As global financial markets open up, more South Africans are considering availing of inward foreign loans as a smart way to access capital—whether to grow a business, fund a property acquisition, or support offshore ventures.
But before you dive in, it’s important to know that cross-border lending is not as simple as signing a loan agreement and receiving the funds. There are specific exchange control requirements in place to protect the integrity of the financial system—and non-compliance can be costly.
Here are 5 essential things you need to know before availing of an inward foreign loan:
1.You need prior Exchange Control approval
If you’re a South African resident (individual or company), you cannot legally receive a loan from a non-resident without obtaining prior exchange control approval. Fortunately, local commercial banks—called Authorised Dealers—have been empowered by the South African Reserve Bank’s Financial Surveillance Department to grant this approval if certain criteria are met.
Tip: Start your discussions with your bank early – this can be a complicated and time-consuming process.
2. Due diligence is a must (and upfront fees are a no-no)
Before entering into any cross-border loan arrangement, verify the legitimacy of your foreign lender. Advance fee fraud is real—and dangerous.
No upfront commitment, raising or administrative fees may be paid until the loan funds are received in South Africa and converted into Rand. Even then, the SARB exchange control rule states that such fees may not exceed 5% of the loan principal.
3. Your loan agreement must tick several boxes
To obtain exchange control approval, your application must include detailed loan information such as:
- Lender and borrower names and identification
- Currency, principal amount, and purpose
- Interest rate and terms
- Repayment structure and any early settlement clauses
- Confirmation that the foreign lender has no South African ownership interest
- A copy of the signed loan agreement (if available)
4. There are limits on interest rates
Interest rate thresholds apply depending on the lender type and currency denomination:
- For foreign-denominated loans
– From third parties – Interest may not exceed the base lending rate in the country of denomination + 3%.
– From shareholders – Interest may not exceed the base lending rate in the country of denomination.
- For Rand-denominated loans
The maximum interest that may be paid is South African prime + 5% (third party loans) or prime (shareholders’ loans).
5. Lending out of Foreign Assets? That’s also regulated
Since February 2022, South African individuals with “authorised foreign funds”, can lend such funds to other South African residents, including trusts—subject to strict rules:
- Both parties must ensure full local tax compliance.
- If the funds are used abroad, repayments must happen without recourse to South Africa (unless SARB approval is obtained).
- If the funds are introduced from abroad, the borrower must first obtain exchange control approval from a local bank.
Authorised foreign funds are funds that South Africans are legally allowed to hold overseas. These include the following:
- Foreign Investment Allowance
- Single Discretionary Allowance
- Income earned abroad after 1 July 1997, including income from approved foreign assets or services rendered to non-residents while abroad.
- Foreign inheritances or legacies from non-resident estates received after 17 March 1998.
- Gifts or donations from non-residents received on or after 23 February 2022.
- Foreign inheritances or legacies from South African estates with foreign assets received after 23 February 2022.
Final thoughts – already received a Foreign Loan without Exchange Control approval?
If you’ve previously accessed a foreign loan without obtaining the necessary exchange control approval, it’s important to address the matter proactively. Such instances are viewed as exchange control contraventions, and the loan must be regularised with the Financial Surveillance Department (FinSurv) of the South African Reserve Bank.
In these cases, your Authorised Dealer is not permitted to approve the transaction after the fact. Only FinSurv can assess and regularise the loan.
Tip: Don’t delay. The sooner the matter is disclosed and regularised, the better your chances of mitigating potential consequences. If you’re unsure where to start, get help from an exchange control specialist.
Accessing international capital is a powerful financial lever—but it must be approached with strategy, transparency, and full compliance with South Africa’s exchange control regulations. When engaging in cross-border financial transactions, partnering with a specialist is key to ensuring a smooth, compliant, and efficient process from start to finish.
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