With so many South Africans relocating abroad these days, it’s important for private companies to know exactly what the exchange control and tax rules are regarding the export, disposal or acquisition of shares, and how to handle them, once shareholders have become non-residents for tax purposes in South Africa. Let’s briefly unpack the change from tax resident to non-tax resident, and how this affects the actions you can take as a shareholder in private South African companies.

If you are planning on emigrating, and ceasing your tax residency in South Africa through the South African Revenue Service (SARS):

Can I keep my unlisted shares in a South African private company if I emigrate?

Yes, you can. If you hold shares in a South African company and change your tax status from resident to non-resident, you will need to have your share certificates endorsed to reflect this change in status. In other words, your share certificates will need to reflect the fact that they are held by a non-resident outside of South Africa. You will need to have this share certificate endorsement done within 30 days of ceasing your tax residency.

If you have already emigrated and formalised such emigration through the South African Reserve Bank:
If you have already become a tax non-resident, or undertaken formal emigration before March 2021 with existing shares, you will need to have these shares endorsed as a non-resident, if you did not do so at the time of your emigration.

Can I become a shareholder in a South African company after I become a non-resident?

If you wish to buy shares in a South African private company as a non-resident, you are permitted to do so, as long as you have your shares certificate endorsed with your non-resident status within 30 days of acquiring the shares, in terms of Exchange Control Regulation 14.

Why must non-residents endorse their South African shares certificates?

This endorsement of a share certificate with the holder’s non-resident status is often overlooked when carrying out financial planning for emigration. However, this is to the detriment of the emigrant, and the importance of carrying out this seemingly inconsequential administrative process within the prescribed timeframes must be stressed.

• According to Regulation 14(1): no person may dispose of or acquire any share in a South African company without authorisation from SARB.
• According to Regulation 14(2): non-resident shareholders must have their share certificates endorsed with their non-resident status within 30 days of becoming the owner of the shares.

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

Failure to endorse the shares certificate as non-resident is a contravention of Exchange Control Regulations, the punishment for which is financial penalties with the possibility of imprisonment. Although SARB has been known to retroactively endorse shares without penalty, expats cannot expect mercy from SARB in every case. Where non-resident shareholders fail to endorse their shares certificate at the right time, what should have been a straightforward, inexpensive process can become a complex and costly administrative headache, depending on how much time has passed since the shares were bought or since the shareholder changed their tax status to non-resident.

What are the implications of failing to endorse non-resident shares certificates?

Paying out dividends:

Without your share certificate having been endorsed to reflect your non-resident status, the company cannot pay out any dividends to you. While dividends can be declared, you will not be able to enforce the payment of those dividends, as the proceeds cannot be transferred abroad to you unless the share certificate is correctly endorsed.

Selling your shares:

If a local buyer wishes to purchase shares from a non-resident shareholder in a South African company, the transaction can be severely delayed by the lack of endorsement. This is usually where this tiny administrative task causes the biggest impact – placing strain on the cash flow of the non-resident shareholder who failed to endorse their share certificates timeously to reflect their tax status correctly. So if, for example, you were selling your shares because you were strapped for cash, non-endorsement of your share certificates would throw a major spanner in your works.

Read more: Voluntarily liquidating a South African company: what tax residents and non-residents should know.

With this in mind, it is strongly recommended to get non-resident endorsement as soon as possible. If this did not take place when you acquired your shares, you are urged to rectify this situation with haste.

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

If done within the prescribed timeframes, endorsing non-resident shares can be done through a simple application to an Authorised Dealer, such as a local commercial bank that has the authority from SARB to apply a non-resident endorsement. When endorsing shares that have been purchased from abroad, proof of payment must be provided to show that foreign currency was used to acquire the shares. Proof of payment that shows the non-resident paid for the shares using Rands from a local non-resident bank account will also be accepted.

FinGlobal: trusted financial specialists for South Africans abroad

Navigating cross-border transactions and financial transitions can quickly become a complex affair. However, with FinGlobal by your side, your compliance with South African exchange control regulations and tax laws is assured. We have already assisted thousands of clients across 105 countries with diverse financial portfolios, and this expertise and experience makes us the perfect partner to guide you through the process of having your shares endorsed as a non-resident shareholder in a South African company. Let us help you seamlessly move your money to its intended destination, without unnecessary delays or complications.

All you need to do is fill out the form below with your contact details, and we’ll reach out to discuss your specific requirements. Take the first step towards financial peace of mind today!