Recent exchange control updates expats MUST know about!

The South African Reserve Bank’s Financial Surveillance Department (FinSurv) issued four new circulars in May this year amending the Currency and Exchanges Manual for Authorised Dealers (AD Manual). This important manual contains all the rules that govern the movement of money from South Africa.

So what are these four recent circulars about and what are the changes that South Africans abroad need to be aware of when it comes to their cross-border financial transactions?

1. Exchange Control Circular 3 of 2023: Amends sections of the AD Manual that deal with private individuals who have completed formal emigration to become non-residents, where they have blocked assets that relate to income and capital distributions from South African inter vivos trusts.
2. Exchange Control Circular 4 of 2023: Amends sections of the AD manual relating to the issuance of foreign denominated guarantees by South African parent companies to cover borrowing facilities of authorised foreign subsidiaries abroad.
3. Exchange Control Circular 5 of 2023: Amends sections of the AD Manual relating to the early capital redemption of inward foreign loans by South African residents.
4. Exchange Control Circular 6 of 2023: Replaces the section of the AD Manual that deals with foreign currency holdings and other foreign assets of South African individuals.

Let’s unpack these updates to the exchange control rules

Exchange Control Circular 3 of 2023: South African trust distributions to foreign beneficiaries

FinSurv has amended the AD Manual in respect of the treatment of assets previously blocked by them in terms of Exchange Control Regulation 4(2).

This amendment permits the transfer of income and capital distributions from inter vivos trusts to private individuals where previously such transfers were subject to the Tax Compliance Status (TCS) process being undertaken by the trustees of the South African inter vivos trust, the section now requires that the TCS process be completed by the individual or the beneficiaries of the trust themselves, as the case may be.

In short:

• Assets that were previously blocked can now be transferred abroad, subject to tax clearance.
• The TCS process is no longer handled by the trustees, but by the private individual and/or beneficiaries of the trust.
• For transfers exceeding R10 million, the additional requirements of section B.2(J)(vii) of the AD Manual will apply.

Exchange Control Circular 4 of 2023: foreign direct investment by South African companies – guarantees

FinSurv has amended the AD Manual in respect of foreign denominated guarantees granted by South African parent companies to cover borrowing facilities of their authorised foreign subsidiaries abroad.

Foreign currency denominated facilities can be issued by Authorised Dealers (i.e., local commercial banks) to South African companies for the financing of approved foreign direct investments. However, FinSurv approval must be obtained if a South African parent company wishes to issue a foreign denominated guarantee directly to cover the borrowing facilities of its authorised foreign subsidiary abroad.

In short:

FinSurv approval is required where South African parent companies issue foreign denominated guarantees directly to cover borrowing facilities for authorised subsidiaries abroad.

Exchange Control Circular 5 of 2023: early capital redemption of loans by South African residents

FinSurv has amended the AD Manual to permit early capital redemptions of loans that have been fully drawn down and reported correctly on the SARB Loan Reporting System, provided that there are no inconsistencies on the loan.

The purpose of this amendment is to provide greater flexibility to South Africans who may need to redeem loans early. Loan redemption refers to the act of paying off a loan before the agreed term or maturity date, which involves returning the borrowed amount along with any interest or fees owed to the lender. Loan redemption can be initiated by the borrower voluntarily, usually to reduce their financial obligations or to take advantage of favourable conditions (such as exchange rates), or it can be required by the lender in certain circumstances.

In short:

• South Africans may now redeem loans early, provided that the loans have been fully drawn down and reported correctly on the SARB Loan Reporting System.
• There must be no inconsistencies on the loan.
• The early redemption must be approved by the Authorised Dealer handling the loan or foreign trade finance facility.

Exchange Control Circular 6 of 2023: Foreign currency holdings and other foreign assets held by private individuals

FinSurv has amended the AD Manual to replace the current section B.17 dealing with foreign currency holdings and other foreign assets of South African individuals.

Section B.17(F): deals with the sale of foreign assets owned by private individuals:

• If an authorised foreign asset is sold to an individual, with recourse to South Africa, the payment for the asset must be handled according to requirements of the R1 million and R10 million annual exchange control allowances.
• If authorised foreign assets are sold to private individuals in South Africa, with payment made in the local currency (Rands) and no funds crossing borders except for the ownership transfer, the transaction must be reported to FinSurv. Additionally, parties must comply with tax disclosure requirements.

Section B.17(H): deals with lending of foreign assets owned by private individuals:

• If authorised foreign assets are lent to other residents for use outside of the Republic, this must happen without recourse to South Africa. Repayment of these commitments from South Africa or the repayment of the commitments in the local currency (Rands), requires FinSurv approval.
• Section I.3(B) of the AD Manual must be adhered to where authorised foreign assets are lent to other residents for local use.

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