If you hold shares in a South African company and you plan to relocate abroad and ultimately change your tax status from resident to non-resident, there are some things you should know beforehand. Similarly if you have already become a tax non-resident (or previously completed the process of formal emigration, at that time known as financial emigration through the South African Reserve Bank before March 2021), and you now wish to invest money in South African shares. While nonresidents are not precluded from owning shares in South African companies, it is necessary for the share certificates to be endorsed to acknowledge the non-resident status of the shareowner. This endorsement must happen within 30 days of having ceased tax residency with existing shares, or after having acquired shares in a South African company as a non-resident. Without this endorsement it will not be possible for the company to pay out any dividends owed to you, nor will you be able to dispose of such shares in the future.

Let’s take a look at the difference between being a resident and tax resident and how it affects the actions you can take as a shareholder in South African companies.

Can a non-resident be a shareholder of a South African company?

Yes. It is possible for non-residents to be shareholders in South African companies. However, non-resident shareholders are required to endorse their South African company share certificates as ‘non-resident’ within 30 days of acquiring ownership of the shares, as per Exchange Control Regulation 14.

Often, this regulation is overlooked. Non-resident shareholders fail to endorse their shares and what should have been a quick, inexpensive process becomes an unnecessarily complicated and costly affair, depending on how much time has passed since the shares were acquired, or since the shareholder became a non-resident.

Why do non-residents have to endorse their South African shares?

Many people underestimate the importance of this requirement, brushing it off as a meaningless exercise in bureaucracy. In reality, the importance of having the shareholder certificate timeously endorsed must be emphasised.

• Regulation 14(1) states that no person may acquire or dispose of any share in a South African company without the permission of the South African Reserve Bank (SARB).
• Regulation 14(2) states that non-resident shareholders must have their share certificates issued by the South African company endorsed ‘non-resident’ within 30 days of becoming the owner of the shares.

Essentially, not endorsing the shares certificate is a violation of Exchange Control Regulations, which could result in penalties and even imprisonment. While the South African Reserve Bank (SARB) has in the past endorsed shares without imposing any penalties, it is not advisable to assume that SARB will be lenient in every case.

What happens if non-resident South African shares have not been endorsed?

Without the necessary endorsement, the South African company cannot distribute any dividends (either during the ordinary course of business or as part of the liquidation or deregistration process) to a non-resident shareholder. Even if the shares are not endorsed, dividends can still be declared, but enforcing the payment of those dividends may be affected because the cash cannot be transferred to the non-resident shareholder without the endorsement. Additionally, if a local buyer wants to purchase the shares of a non-resident shareholder in a South African company, the lack of endorsement can hinder the transaction. This seemingly minor administrative task can have a significant impact on the cash flow of the non-resident shareholder.

With this in mind, it is highly recommended to get the endorsement as soon as possible after acquiring the shares. If this was not done when you purchased the shares, immediate rectification is advised.

How do you endorse a share certificate as a non-resident?

If done timeously, the process of endorsing shares involves a simple application to an Authorised Bank (i.e., a commercial bank in South Africa that has been authorised by SARB to effect a non-resident endorsement on a share certificate). Proof of the introduction of foreign currency to acquire the shares, must be provided to the Authorised Bank. A non-resident may also pay for the shares in Rand originating from a non-resident account held at a local bank.

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