ensure the consistent classification of foreign exposure, institutions are required to report their assets on a “look-through” basis. Full details of this dispensation including the mechanics thereof, the procedures and the reporting requirements can be accessed from the following links: Asset Allocation Reports Exchange Control Application Forms 6.1.5 Share incentive schemes offered by foreign companies Exchange Control are prepared to consider applications by South African residents who are employed by the local subsidiary or branch of a foreign company, to participate in share incentive schemes offered by the overseas parent. The application to the Control should cover the following aspects: Full particulars of the scheme supported by a copy of the offer to employees, e.g. the prospectus; number and value of the shares to be taken up; market value of the shares; and method of payment (January ‘07) O5 Any approval given by Exchange Control is restricted to R2 million. In the case where shares are taken up for immediate sale abroad, Exchange Control will allow the transfer of the funds as a means of bridging finance. It is, however, a condition of such approval that all shares must be sold immediately and the net proceeds (after deduction of any related costs) repatriated to South Africa. 6.1.6 Trade finance Exporters require special authorisation from their bankers before granting credit in excess of six months. The Authorised Dealer may grant such authority provided that he is satisfied that the credit is necessary in the particular trade or that it is needed to protect an existing export market or to capture a new export market. Requests for granting credit in excess of twelve months need specific Exchange Control authority. 6.1.7 Borrowing abroad by residents 6.1.7.1 Control over borrowing abroad by residents
Page 75 of 120
Whilst permission is generally granted for residents to raise foreign loans, it is necessary for prior approval to be obtained, from Authorised Dealers or Exchange Control, since the country will be placing itself in a position where the foreign creditor has a call on the country's foreign exchange reserves at the time of repayment. Authorised Dealers may approve applications by residents, who are not affected persons, to avail of inward foreign loans and foreign trade finance facilities from any non-resident, subject to the specific criteria applicable to inward foreign loans being adhered to and that such loans are recorded via the Loan Reporting System by the Authorised Dealers. All other requests to avail of inward foreign loans and foreign trade finance facilities must be referred to Exchange Control The aforegoing applies not only to foreign loans introduced into the country but also to loan commitments as a result of the non-payment of imports or services rendered. 6.1.7.2 Purpose of control The objective of the control is not to restrict borrowing abroad but to ensure that the repayment and servicing of loans do not disrupt the balance of payments. For this purpose Exchange Control requires to approve the borrowing in order to ensure that a bunching of repayments will not cause inordinate strain on the foreign exchange reserves at a particular time or that short-term speculative flows of hot money do not disrupt the balance of payments. The objective is also to ensure that the level of interest rates paid is reasonable in terms of prevailing international rates. In line with the general policy of not restricting transfers of genuine income, as opposed to capital transfers, the interest payable on foreign loans is freely transferable provided Exchange Control has approved the underlying borrowing. The policy regarding borrowing abroad applies to both corporate entities and individuals. (October ‘07) O6 6.1.7.3 Authority to Authorised Dealers Application requirements All applications to Authorised Dealers for inward foreign loans and foreign trade finance facilities must, inter alia, contain the following information: • Full names of the local borrower; • identity number or temporary resident permit number or registration number of the borrower; • full names of the foreign lender; • domicile of the foreign lender; • relationship between the foreign lender and the borrower;
Page 76 of 120
• denomination of the loan; • currency and amount of principal sum; • interest rate and margin; • purpose of the loan; • details of the type of security required, if any; • tenor. In instances where a loan will be repaid at a fixed future date, the date on which the loan will be repaid must be provided and, where a loan will be repaid in instalments, the date of the first instalment should be provided as well as the interval of the instalments, e.g. 12 monthly instalments; • copy of the loan agreement; • confirmation that there is no direct/indirect South African interest in the foreign lender; • full details of early repayment options, as well as currency switch options, if any; and • in the case of trade finance facilities, written confirmation from the borrower to the effect that the relative import or export transaction is not being financed elsewhere. Applications to be submitted to Exchange Control Authorised Dealers must submit an application to Exchange Control for consideration in the following instances: All applications by affected persons for inward foreign loans and foreign trade finance facilities; regularisation of all unauthorised inward foreign loans and foreign trade finance facilities; loan draw downs, capital and interest payments, where the funds originate from or are deposited to Non-Resident Accounts. These transactions are not reportable on the Reporting System; (October ‘07) O7 foreign trade finance facilities for imports/exports where the transactions will not be reported under Category 999 or 402 of the Reporting System. A quarterly schedule must be submitted detailing funds drawn against the facility as well as all repayments effected; any other instances where the Reporting System will not reflect changes to the original loan; any unauthorised increase/decrease of the principal amount of the foreign loan; capitalisation of interest;
Page 77 of 120
conversion of the loan to share capital; consolidation of loans; all loans where commitment fees, raising fees and/or any other administrative fees are payable; early capital redemptions; all loans that are repayable on demand; all loans without definite repayment terms; issuance of redeemable preference shares to non-residents; bond issues; and all cases where the criteria which Authorised Dealers must apply when adjudicating applications cannot be met. Capital Repayments Authorised Dealers may also provide foreign exchange for the repayment of inward foreign loans and foreign trade finance facilities equal to the funds drawn down under a specific loan on the due date. Capital and interest payments must be reported separately on the Reporting System. Capital repayments must be strictly in accordance with the terms of the loan. Guarantees Authorised Dealers may issue guarantees in favour of non-resident lenders as and when required. Draw downs The principal sum of the loan must be introduced within a period of three months from the date that the loan was captured on the Loan Reporting System and may not exceed the authorised principal amount of the loan. Any extensions in this regard, must be advised to Exchange Control. Retention of documentation Authorised Dealers must be able to substantiate all information submitted via the Loan Reporting System. For inspection purposes, documentary evidence must be retained for a period of five years after the full repayment of the loan.” (October ‘07) O8 6.1.7.4 Categories of loan finance
Page 78 of 120
The central question to be decided is when and on what conditions exemption should be granted from the general restriction on foreign borrowing. In the following sections the types of borrowing to be considered for exemption, the conditions attached and the required procedures will be discussed. Loan finance available from abroad usually falls within one of the following categories: Loans from non-resident banks; loans from non-resident shareholders to affected persons; and loans from other non-residents. 6.1.7.4.1 Loans from non-resident banks Currently loans are available from non-resident banks for various periods. South Africa would, however, welcome loans of longer duration. These loans, raised on international markets, are usually denominated in United States dollars, although other internationally traded currencies such as Sterling and EURO may also be provided. (a) Short-term Trade Finance Foreign facilities for periods not exceeding twelve months for financing exports from and imports into South Africa are classified by Exchange Control as trade finance. Such facilities are normally used by residents, when the overall effective covered cost of the facility is lower than that of local short-term Rand finance. The following information must be included in the application to Exchange Control, seeking approval of the proposed foreign borrowing: Name of lender; the amount and currency of the loan/credit line; a brief indication of the terms, e.g. interest rate or margin above market rate, commitment fee, if any; acknowledgement that written confirmation has been obtained from the borrower to the effect that the relative import or export transaction is not being financed elsewhere; and any other terms and conditions. In their approval of an application, Exchange Control may permit the guaranteeing of the facility by a South African bank. (b) Short-term Trade Finance extended by an Authorised Dealer Imports
Page 79 of 120
Exchange Control is prepared to permit Authorised Dealers, on application, to extend short-term foreign trade finance facilities, relating to the importation of goods into the Republic, to residents subject to the following conditions: (October '07) O9 The facilities being extended by the local bank concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad for that specific purpose; the facilities relate to the payment for the importation of a specific consignment of goods. In this regard, the local bank concerned may bundle a number of payments together when extending a short-term foreign finance facility, but must ensure that payments for the underlying transactions have been made not more than six weeks prior to the date of draw down of the facility or that payments will be made within six weeks from the date of draw down of the facility. In all instances the drawdown of the facility may only take place on or after date of shipment; the Authorised Dealer extending these facilities ensures that the underlying payments comply fully with the relevant exchange control authorities and directives, including the viewing, endorsement of substantiating documentation and the reporting in terms of the Reporting System, on repayment of the facility. Where another Authorised Dealer has been instructed to effect some or all of the foreign currency payments (pay aways), the Authorised Dealer extending the trade finance facility would place the other in funds by crediting the former's nostro account, thus ensuring that it is always possible to relate all facilities outstanding to specific import transactions; the overall finance period, including any initial supplier's credit taken, does not exceed 12 months from date of shipment of the underlying goods to the Republic; and no such facility may be drawn down unless the supplier has been paid or will be paid out of the said draw down and no other financial commitment exists in regard to the underlying importation, except where a batch of import payments are being bundled into one draw down under a short-term foreign finance facility. Exports Exchange Control is prepared to permit Authorised Dealers, on application, to extend short-term foreign trade finance facilities relating to the export of goods from the Republic to residents, subject to the following conditions: The facilities being extended by the Authorised Dealer concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad for that specific purpose; the facilities relate to the pre- or post-shipment finance of the export of a specific consignment of goods;
Page 80 of 120
the Authorised Dealer extending these facilities ensures that at the time of draw down, the foreign currency amount of the drawing is converted into Rand and the relevant exchange control requirements, including the reconciliation of attested Forms F178, reporting in terms of the Reporting System and the observance of the 30 day rule, are complied with; (October '07) O10 the foreign currency draw down, under a short-term export finance facility, must be treated as the early accrual of the export proceeds, be converted to Rand and further administered as such; the foreign currency eventually received from the overseas importer is not converted to Rand, but is applied in repayment of the export finance facility; where another Authorised Dealer has been instructed to receive the proceeds, it would pass these on to the Authorised Dealer extending the trade finance facility by crediting the latter's nostro account, thus ensuring that it is always possible to relate all outstanding facilities to specific current export transactions; the overall finance period, including any initial credit granted by the exporter, does not exceed six months from date of shipment of the underlying goods from the Republic, unless a special dispensation has been granted, when the overall finance period including any initial credit granted by the exporter may not exceed 12 months from date of shipment of the underlying goods from the Republic. An export finance facility may be extended in the event of the overseas importer requiring an extension of the original credit period, provided that the overall finance periods set out above are not exceeded; the facility must be repaid with foreign currency. No facility may be drawn down where payment of the underlying export transaction has already been received; in the event of the overseas importer paying before the relative export finance facility has fallen due for repayment and effecting an early repayment thereof is not possible, the local exporter may either retain these foreign currency funds in a C.F.C. account to meet his export finance liability on due date or alternatively, convert such funds to Rand. Should the local exporter opt for the latter, the foreign finance facility must, from then on, be administered as a short-term working capital loan and be reported as such in subsequent monthly returns submitted to Exchange Control; and in the event the overseas importer does not affect payment or only makes partial payment, the balance outstanding must, from then on, be administered as a short-term working capital loan and be reported as such in subsequent monthly returns submitted to Exchange Control, who must also be informed of the overseas importer's default. The facilities enumerated above would not be included in the calculation of an affected person's local borrowing levels in terms of the provisions of Regulation 3(1)(f), provided that the facilities being extended by the local bank concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad, for that specific purpose.
Page 81 of 120
(c) Short-term working capital loans Short-term loans in foreign currency for working capital purposes are normally used by South African residents when: (October '07) O11 The overall effective covered cost of the facility is lower than that of local short-term finance; or local facilities cannot be used because the borrowing company is subject to Exchange Control Regulation 3(1)(f). Exchange Control is prepared to approve foreign currency working capital facilities provided the period of the borrowing is for a minimum of one month. In the application to Exchange Control for approval information should be included on the following aspects: Name of the lender; the amount and currency of the loan; security denomination; the tenor of the loan; a brief indication of the terms, e.g. interest rate or margin above market rate, repayment schedule, commitment fee; and the purpose of the loan. In their approval of an application, Exchange Control may: Permit the guaranteeing of the facility by a South African bank; and agree to interest payments and capital repayments on the due date provided the interest rate is market-related. Where the local borrower wishes to negotiate an extension of a working capital loan, early application for the necessary permission must be submitted to Exchange Control, unless authority to extend was covered in the original application. (d) Short-term Working Capital Loans extended by an Authorised Dealer Exchange Control is prepared to permit local Authorised Dealers, on application, to extend shortterm foreign currency working capital loan facilities, specifically relating to the financing of current
Page 82 of 120
assets, other than those arising from the importation or the export of goods into or from the Republic, to residents on the following basis: That the facilities being extended by the Authorised Dealer concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad for that specific purpose; and the facilities relate to the financing of the current assets, other than those arising from the importation or the export of goods into or from the Republic, of a resident. (October '07) O12 The facilities enumerated above would not be included in the calculation of an affected person's local borrowing levels in terms of the provisions of Regulation 3(1)(f), provided that the facilities being extended by the Authorised Dealer concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad for that specific purpose. (e) Long-term loans Foreign currency loans for periods of one year and longer are normally used by local borrowers for financing: The import or export of capital goods; or long-term expansion projects. Where agreement has been reached between the non-resident bank and the domestic borrower regarding the terms of the proposed loan, an application must be submitted to Exchange Control, enclosing a copy of the proposed loan agreement and highlighting the particulars indicated below with reference, where applicable, to the relevant paragraph of the agreement : Name of lender; amount and currency of loan and currency switch options, if applicable; purpose of the loan; tenor of the loan (Exchange Control's policy not to agree to early repayments, as indicated in the next section, should be borne in mind); draw down date(s) and terms; repayment terms; interest rate and interest period options; commitment fee;
Page 83 of 120
raising fee; legal costs; and early repayment options. A request for the following specific authorities should be included in the application for the South African resident to enter into the loan agreement and for foreign exchange to be provided to: Service the loan, i.e. to pay interest and, in need, commitment and raising fees; pay legal costs, where applicable; effect repayments in terms of the loan agreement; and for the loan to be guaranteed by the nominated South African bank, if so required. (October '07) O13 In approving an application to accept a long-term loan from a non-resident bank, Exchange Control by implication authorises repayment in due course but the authority invariably includes a statement that early repayment may not be undertaken without the prior approval of the Exchange Control. The facilities enumerated above would not be included in the calculation of an affected person's local borrowing levels in terms of the provisions of Regulation 3(1)(f), provided that the facilities being extended by the Authorised Dealer concerned are funded, in turn, from foreign currency placements attracted and/or lines of credit obtained from correspondent banks abroad, for that specific purpose. Where a borrower wishes to exercise an option in the loan agreement to effect early repayment, in whole or in part, or the non-resident bank has agreed to the borrower's request to make early repayment, no such transaction may be permitted without the prior approval of Exchange Control. Applications, which must comment fully on the reasons for wishing to effect early repayment, are considered by Exchange Control in the light of the circumstances prevailing at the particular time. It is currently general policy not to agree to early repayments. Arrangements to extend loans from non-resident banks may not be concluded without permission from Exchange Control, to whom application should be made in good time prior to the maturity date of the facility. The applications regarding early repayment and the extension of facilities are required to ensure the best and longest possible use of loan facilities available to residents and to enable Exchange Control to monitor the amount of loan funds available to residents and the cash-flow implications for the Balance of Payments. 6.1.7.4.2 Loans from non-resident shareholders to affected persons
Page 84 of 120
Without the prior approval of Exchange Control, South African companies may not: Accept loans from their non-resident shareholders; or effect repayment to non-resident shareholders of loans for which permission had previously been granted. Special considerations regarding the acceptance and repayment of loans have to be taken into account when the non-resident interest in the South African company is 75% or greater, and these are outlined hereunder. South African companies subject to Exchange Control Regulation 3(1)(f) The restrictions on the extent to which South African companies subject to Exchange Control Regulation 3(1)(f) may use local borrowing and other financial assistance are set out in the section headed "Local financial assistance to affected persons and non-residents" (section 6.2.1). The acceptance of or the repayment of non-resident shareholders' loans may affect existing authorities as indicated in the table below, thus necessitating the renegotiation of new (increased or reduced) limits with Exchange Control: (October '07) O14 Type of Loan Transaction Effect on Local Borrowing Limit
New loan from non-resident shareholders with Amount included in effective capital and local no pro rata contribution from resident borrowing limit increased by applicable shareholders. percentage of this amount. Repayment of above loan. Amount deducted from effective capital and local borrowing limit reduced by applicable percentage of this amount.
Page 85 of 120
New loan from non-resident shareholders with Both loans included in effective capital and local pro rata matching loan from resident share- borrowing limit increased by applicable holders. percentage of the total of the amounts of the loans. Repayment of the non-resident shareholders' loan only. Both non-resident and resident shareholders' loans deducted from effective capital and local borrowing limit reduced by the applicable percentage of the total of the amounts of the loans and resident shareholders loans now reclassified as local borrowing and must be accommodated under local borrowing limit.
Page 86 of 120
6.1.8 The debt standstill arrangements The debt moratorium, which was introduced in 1985, expired on 2001-08-15. (June ’02) P1
Page 87 of 120
6.2 Capital transactions of non-residents Non-residents may freely invest in the Republic, provided that suitable documentary evidence is viewed in order to ensure that such transactions are concluded at arm’s length, at fair market related prices and are financed in an approved manner. In this regard, such financing must be in the form of the introduction of foreign currency, Rand from a Non-Resident account or in terms of the provisions of point 6.2.1. The creation of any loan account between a resident and a non-resident would require prior Exchange Control approval. The local sale or redemption proceeds of non-resident owned assets in South Africa may be regarded as freely remittable. 6.2.1 Local financial assistance to affected persons and non-residents 6.2.1.1 General restriction A general restriction regarding the granting of local financial assistance to affected persons and nonresidents and security given by non-residents is contained in Exchange Control Regulations 3(1)(e) and 3(1)(f), which stipulate: "Subject to any exemption which may be granted by the Treasury or a person authorised by the Treasury, no person shall, without permission granted by the Treasury or a person authorised by the Treasury and in accordance with such conditions as the Treasury may impose (e) grant any financial assistance to any person in the Republic, where as security for such financial assistance, the person granting the financial assistance in turn relies on any security, guarantee, undertaking or financial assistance, directly or indirectly furnished by any person resident outside the Republic; or an affected person." and (f) "grant any financial assistance to any person in the Republic, where such person is not resident in the Republic; or is an affected person." Thus permission for the granting of financial assistance in the above circumstances must be obtained from Exchange Control except where Authorised Dealers have been authorised to do so. In this regard only requests for excess local financial assistance facilities need to be referred to the control for authorisation. Should there be any doubt as to whether a new or additional facility can be accommodated within an affected person's overall borrowing limit the matter must be referred to the Exchange Control.
Page 88 of 120
Authorised Dealers should of course annually review their affected person client's local financial assistance facilities against the client's latest financial statements and MP.79(a) questionnaire. These documents must be retained for a period of five years. Where an affected person avails of local financial assistance in respect of soft facilities, e.g. spot and forward contracts, letters of credit, and/or securities lending, or when the only asset of an “affected person” is a mortgaged residential property and provided no additional borrowings are accorded, the prescribed documentation need not be obtained. In terms of Exchange Control Regulation 1 an "affected person" is a body corporate, foundation, trust or partnership operating in the Republic, or an estate in respect of which: (October ‘07) Q1 "(i) 75 per cent or more of the capital, assets or earnings thereof may be utilised for payment to, or to the benefit in any manner of, any person who is not resident in the Republic; or (ii) 75 per cent or more of the voting securities, voting power, power of control, capital, assets or earnings thereof, are directly or indirectly vested in, or controlled by or on behalf of, any person who is not resident in the Republic." For the purpose of this regulation a non-resident is any person (i.e. a natural person or legal entity) whose normal place of residence, domicile or registration is outside the CMA. In general two possible situations are covered by this regulation: usually the situations covered by Regulation 3(1)(e) and 3(1)(f) occur together, for example when a non-resident controlled entity operating in the RSA receives a guarantee from the nonresident shareholder. Regulation 3(1)(e) will also apply where a locally controlled entity receives a guarantee from a non-resident. Financial assistance includes the lending of currency, the granting of credit, the taking up of securities, the conclusion of an instalment and/or hire purchase sale or a lease, the financing of sales or stocks, discounting, factoring, the guaranteeing of acceptance credits, the guaranteeing or accepting of any obligation, a suretyship, a buy-back and a lease-back, but excludes trade credit, which comprises: the granting of credit by a seller in respect of any commercial transaction directly involving the passing of ownership of the goods sold from seller to purchaser; and the granting of credit solely in respect of the payment for services rendered. 6.2.1.2 Purpose of control The control over the rendering of financial assistance to non-residents or affected persons is intended as a form of rationing of domestic capital resources.
Page 89 of 120
6.2.1.3 General requirements Non-residents may borrow up to 100% of the Rand value of funds introduced from abroad and invested locally. However, in instances where a non-resident wishes to borrow locally to finance a foreign direct investment into South Africa, the Control would, on application, consider such borrowing up to 300% of the Rand value of the funds introduced from abroad and invested locally. Wholly non-resident owned subsidiaries may borrow locally up to 300% of the total shareholders' investment, which is taken to mean the paid-up equity capital, preference shares, undistributed earned profits, shareholders' loans from abroad and, in certain instances, the hard core of shareholders' trade credit. This total is generally known as the company's "borrowing base" or "effective capital". The effect of local participation in non-resident controlled entities is to make the abovementioned norms more liberal the greater the local participation, i.e. the ability to borrow locally increases. The formula for calculating the "local financial assistance ratio" or permitted percentage of effective capital is: (February ‘04) Q2 % South African interest 300% + ( --------------------------------- ) X 100% % Non-resident interest Thus a 20% local shareholding will increase the maximum allowable local borrowings to 325% of the effective capital; a 25% local interest yields a 333% figure etc. The aforementioned ratio does not apply to emigrants, the acquisition of residential properties by non-residents or affected persons, and any other financial transactions, such as portfolio investments by non-residents, securities lending, hedging, repurchase agreements, etc. It is incumbent on Authorised Dealers to make extensive enquiries as to whether the borrower is availing of any form of "off-balance sheet" financing or disproportionate shareholders loans as well as lending facilities from other parties. If the level of facilities available to it is in excess of the company's local financial assistance limit the relative application must state how and when the company proposes to fall within the prescribed ratio and must be supported by cash flows and profit projections. Exchange Control will consider these applications on merit and will normally be prepared to allow a reasonable transition period for adjustment. 6.2.1.4 Authority to Authorised Dealers Authorised Dealers may agree to requests by non-resident owned entities for new or additional facilities provided the amount of the new facility, together with all existing local financial assistance
Page 90 of 120
facilities available to the affected person, will not exceed the local financial assistance ratio applicable to that person. Facilities of R20 000 and under As an exception to the above Authorised Dealers may permit facilities of R20 000 and under without reference to Exchange Control provided the total of all such facilities available to the affected person concerned from any source does not exceed R20 000. 6.2.1.5 Matters to be referred to Exchange Control a) Requests for exemption from Exchange Control Regulation 3(1)(f) for facilities in excess of the overall limit, as calculated per the "local financial assistance ratio" applicable to the borrower. b) South African companies with "dispersed" non-resident shareholders. Special consideration is given to those local companies, particularly locally quoted companies, classified as affected persons, where the non-resident shareholdings are dispersed to such an extent that no single party or group has a decisive influence on the affairs of the organisation. Exchange Control is prepared to favourably consider granting complete exemption to all such companies receiving financial assistance provided it can be shown that control over all policy and management decisions is vested in the resident shareholders. Applications to Exchange Control in this regard, which do not have to be supported by Form M.P.79(a) (Exchange Control Questionnaire), should clearly demonstrate that control over the company vests in South Africa and must contain the following particulars: (February ‘04) Q3 a description of each type of voting security issued by the company and an indication of the distinction between such securities; in respect of any individual shareholders owning 10 per cent or more of the voting securities issued by the company, an indication of the name and country of residence of the shareholder and of the extent of the holding; and the name and country of residence of each director of the company. c) Excess facilities Exchange Control may, for an agreed period, authorise borrowing facilities above the maximum allowed in terms of the local financial assistance ratio when a company's operations would: • increase or create local manufacture with a resultant increase in employment; • result in the development of a substantial export market; serve to reduce imports;
Page 91 of 120
be considered as being in the national interest in some other respect; or where the non-resident investor is inhibited from further increasing his investment. Applications must be fully explanatory and should be supported by projections indicating how and when the company proposes to again fall within the applicable ratio, i.e. through an increase in the effective capital or a decrease in the level of local financial assistance. Exchange Control would normally expect the excess facilities to be progressively reduced over a period of two years, depending on the circumstances surrounding the case. Exchange Control also adopts a flexible attitude towards applications by companies that require temporary excess facilities for a period of time to implement local expansion or modernisation plans or to see through a period of tight liquidity. 6.2.1.6 Applications to Authorised Dealers All applications for the renewal of existing facilities or for the granting of new facilities must be supported by a completed Form M.P.79(a) (Exchange Control Questionnaire). The completion of Form M.P.79(a), which should, in the main, be undertaken by the borrower, is complicated and it is most important that branches of Authorised Dealers liaise with their customers in this regard to ensure that all aspects are correctly covered and all additional information furnished in accordance with the requirements of Exchange Control. The restriction on the granting of local financial assistance is clearly placed on the granter and it is incumbent on the lender to obtain exemption from the Exchange Control. It has become accepted practice for any one application to Exchange Control for exemption from the regulations to seek exemption in respect of all the local financial assistance accorded, or to be accorded, to the borrower by all the other lenders in South Africa. (October '97) Q4 The following documentation is required when an application is made to Exchange Control: a completed Form M.P.79(a) (Exchange Control Questionnaire); latest audited annual financial statements or latest unaudited financial data as appropriate; and schedules of: off-balance sheet financing facilities split into productive and non-productive; and guarantee facilities marked by banks. 6.2.1.7 Security given by non-residents
Page 92 of 120
The restriction in Exchange Control Regulation 3(1)(e) is placed on the granting of financial assistance in the RSA where the entity granting the assistance relies on any security, guarantee, undertaking or financial assistance furnished directly or indirectly by a non-resident or an affected person. The status of the person to whom the financial assistance is given, is of secondary importance. In terms of the Exchange Control Rulings Authorised Dealers may allow advances to residents of the CMA against guarantees by non-residents. The guarantees given by non-residents for obtaining local financial assistance usually match the facilities asked for. That is acceptable to Authorised Dealers and Exchange Control since the matter is in effect controlled through the local financial assistance ratio discussed above. 6.2.1.8 Loans from non-resident shareholders Refer to section 6.1. 6.2.2 Disinvestment from the RSA In terms of current Exchange Control policies the local sale or redemption proceeds of non-resident owned assets in South Africa may be regarded as remittable. (October '97) Q5 6.2.3 The financial rand system The financial rand system was abolished with effect from 13 March 1995. (October '97) R1
Page 93 of 120
6.2.4 Securities control 6.2.4.1 Definitions The term "securities" includes not only South African quoted stocks, shares, warrants, debentures and rights, but also unquoted shares in public companies, shares in private companies, government, municipal and public utility stocks, non-resident owned mortgage bonds and/or participations in mortgage bonds and short term debt instruments. The terms "scrip" and "share certificates" include any temporary or substitute documents of title, such as Letters of Allocation, Warrants, Letters of Allotment, Option Certificates, Balance Receipts and any other receipts for scrip. The term "controlled security" is defined as: • Any security registered in the name of a non-resident, or of which a non-resident is the owner, or in which a non-resident has an interest; and • any security acquired from a non-resident or acquired outside the Common Monetary Area (CMA) by any person, irrespective of the residence of such person. For the purposes of the application of securities control, a non-resident is defined as a person (i.e. a natural person or legal entity) whose normal place of residence, domicile or registration is outside the CMA. 6.2.4.2 Control on dealings in non-resident owned securities Dealings in securities belonging to non-residents or in which they have an interest are controlled in terms of Exchange Control Regulation 14 and 15. The following transactions by non-residents are subject to Regulation 14: • acquiring any controlled security or disposing of it; • acting as nominee for a non-resident or appoint a non-resident as nominee in respect of any dealings in securities; • making any entry in a security register which involves the transfer of a security into or out of the name of a non-resident; • changing an address of a non-resident in any security register except a change to an address in the same monetary area as that currently recorded in the register; • entering in a security register or do any act with intent to secure the entry in such register of an address in the Republic if he knows or has reason to believe that the purchaser of the security is a non-resident or that a non-resident has an interest in the security; or
Page 94 of 120
• transferring a security owned by a non-resident or in which a non-resident has an interest from a foreign register to a South African register or section of a South African register. It is emphasised that these restrictions apply not only to securities registered in the name of a nonresident, but also to securities in the name of a resident acting as nominee for a non-resident. There are no restrictions on local dealings in securities, other than bearer securities, which are owned by residents. (October '06) S1 6.2.4.3 Form of control The control is exercised by placing the endorsement "Non-Resident" on all securities owned by nonresidents or in which non-residents have an interest. The effect of this endorsement is to ensure that payment of the sale proceeds of securities belonging to non-residents only are transferred abroad or credited to a Non-Resident Account. It is felt that in a certified environment, securities control can best be administered by a few financial institutions who have a detailed knowledge of the subject and of Exchange Control generally. It has therefore been centralised in the hands of a few branches of Authorised Dealers, who are referred to hereunder as Authorised Banks and duly appointed Participants in a Capital Securities Depository (CSDP). In an uncertified environment there is no distraction between the duties of Authorised Dealers, Authorised Banks and CSDPs. CSDPs and Settlement Agents are also authorised as such by Exchange Control, while members of stock exchanges are by the exchanges concerned. Custody and Settlement Members (CSM) and Custody and Settlement Agents (CSA) are authorised as such by JSE Limited (JSE). A list of Authorised Banks, CSDPs and Settlement Agents is available from any Authorised Dealer. 6.2.4.4 Purpose of control While Exchange Control over non-residents has been relaxed, the current exchange control measures applicable to South African residents remain in force. In order to ensure that residents do not acquire funds outside the Common Monetary Area by purchasing securities locally and selling them abroad without accounting for the proceeds in an approved manner, it is necessary to perpetuate the segregation of securities owned by non-residents from those owned by residents by continuing the system of endorsement of the securities of non-residents. This system also acts as an assurance to non-residents that the local sale proceeds of their investments will remain freely transferable by providing for the placing of such funds to the credit of a Non-Resident Account. The principal objectives in controlling dealings in securities owned by non-residents or in which they have an interest, are to ensure: • That residents requiring funds outside the Common Monetary Area do not obtain such funds by purchasing securities in the CMA and selling them outside the CMA without accounting for the proceeds in foreign currency or Rand from a Non-Resident Account; and
Page 95 of 120
• since all income due to non-residents on their securities is freely transferable, non-residents do not purchase securities from residents, other than through approved channels at fair market value; and All securities traded on both the Bond Exchange of South Africa (BESA) and the JSE need to be dematerialised or immobilised in the electronic records of the CSD specifically established for this purpose, before it can be rendered “good delivery”. The residential status will be flagged by the various CSDPs or Settlement Agents. Since only CSDPs would be able to initiate the dematerialisation process in an electronic settlement environment, the initiation of this process in respect of emigrants would need to be the CSDP of the Authorised Dealer controlling the particular emigrant’s blocked assets, or the CSDP contracted by such an Authorised Dealer, under the auspices of the controlling Authorised Dealer. (October '06) S2 (October '06) S3 Only the CSDP of Authorised Dealers may enter into securities lending transactions with nonresidents and then only within the ambit of the powers granted to them. Except with the authority of Exchange Control, no advances may be made against securities. The system of control has been designed to segregate the securities owned by non-residents from securities owned by residents without imposing physical control over the actual securities, in both certificated and uncertificated environments to allow non-residents the maximum freedom to change their investment portfolios without defeating the objects outlined above, and at the same time to obviate the necessity for a cumbersome administrative machine which, in the interest of investors and others concerned, it is naturally desired to avoid. 6.2.4.5 General requirements Securities held on behalf of non-residents in certificated form Endorsement requirements Exchange Control Regulation 14 makes it obligatory for all residents, who hold or receive securities on behalf of non-residents, to submit such securities to any Authorised Dealer in Foreign Exchange or CSDP in the CMA for “Non-Resident” endorsement. The securities must be accompanied by a declaration signed by the holder that the beneficial owner of the securities is permanently resident in the country indicated. This applies both to securities actually registered in the names of non-residents and to those held in the names of nominees, including banks and all other nominee companies. It may further be added that Regulation 14 precludes any resident from acting as a nominee for a non-resident unless permission has been obtained from Exchange Control. Such permission will normally be granted only to stockbrokers, banks and other financial institutions who are expected to be fully aware of the exchange control ramifications of acting as a nominee for a non-resident. Authorised Dealers and their nominee companies are also authorised to act as nominees for non-residents.
Page 96 of 120
Authorised Dealers who are presented with unendorsed securities, will endorse such securities “Non-Resident”. The endorsement will be written or stamped in bold letters, not less than five millimetres high on the top right-hand corner of the security. The endorsement will be authenticated by the stamp of the Authorised Dealer concerned and the signature of one of its authorised officers. It is emphasised that any Authorised Dealer may endorse securities but only an Authorised Bank may cancel the endorsement. Cancellations must also be authenticated as indicated above. The effect of the endorsement will be to render the securities "bad delivery" to a resident until the endorsement has been cancelled by an Authorised Bank. Transfer Secretaries will also be required to endorse securities in certain circumstances and will not be permitted: • To register securities in the name of a non-resident without endorsing the relative security "NonResident"; • to transfer securities out of the name of a non-resident (except to another non-resident) unless the relative security has been endorsed "Non-Resident" and the endorsement cancelled by an Authorised Bank; and • to issue "rights" to non-residents without endorsing the relative securities "Non-Resident". (October '06) S4 Cancellation requirements If a non-resident wishes to effect a switch of his CMA securities, the securities will have to be presented to an Authorised Bank for the purpose of having the endorsement cancelled. Such cancellations will have to be signed by an authorised officer of the Authorised Dealer concerned. The Authorised Banks will only cancel the endorsement on the following conditions: • Against the presentation of other locally listed or unlisted securities of an equivalent value, as evidenced by brokers’ notes or an auditors’ certificate confirming the value of the unquoted security, which would then be "Non-Resident" endorsed and returned to the broker, buyer or Authorised Dealer controlling the blocked assets of the emigrant;; • against payment to the bank, for transfer abroad or for credit of a Non-Resident Account, of the proceeds of the securities realised, as evidenced by brokers’ notes or auditors’ certificate confirming the value of the unlisted security; and • against payment to the bank of part of the proceeds for transfer abroad or credit to a NonResident Account and presentation of other locally listed or unlisted securities, together totalling the equivalent to the value of the securities sold. A "Non-Resident" endorsement would, of course, be placed on the securities presented. Funds held in Non-Resident Accounts are freely transferable and will accordingly be eligible for investment in locally listed and unlisted securities, financial instruments and any other assets on behalf of such account holder. The funds may be released to a stockbroker or seller, against
Page 97 of 120
presentation of local securities on which a "Non-Resident" endorsement must be placed by the bank. As indicated above, if the value of securities sold on behalf of a non-resident exceeds the value of the new securities purchased, as evidenced by the relative brokers’ notes or auditors’ certificate, the difference must be deposited with an Authorised Bank for credit of a Non-Resident Account in the name of the non-resident. Where the value of securities purchased on behalf of a non-resident exceeds the value of the securities sold, the stockbroker or purchaser will have to satisfy the bank that the shortfall has been received in an approved manner from the non-resident, i.e. either in foreign currency or Rand from a Non-Resident Account. Authorised Banks may permit switches into other locally listed securities. Switches may also be permitted from unlisted securities to listed securities, from listed to unlisted securities, or from unlisted to other unlisted securities. The value of unlisted securities need to be confirmed by an auditors’ certificate in each instance. To cover the expenses which will necessarily be incurred by the Authorised Banks in maintaining qualified staff to deal with the matters outlined in these sections, certain charges may be levied. Securities purchased by non-residents and not dematerialised or immobilised by a CSD Endorsement requirements Authorised Dealers will place an endorsement on securities purchased with funds received in foreign currency or for which payment is made from a Non-Resident Account (including funds received from an emigrant’s blocked account). The endorsement will consist of the word "Non-Resident" and will be authenticated by the stamp of the Authorised Dealer concerned and the signature of one of its authorised officers. (October '06) S5 After the endorsement has been annotated, the securities will be returned to the broker, buyer or Authorised Dealer controlling the blocked assets of the emigrant concerned, whichever is applicable. If the owner wishes to switch a security endorsed "Transferable" (*) or "Non-Resident" into another listed or unlisted security, an Authorised Bank must cancel the endorsement on the security sold and place a "Non-Resident" endorsement on the security purchased. This will only be done against confirmation of broker’s notes confirming the value of listed securities or auditors’ certificates confirming the value of unlisted securities. When the latter is presented for transfer into the name of a non-resident or his nominee, the Transfer Secretary who signs the security issued to the transferee must endorse that security “Non-Resident” above his signature.. In endorsing any security purchased under a switch, the Authorised Dealer will ensure that any shortfall is received in an approved manner i.e. either in foreign currency or Rand from a NonResident Account. Any surplus funds arising from a switch must be credited to a Non-Resident Account.
Page 98 of 120
A non-resident may sell any CMA securities to another non-resident. (*) The term "transferable" is historic; the implications of such endorsement are the same as a "NonResident" endorsement. Initiation of the dematerialisation and immobilisation process and subsequent trading in this environment All securities traded on BESA or on the JSE need to be dematerialised or immobilised in the electronic records of the Central Depositories specifically established for this purpose, before they can be rendered “good delivery”. The residential status of the electronic record (i.e. “Non-Resident” or “Emigrant” or “Resident”) will be flagged accordingly by the various participants in the Central Depository, and linked to the applicable Non-Resident, Emigrant Blocked or Resident Accounts in the books of the Authorised Dealer or Authorised Bank concerned. Only CSDPs would be able to initiate the dematerialisation process in an electronic trade environment. It follows that the initiation of this process in respect of emigrants would need to be the CSDP of the Authorised Dealer controlling the particular emigrant’s blocked assets, or the CSDP contracted by such an Authorised Dealer, under the auspices of the controlling Authorised Dealer. This applies both to securities registered in the names of non-residents and to those held in the names of nominees, including Authorised Dealers and all other nominee companies. It may further be added that Regulation 14 precludes any resident from acting as a nominee for a non-resident, unless permission has been obtained from Exchange Control. Only CSDPs and CSMs are authorised to act as nominees for non-residents, provided that their computer systems comply with the requirements of BESA or STRATE, depending in which environment they operate. In processing any security purchased by a non-resident under a permitted switch, the relevant bank must confirm that the funds, needed to settle the trade, will be available on settlement date. The bank must ensure that any shortfall is received in foreign currency or Rand from a Non-Resident Account and that any surplus funds arising from a switch will be credited to a Non-Resident Account. Funds held in Non-Resident Accounts are freely transferable and will, accordingly, be eligible for investment in locally listed and unlisted securities, financial instruments and any other assets on behalf of such account holder. The funds may be released to a stockbroker against presentation of a broker’s note. Where a non-resident removes securities or financial instruments that have been dematerialised or immobilised in a CSD, to a foreign register, the endorsement and cancellation procedures will not be applicable. Where a non-resident re-materialises securities or financial instruments that have been dematerialised or immobilised in a CSD or a Central Depository, the endorsement procedures will again become operative.
Page 99 of 120
To cover the expenses which will necessarily be incurred by CSDPs or Settlement Agents in maintaining qualified staff to deal with the matters outlined in this Section, certain charges may be levied. 6.2.4.6 Duties of banks, CSDPs, Settlement Agents, Members of the JSE and Transfer Secretaries Duties of banks Authorised Dealers in foreign exchange All certificated securities held by an Authorised Dealer on behalf of a non-resident must be endorsed in the prescribed way. This applies irrespective of the name in which the securities are registered. All non-resident owned certificated securities which are not already endorsed and which are presented to an Authorised Dealer must be endorsed against presentation of the required signed declaration. Declarations need not be completed in respect of endorsed securities held by a bank on behalf of a non-resident. On no account may any person other than an authorised officer of an Authorised Bank cancel the endorsement on a certificated security. It follows that any "switch" on behalf of a non-resident from certificated securities, where an endorsement needs to be cancelled, must be referred to the nearest Authorised Bank. With regard to settlement and custody in an electronic environment, there is no difference between the duties of Authorised Dealers and Authorised Banks. The computer systems of Authorised Dealers must comply with the requirements of Share Transactions Totally Electronic Limited (STRATE). Authorised Dealers must account for individual securities held by their clients on the “Resident”, “Non-Resident” and “Emigrant” platforms of their nominee account with a CSDP. They are also required to satisfactorily reconcile the aggregate of their electronic sub-register records per platform (i.e. “Resident”, “Non-Resident” and “Emigrant”) on a daily basis with the total of their nominee account. When opening an account for a non-resident investor, the Authorised Dealer must ensure that the following indicators are correctly identified: (1) Resident; (2) Non-Resident; and (3) Emigrant.
Page 100 of 120
Authorised Dealers must ensure that a properly styled Resident, Non-Resident, Emigrant Blocked or Transferable Income Account has been linked to the securities account for settlement and corporate action purposes. (October '06) S6 Under no circumstances may Authorised Dealers permit the transfer of securities within a nominee electronic register between local, non-resident and emigrant client accounts, other than for settlement related transfers. Authorised Banks Certain branches of Authorised Dealers have been appointed Authorised Banks. The provisions relating to Authorised Dealers in general, therefore, also apply to Authorised Banks who, however, are vested with additional powers. These additional powers encompass ensuring that the requirements relating to securities control are adhered to. Authorised Banks may permit switches into unquoted securities. The endorsement on non-resident owned securities may be cancelled only on the conditions outlined above. Before releasing funds to a Member of the JSE Limited, it is essential for Authorised Banks to endorse the certificated securities presented and to ensure that the latter are of approximately equal value to those sold. Endorsements may not be cancelled without the endorsement of other securities of similar value or against credit of the proceeds to a Non-Resident Account. Authorised Banks will appreciate that the endorsement "Non-Resident" on a security no longer restricts the transferability of the proceeds of the security sold. In endorsing a security purchased for a non-resident, the bank concerned must be satisfied that payment therefor has been received in foreign currency or Rand from a Non-Resident Account. If the owner of a "Transferable" security wishes to sell it and purchase another, an Authorised Bank must place a "Non-Resident" endorsement on the security purchased and must: • Satisfy itself that the security sold was endorsed by an Authorised Bank or by the Transfer Secretary whose signature appears at the foot of the security; and • cancel the endorsement on the security sold. All income due on securities owned by non-residents is transferable to countries outside the CMA. Except with the authority of Exchange Control, advances may not be made against securities owned by non-residents.
Page 101 of 120
Securities owned by non-residents should not be exported, unless they have been endorsed "NonResident." Duties of CSDPs and Settlement Agents • The role of CSDPs and Settlement Agents is that of a custodian and to perform clearing and settlement services by interfacing with STRATE. • The computer systems of CSDPs and Settlement Agents must comply with the requirements of BESA or STRATE, depending in which environment they operate. • CSDPs and Settlement Agents are involved in the settlement process, as trades are eligible for settlement only if the trades have been confirmed or committed to by the CSM, CSA or CSDP and the Settlement Agent, which the instance requires. (October '06) S7 • CSDPs and Settlement Agents are also required to satisfactorily reconcile the aggregate of their electronic records per platform (i.e. “Resident” or “Non-Resident” or “Emigrant”) on a daily basis with the CSD operated by STRATE. • CSDPs and Settlement Agents may permit switches into unlisted securities. • All income due on securities owned by non-residents is transferable to countries outside the CMA. • Advances against securities may not be made without the prior approval of Exchange Control. • Certificated securities owned by non-residents may not be exported, unless they have been endorsed “Non-Resident”. • Securities owned by non-residents may be transferred free of value between CSDPs, for the account of the same non-resident or for the account of another non-resident, under the following conditions: o That the delivering CSDP advises that the transfer constitutes Non-resident owned securities; o that the receiving CSDP ensures that the securities deposited to a non-resident share account and that either no change of beneficial ownership takes place or non-resident funds have moved elsewhere in terms of the transaction; o where such a transaction is initiated by a Member of the JSE, the onus will be on the member to prove that the transaction is effected in terms of the Rulings and that proof of this should be provided to both the receiving and delivering CSDPs; and o where an American Depository Receipt (ADR) transaction is initiated by a Member of the JSE, the onus will be on the member to prove that the transaction is in terms of the Rulings and that proof of foreign exchange movement should be provided to the CSDP.
Page 102 of 120
• When opening an account for an investor, the CSDP must ensure that the following indicators are correctly identified: o Resident; o Non-Resident; and o Emigrant. Duties of Members of the JSE • Dealing with listed securities where the securities are in certificated form o In terms of the provisions of Regulation 14, members of the JSE receiving securities in certificated form from or on behalf of a non-resident must immediately have the securities endorsed “NonResident” by an Authorised Dealer. This applies also to securities purchased on behalf of a nonresident, even if the securities are to be registered in the name of the broker as nominee and, to any securities bearing an address outside the CMA, whether the securities are to be dealt in or not. (October '06) S8 o Members of the JSE should on no account deal in any way with unendorsed securities in which they know or have reason to believe a non-resident has an interest. o When requested by a non-resident to sell any security, the proceeds must either be used to purchase another locally listed security or be deposited with an Authorised Bank for transfer abroad or for credit of a Non-Resident Account in the name of the non-resident. The conditions governing dealings on behalf of non-residents are set out more fully in this Section. o Members are required to ensure that all securities introduced by a non-resident client into a NonResident Share Account are in fact non-resident securities by verifying that the securities bear a “Non-Resident” endorsement or that the securities have been transferred from another NonResident Share Account. o Members are required to ensure that where residents emigrate from the CMA, that their remaining assets are brought under the physical control of an Authorised Dealer. • Dealing with listed securities where the securities have been dematerialised or immobilised in a Central Depository After a transaction has been concluded with a non-resident or emigrant or resident party, brokers notes must be sent to both the client and their nominated CSDP. • General o Members of the JSE should at all times strictly adhere to these requirements to prevent the objectives of securities control being defeated.
Page 103 of 120
o When in any doubt, Members must consult an Authorised Bank or the Director of Surveillance, the JSE. Reference to Exchange Control should be via an Authorised Dealer. ,Duties of Transfer Secretaries Exchange Control Regulation 14 restricts dealings in securities belonging to non-residents, except on the conditions prescribed by the National Treasury, whose powers under this regulation have been delegated to Exchange Control. Except with permission (which must be obtained from an Authorised Dealer who will, in need, refer to Exchange Control), no person may: • Register the transfer of any security in which a non-resident has an interest; • change the address of a non-resident, except to another non-resident address; • register a South African address if the owner is a non-resident; or • transfer a non-resident entry from the foreign Section of a register to the South African Section of the register or vice versa. (October '06) S9 In general: • No transfer of securities may be effected to, or from a non-resident, without the approval of an Authorised Bank or CSDP; • no securities in certificated form, or right to purchase securities, may be issued to, or for account of, a non-resident, unless the documents are endorsed “Non-Resident”; • any request to change the address of a non-resident, except to another non-resident address, requires the prior approval of Exchange Control; • it is possible that some securities in certificated form owned by non-residents may not be presented for endorsement, but if Transfer Secretaries receive, for any purpose, unendorsed securities in certificated form in the names of persons whose addresses are shown in the register as being outside the CMA, they should immediately hand the securities to an Authorised Dealer for endorsement; • Transfer Secretaries may transfer securities in certificated form from one non-resident to another non-resident provided they place a "Non-Resident" endorsement on the security in the name of the transferee; • Transfer Secretaries may transfer securities in certificated form from a resident to a non-resident only if the transferee's security is endorsed "Non-Resident";. • Transfer Secretaries may not transfer securities in certificated form from a non-resident to a resident unless the transferor's security bears a “Non-Resident” endorsement and the endorsement cancelled by an Authorised Bank. No “Non-Resident” endorsement must be placed on the security
Page 104 of 120
issued to the resident transferee. A transfer from the name of a non-resident into the name of a local nominee acting for the same non-resident, where no change of ownership is involved, is not regarded as a transfer from a non-resident to a resident. Transfer Secretaries may therefore effect such transfers without reference to an Authorised Bank provided they place on the new security issued in certificated form, a "Non-Resident" endorsement; • forms of acceptance in certificated form in respect of non-residents must be endorsed "NonResident" before issue. Securities (including Letters of Allotment, Letters of Allocation, Option Certificates, Balance Receipts and any other receipts for securities) may not be issued to a nonresident, or to a person known to be his nominee, without the approval of an Authorised Bank, which will indicate that the funds for its purchase have been received in foreign currency or Rand from a Non-Resident Account. The securities must be endorsed "Non-Resident"; • where “Non-Resident” endorsed securities are received for splitting or replacement without change of ownership, Transfer Secretaries must endorse the new securities “Non-Resident” as well; • all “Non-Resident” endorsements by transfer offices must be authenticated by the signature of the authorised official of the Transfer Secretary concerned; • Transfer Secretaries must, in the following instances, ensure that the original securities in certificated form are surrendered prior to issuing new securities in their stead: (October '06) S10 o When a company has a change of name, a sub-division or a consolidation of shares; o when a company participates in a reconstruction or a merger and new share certificates need to be issued; and o when there is a buyout and in lieu of cash, new shares are issued to the original shareholders in a new company. • where a Transfer Secretary is requested by a CSDP to rematerialise for a non-resident, the Transfer Secretary may produce a certificate, provided that such certificate is endorsed “Non-Resident”. (October '06) S11
Page 105 of 120
6.2.5 Emigration facilities 6.2.5.1 Purpose of control The purpose of the control over emigration facilities is to allow reasonable transfers of assets without damaging effects on the capital account of the balance of payments. 6.2.5.2 Qualification for emigration facilities Persons regarded as South African residents for exchange control purposes who are leaving the Republic to take up permanent residence in any country outside the CMA may, before departure, apply to an Authorised Dealer for emigration facilities. 6.2.5.3 Application for emigration facilities Applicants must complete a Form M.P.336(b) (Application for foreign capital allowance) furnishing full details of the nature and value of their assets, both in and outside the RSA as well as similar information pertaining to any liabilities which will be outstanding in the Republic after their departure. In addition to the details required on the Form M.P.336(b), the applicant must declare whether any assets, cash or otherwise, were received as donations or gifts within the last three years or as capital distributions from Inter Vivos Trusts within the last three years, prior to the date of emigration and furnish details thereanent. Where a family unit is involved, the total assets of the family unit must be listed on the Form M.P.336(b), which should be signed by the head of the family. Written confirmation from the South African Revenue Service to the effect that the applicant's tax commitments have been met or that suitable arrangements have been made to liquidate any obligations in this regard, must be attached to the Form M.P.336(b). 6.2.5.4 Facilities for which emigrants qualify Emigrants qualify for: A cash allowance (equal to a travel allowance); a foreign capital allowance; and are allowed to export those items listed below. Cash allowance (equal to a travel allowance) Single person R160 000; Family unit R160 000 per adult and R50 000 per child under 12 years of age. Foreign capital allowance
Page 106 of 120
Single persons Up to R2 million; Family unit Up to R4 million. Quoted securities may be exported as part of or in lieu of the emigration facilities outlined above based on the market value thereof at the time of availing of the applicable allowance. The relevant securities must be restrictively endorsed. (February ‘06) T1 Emigrants can, on application, request to transfer blocked assets in excess of the limit of R4 million per family unit or R2 million per single person, subject to an exiting schedule, at the discretion of the Exchange Control Department of the South African Reserve Bank, and an exit charge of 10% of the amount. Persons who have emigrated, but have not fully utilised the current authorised foreign capital allowance, may be accorded additional capital transfers, provided the total amount availed of does not exceed the current limits. A widow/widower with dependants may also be regarded as a family unit. The aforementioned allowances may be provided irrespective of the destination of the emigrant. Export of household and personal effects and motor vehicles Forms N.E.P. may be attested covering the export of household and personal effects, motor vehicles, caravans, trailers, motor cycles, stamps and coins (excluding coins that are legal tender in the Republic) per family unit or single person within the overall insured value of R1 million. 6.2.5.5 Authority to Authorised Dealers The cash allowance, foreign capital allowance and export of household and personal effects and motor vehicles by emigrants may be allowed without prior reference to Exchange Control, on the following conditions: Foreign assets held by emigrants at the time of departure need not be deducted from the emigration facilities outlined above but where capital transfers have been authorised and effected prior to emigration in terms of section 6.1.1, such amounts must be deducted; in respect of single persons and family units emigrating the net value of assets as declared on Form M.P.336(b), excluding household and personal effects, motor vehicles, caravans, trailers and motor cycles to be exported does not exceed the sum of R2 million in the case of a single person or R4 million in the case of a family unit; the declaration of assets on the Form M.P.336(b) does not disclose any third party interest, or donations or gifts received within the last three years, or capital distributions from inter vivos trusts within the last three years, prior to the date of emigration;
Page 107 of 120
the applicant has been resident in South Africa for at least five years; confirmation has been received from the South African Revenue Service confirming that suitable arrangements have been made to meet all tax commitments or that the applicant's tax commitments have been met, which certificate must be attached to the Form M.P.336(b); any local assets remaining after emigration must be placed under the physical control of the Authorised Dealer concerned, on the basis indicated in section 6.2.5.8; the Authorised Dealer concerned is satisfied that the applicant is permanently relinquishing South African domicile; and where necessary, documentary evidence must be produced confirming that the applicant has been given permission, where necessary, by the appropriate authorities to take up residence in the country to which the applicant is emigrating. (October ‘07) T2 It is imperative that the section on the Form M.P.336(b) dealing with the control over any remaining assets is completed by the Authorised Dealer. 6.2.5.6 Matters to be referred to Exchange Control The prior approval of Exchange Control to use emigration facilities must be obtained where: The net value of assets, as described in section 6.2.5.5 exceeds the mentioned amount, irrespective of the amount of the foreign capital allowance applied for; the value of household and personal effects to be exported exceeds R1 000 000; and the value of the motor vehicles, caravans, trailers and motor cycles to be exported exceeds R1 000 000; The only exception in these circumstances is the cash allowance, which may be made available without reference to Exchange Control. Requests for excess facilities may be referred to the Control. Due consideration will be given inter alia to the age and/or physical disability of the applicant(s). The local borrowing implications referred to in sections 6.2.5.10 and 6.2.5.11 should also be dealt with in the written submission of the Authorised Dealer. 6.2.5.7 Time and method of provision of exchange The time and method of the provision of exchange for approved travel and foreign capital allowances is indicated hereunder:
Page 108 of 120
cash allowance equivalent to a travel allowance
not more than 60 days prior to departure; in any foreign currency by way of a bank transfer, draft, foreign bank notes or travellers cheques;
foreign capital allowance
on the day of departure or after departure once all remaining South African assets have been brought under the physical control of the Authorised Dealer;
Page 109 of 120
6.2.6 Transactions of immigrants Immigrants are, for the purposes of Exchange Control natural persons who have immigrated from countries other than Lesotho, Namibia and Swaziland with the firm intention of taking up or having taken up permanent residence in the Republic. 6.2.6.1 6.2.6.2 Requirements upon taking up permanent residence Immigrants are required, on arrival in the Republic, to declare to an Authorised Dealer whether they are possessed of foreign assets and if so, they will be required to give an undertaking to the effect that they will not place their foreign assets at the disposal of any third party normally resident in the Republic. New immigrants will have to provide the Authorised Dealer with documentary evidence substantiating that they have been granted permanent residence in the Republic and they will for Exchange Control purposes be regarded as immigrants with effect from the date of their arrival in South Africa. Former South African residents who are taking up permanent residence in South Africa and who can provide Authorised Dealers with documentary evidence substantiating that they had been permanently resident outside the Common Monetary Area for a period in excess of 5 years and that they are entitled to reside in the RSA will also be regarded as new immigrants to South Africa. 6.2.6.3 Concessionary periods applicable to immigrants Retention of foreign assets, foreign accruals and foreign income Immigrants who have completed the required declaration and undertaking will be permitted to dispose or otherwise invest their foreign assets, including foreign cash funds held by them, subsequent accruals and income without interference from Exchange Control, with the exception of the proceeds of merchandise exports which must be repatriated to South Africa within 30 days of accrual. Introduction of capital through South African securities Immigrants will be allowed by Authorised Dealers to introduce their own capital into the Republic through the medium of South African securities purchased abroad. Retransfer within five years of arrival in RSA Authorised Dealers may permit immigrants within 5 years of the date of their immigration to retransfer/re-export all own assets introduced/imported during the 5 year period provided that the immigrants can substantiate the original introduction/importation of such assets and that such transfers are not financed out of local financial assistance.
Page 110 of 120
In the event of an immigrant departing from South Africa within 5 years of the date of their immigration, Authorised Dealers will permit such individuals to transfer abroad their remaining South African assets, over and above assets introduced from abroad, provided that the Authorised Dealer is satisfied that the individuals will be leaving South Africa permanently. Authorised Dealers will further have to satisfy themselves that the assets to be transferred are reasonable in relation to the growth resulting from such individual's business/employment activities and/or is market related. Such transfers may also not be financed out of local financial assistance. (May '98) U1 Transfer of funds after five years of arrival in RSA After 5 years immigrants will be regarded, on departure, as normal emigrants from South Africa and will only qualify for the prescribed emigration facilities, except for immigrants who immigrated to South Africa on or after 1995-03-13 who will also qualify to retransfer/re-export all own assets previously introduced/imported. (See section 6.2.5) 6.2.6.4 Income on foreign assets accruing to immigrants This aspect has been dealt with in section 6.2.6.3 6.2.6.5 Other concessions available to immigrants Current and arrear premiums on insurance policies as well as pension fund and medical aid contributions Applications by immigrants for the provision of foreign exchange to pay current and arrear premiums on foreign currency life insurance policies and contributions to pension and medical aid funds may be approved by Authorised Dealers, provided; • documentary evidence is produced to the effect that the amount is due and payable; • that the commitment was entered into before the applicant took up permanent residence in South Africa; and • the applicant have completed the necessary declarations and undertakings. Loan repayments Immigrants may be permitted to repay loans obtained in their previous countries of domicile provided: • the loan was obtained for the specific purpose of financing their immigration to South Africa; and • the applicant has no cash resources abroad to meet such a commitment. Settlement of foreign tax commitments
Page 111 of 120
Immigrants may be permitted to transfer funds in settlement of foreign tax commitments against the production of documentary evidence of the amounts owing provided they have no cash resources abroad to meet such commitments. (June '05) U2
Page 112 of 120
(October ’06) V1
F.7 Sundry Topics 7.1 Hedging 7.1.1 General The aim of hedging is either to offset or to minimise the risk of losses that an enterprise may be exposed to due to the effect of price changes on its assets, liabilities or future commitments. This Section is concerned with the multiplicity of hedging instruments and techniques which have been developed in recent years. This explosion in new instruments has occurred in response to the volatility of interest rates, commodity prices and foreign exchange rates, which has increased the exposure of enterprises to the risk of incurring losses and the importance of hedging as a risk management tool. In this Section these hedging instruments are divided into the following main categories: Forward contracts Futures contracts Options Forward, futures and options products Warrants Swaps A swap is more in the nature of a technique than an instrument. However, swaps have had a great impact in the financial markets in recent years and are often used in conjunction with hedging instruments covered in this Section. 7.1.2 Hedging Operations Hedging may only be undertaken by an Authorised Dealer's customer in order to either offset or minimise the risk of losses that the customer may be exposed to due to the effect of adverse price changes on their assets, liabilities or future commitments. Hedging operations may accordingly be undertaken by an Authorised Dealer with its resident as well as non-resident customers subject to the following conditions: (i) That the facilities are required to cover a firm and ascertained exposure to possible losses arising from adverse movements in interest rates, commodity prices or foreign exchange rates arising from a transaction either:
Page 113 of 120
Permissible in terms of the Exchange Control Rulings, or in respect of which a specific authority has been granted by the Exchange Control Department of the South African Reserve Bank; (ii) that the Authorised Dealer is authorised to undertake the transaction in terms of: (October ’01) V2 The authorities contained in this Section; a specific authority granted by the Exchange Control Department of the South African Reserve Bank; (iii) that, while forward cover may not be granted nor a hedge transaction undertaken for a period extending beyond the period the customer is at risk, forward cover/hedging arrangements may be entered into at any time after the customer is at risk and need not run until that risk has ceased to exist; (iv) that the same underlying exposure is not already covered forward/hedged; (v) that documentary evidence is exhibited confirming the nature and extent of the underlying exposure; (vi) that, where the required documentary evidence is not available at the time forward cover/hedging arrangements are entered into, a letter signed by two responsible persons, whose names and titles should appear below their signatures, giving full details of the underlying exposure, be submitted. Such documentation must, however, be presented within 14 days; and (vii) that all documentation submitted in evidence of the underlying exposure, in respect of which forward cover/hedging arrangements are entered into, must be endorsed "Forward Cover/Hedge granted" and the contract or transaction number and the period of the contract or hedging arrangement indicated. Where a letter has been submitted in terms of subsection (vi) above, documentary evidence must be viewed subsequently and endorsed as indicated above. At the time of providing foreign currency in settlement of any commitment arising from such arrangements, the documents referred to in subsection (v) above must be endorsed "Exchange Provided". While it is common cause that the hedging instruments mentioned elsewhere in this Section can be used for speculative and trading purposes as well as for hedging, it must be clearly understood, as mentioned above, that hedging operations may only be undertaken by an Authorised Dealer's customer in order to either offset or minimise the risk of losses that the customer may be exposed to due to the effect of adverse price movements on its portfolio of assets, liabilities or future commitments. There are a number of criteria Authorised Dealers have to consider in addition to those enumerated above, in order to differentiate between a hedging arrangement and one for speculative and/or trading purposes, namely: Is the transaction clearly identifiable as a hedge. Does it reduce the exposure to risk.
Page 114 of 120
Will it be designated as a hedge at the time it is entered into. Does the corporate customer apply its criteria of designating transactions as hedges on a consistent basis. Is there a high correlation between the price of the hedge contract and the underlying asset, liability or commitment ("the underlying transaction").. (October ’01) V3 Where authorised in terms of this Section or in terms of a specific authority granted by the Exchange Control Department of the South African Reserve Bank, Authorised Dealers may make markets in these instruments, taking positions to be able to service the needs of their corporate customers. Authorised Dealers may also use these instruments to hedge the risks incurred by them in taking these positions. 7.1.3 Hedging instruments The multiplicity of hedging instruments and techniques is such that in this Section an overview is given of the main categories. (i) Forward contracts A forward contract is an agreement between two parties to exchange a specified amount and type of commodity or financial instrument at a fixed future date at a fixed price. (a) Forward foreign exchange contracts Forward foreign exchange contracts as more fully dealt with in Section 7.2 below (b) Forward commodity contracts Forward commodity contracts are binding contracts to deliver or receive a commodity at an agreed price at a specified future date. The delivery date and location, and the quantity and quality of the commodity are specified at the time the contract is struck. Unlike futures contracts (see below), forward contracts usually result in physical delivery of the commodity. These contracts are not dealt with on a recognised exchange and can by their nature be illiquid. (ii) Futures contracts A futures contract is an agreement to buy or sell a standard amount of a specified commodity, currency or financial instrument at a fixed price at a fixed future date. Futures contracts are traded for a number of delivery dates or months on recognised exchanges by dealers who are members of the exchange. With a small number of exceptions, the exact terms of a futures contract are specific to a particular exchange. There is a wide variety of futures contracts in many commodities and currencies as well as other financial instruments. These are dealt with separately below. (a) Commodity futures
Page 115 of 120
There are futures contracts in many commodities including produce (wheat, coffee, etc.), precious metals (silver, platinum, etc.), non-ferrous metals (copper, zinc, etc.) as well as other related products (frozen orange juice, plywood). There are also meat and meat product futures. (b) Currency futures A currency futures contract is a futures contract to buy or sell a standard amount of a foreign currency. The underlying rates of exchange will be almost identical to forward rates. (October ’01) V4 The contract size is usually much smaller than the normal size of a forward foreign exchange contract. Currency futures contracts are dealt with in Section 7.2.1.5 below (c) Financial futures A financial futures contract is a commitment to buy or sell a standard financial instrument at a fixed future date. Financial futures are principally of two types: Stock index futures; and futures on fixed income securities or time deposits. The futures on fixed income securities and time deposits are interest rate futures contracts. Currency futures are also a type of financial future. (i) Stock index futures These are futures contracts whose price varies with the movement of a basket of shares underlying a well established stock market index. The underlying "instrument" has no physical existence and there can be no physical delivery on settlement date. Any outstanding contracts which have not been closed out are settled for cash. Stock index futures are used to hedge portfolios of securities. A perfect hedge can only be achieved where the portfolio matches exactly the securities comprising the index. The larger the number of the shares in the basket which are held in the portfolio, the more likely that the values will move in line with the index. (ii) Futures on fixed income securities or time deposits Futures on fixed income securities or time deposits are primarily used as a hedge against future movements in interest rates, and the pricing of the contract is a function of prevailing interest rates. (iii) Options An option contract conveys the right, but not the obligation, to either buy or sell a commodity or financial instrument at a fixed price at either a fixed future date or at any time during a fixed future period. An option to purchase is a call option; an option to sell is a put option. The price at which the option can be exercised is known as the strike or exercise price. A European option can only be
Page 116 of 120
exercised at a fixed date (the date at which the option expires). An American option can be exercised at any time up to expiry. The purchaser (or taker) will pay a premium for the right to exercise the option. In exchange for the premium, he will limit his downside risk to the price volatility of the underlying commodity to the amount paid for the premium, whilst retaining unlimited potential to profit by exercising the option if price movements are favourable. (October ’01) V5 The writer of the option grants the purchaser the rights under the contract and in return for taking on this unlimited risk receives the premium. Where the market value of the commodity or financial instrument which underlies the option is higher than the strike price, the price of a call option will increase. With a put option, a favourable price movement results from the market value of the underlying commodity being lower than the strike price. Where it would be advantageous for the holder to exercise the option, the option is said to be "in the money". An option is "out of the money" if the exercise would not be advantageous. An option is "at the money" where the market value of the underlying asset is equal to the strike price. Options which are listed on and traded through a recognised exchange are known as traded options. A traded option can be sold before maturity on a recognised exchange and they are often traded on futures markets. Normally a number of option contracts are traded at fixed strike prices. These are called "series" and new contracts are added to the series as the price of the underlying commodity or financial instrument moves by a set amount. Banks will also write customised, tailored options for their customers. These are known as over the counter (OTC) options, and are not tradable instruments. There are also non-traded options which can be cancelled only by agreement with the writer. Types of traded options: Stock options Stock index options options on securities options to buy stock index futures options on interest rate futures. options on commodities most
Interest rate options
Commodity options
Page 117 of 120
7.9 Inward Listings by foreign entities on South African exchanges 7.9.1 Introduction South African institutional investors may invest in approved inward listed instruments based on foreign reference assets or issued by foreign entities listed on the JSE Limited and Bond Exchange of South Africa (BESA), respectively, using the permissible foreign portfolio investment allowances. Institutional investors may invest an additional five percent of their total retail assets in African inward listed shares and/or debt instruments (See point 6.1.4.2). South African private individuals may, of course, invest in inward listed shares and/or debt instruments without restriction (See point 6.1.1). In certain instances, corporate shareholders will be allowed to accept shares as acquisition currency in respect of acquisition issues and to exercise their rights in terms of a rights offer. 7.9.2 General • It is envisaged that inward listings will attract foreign direct investment to the domestic economy, increase market capitalisation and liquidity in the local capital market, support the New Partnership for Africa’s Development (NEPAD) initiative and support the enhancement of foreign investment diversification through domestic channels. • Criteria for an “African” company A company will be regarded as “African” if it is: (a) Domiciled in Africa or its activities are geographically located in Africa; or (b) domiciled outside Africa, but the majority of activities are geographically located in Africa. “African based” activities would generally be determined by employment of assets and/or capital in countries which are part of the African Union. Should a company’s shares need to be reclassified from “African” to “foreign” in terms of exchange control limits, institutional investors must realign their portfolios within a period of 12 months. • Criteria for “African” debt “African” debt encompasses debt securities issued and listed on BESA by African Governments, African Public Entities, African Local Authorities, African Development Agencies, companies classified as “African” and by non-African development institutions where the funds raised are earmarked for use in Africa. • Exchange Control approval Any foreign entity wishing to list inward listed instruments on the JSE Limited or BESA, requires prior Exchange Control approval. Any Authorised Dealer wishing to facilitate transactions of the nature
Page 118 of 120
outlined above, requires Exchange Control approval and will have to comply with the specific Exchange Control reporting requirements prior to approval being granted. (January '07) W1 7.9.3 Measures applicable to inward listed debt instruments, derivative instruments and equity issues on the JSE Limited 7.9.3.1 Types of instruments Debt instruments, equity, as well as the following derivative instruments based on foreign reference assets, may be listed: Single stock futures on existing inward listed instruments; futures and options on foreign exchange traded funds listed on the JSE Limited; futures and options on foreign assets not listed locally; and currency derivatives. The listing and trading in of the above-mentioned derivative instruments will be subject to the following conditions: For every buyer there should be a seller; the loss for one party is paid as the profit of the counterparty; no hedging should take place; and all settlements should take place locally in Rand. 7.9.3.2 Acquisition issue Foreign companies are allowed to use shares as acquisition currency. On application to Exchange Control, South African institutional investors will be given 12 months to realign their portfolios, should the foreign exposure limits be exceeded. Similarly, corporate shareholders will also be given 12 months to dispose of such shares. However, should there be benefits for the continued financial involvement of the South African corporate in the business or assets acquired and the alignment of interests in the extraction of the maximum value from the consolidated company, Exchange Control will, on application, allow the corporate to retain such shares. 7.9.3.3 Issue of shares for cash (Capital Raising through an Initial Public Offering (“IPO”)) The foreign entity must open a special designated vostro-styled account (designated account) for the duration of the listing with an Authorised Dealer for purposes of receiving and recording the capital raised in terms of the Prospectus, effecting dividend payments, etc. This is essential to ensure
Page 119 of 120
compliance with the Reporting System requirements. The capital must be deployed as soon as possible but not later than one month after being raised and recorded in the designated account. Failure to deploy the capital within the stipulated period must be reported to Exchange Control (and the JSE Limited), who will require to be furnished with the reasons for the delay in deploying the capital, as well as the expected date of deployment of such capital. 7.9.3.4 Capital raising through new debt listings The foreign issuer must open a special designated vostro-styled account (designated account) for the duration of the listing with an Authorised Dealer for purposes of receiving the capital raised, effecting coupon payments, redemption payments, etc. This is essential to ensure compliance with the Reporting System requirements. (July '07) W2 7.9.3.5 Rights offers On application to Exchange Control, South African institutional investors, corporate investors and private individuals will be allowed to exercise their rights in terms of a rights offer. Institutional investors will be given 12 months to realign their portfolios should they be in excess of their exchange control foreign exposure limits. Corporates will be given 12 months to dispose of the shares taken up in terms of the rights issue. 7.9.3.6 Suspension of listings Inward listed shares suspended from the JSE Limited, must be retained on the investor’s balance sheet for a maximum period of six months, at the last price struck (i.e. closing price) before the suspension. If the suspension lasts longer than six months, the investor may revalue the shares at zero value. If shares previously valued at zero have a residual value when the suspension is lifted, the investor will have 12 months to realign the portfolios to operate within exchange control limits. 7.9.3.7 Main index inclusion Only companies who are “African” companies as defined in point 7.9.2 and who obtain an inward listing, may be included in the JSE Limited’s indices. 7.9.3.8 Denomination of debt instruments, equity issues and derivative instruments All instruments and equity issues may only be denominated in Rand. 7.9.4 Measures applicable to inward listed debt instruments on BESA 7.9.4.1 Denomination of debt instruments Debt issues of foreign issuers may only be denominated in Rand.
Page 120 of 120
7.9.4.2 Types of instruments Only non-derivative debt instruments may be listed. 7.9.4.3 Capital raising through new listings The foreign issuer must open a special designated vostro-styled account (designated account) with an Authorised Dealer as referred to in point 7.9.2, until maturity of the debt instruments, for purposes of receiving the capital raised, effecting coupon payments, redemption payments, etc. This is essential to ensure compliance with the Reporting System requirements. 7.9.5 Special dispensation to local brokers to facilitate the trading of inward listed shares Local brokers are allowed to purchase inward listed shares offshore and to transfer such shares to the South African section of the register, as a book-building exercise and to enhance liquidity on the JSE Limited. This dispensation is confined to inward listed shares and brokers may warehouse such shares for a maximum period of 30 days only. (July '07) W3