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 taxpayers in good standing and over the age of 18 years, to invest up to a total
amount of R10 million per calendar year, for investment purposes abroad, but,
prior to the transfer of any funds, a duly electronically 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 Financial Surveillance Department will consider applications by
private individuals to invest in fixed property, e.g. holiday homes and farms in
SADC member countries. Furthermore, applications by private individuals for
investment purposes, including offshore properties outside of SADC, will also be
considered.
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. Furthermore, South African residents with foreign assets
may not place such assets at the disposal of any third party normally resident in
South Africa without the prior approval of the Financial Surveillance Department.
Definitive guidelines in this regard will be available from an Authorised Dealer. In
addition, private individuals may not utilise funds in terms of the foreign
investment dispensation or any other authorised foreign assets to enter into a
transaction or a series of transactions to directly or indirectly acquire shares or
some other interests in a CMA company or a CMA asset. Similarly, such funds
may not be reintroduced as a loan to a CMA resident. Funds so transferred
abroad may not be used to facilitate, directly or indirectly (through any structure)
any investment or scheme of arrangement whereby any asset or facility of any
nature is acquired in the CMA. (this includes foreign funds/assets regularised by
the Financial Surveillance Department as well as the Amnesty and the Exchange
Control Voluntary Disclosure Programme). The creation of the so called “loop
structures” by South African resident individuals into the CMA are contrary to the
current exchange control policy in force.
Such funds may, however, be used to invest in approved inward listed
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, Section W).
6.1.2
South African Companies
6.1.2.1
Norms applied and factors considered
In line with broader efforts to cut out red tape for small and medium sized
businesses, the current application process for approval from the Financial
Surveillance Department, before undertaking new foreign direct investment, has
been removed for company transactions below R1 billion per applicant company
per calendar year. Authorised Dealers shall henceforth adjudicate such
applications and grant the necessary approval to companies that meet the
(April ‘15) O1
minimum criteria requirements listed below.
6.1.2.2
Investments not exceeding R1 billion per applicant company per calendar
year
Mandated parastatals, as defined in Schedule 2 of the Public Finance
Management Act, 1999 (Act No. 1 of 1999), private companies, public companies
and listed companies wishing to make bona fide new outward foreign direct
investments into companies, branches and offices outside the CMA where the
total cost of such new investments does not exceed R1 billion per company per
calendar year, may do so without prior approval of the Financial Surveillance
Department.
Authorised Dealers may now permit the transfer of additional working capital
and/or funding to enable the South African company to increase their approved
equity interest and/or voting rights in a specific foreign target entity. The transfer
of such additional funding is subject to the provision that the Authorised Dealer
may permit the transfer of funds for the aforementioned purposes, provided that
the additional funding is authorised within the same calendar year in which the
original investment was approved and will not result on the overall limit of R1
billion per applicant company per calendar year being exceeded.
The following documents and information must be provided to an Authorised
Dealer in order for them to consider the request:
(1)
The name and registration number, as well as the names and domicile
of the shareholders, of the applicant company;
(2)
the applicant company’s latest available audited Financial Statements
verifying, inter alia, the applicant’s nature of business;
(3)
details of how the investment will be funded, e.g. cash to be transferred
and reflected as share capital or shareholders loans, guarantees to be
issued, as well as forms NEP to be attested, if applicable;
(4)
an outline of the anticipated benefits of the foreign direct investment;
and
(5)
the proposed structure through which the foreign target entity will be
held, including details of existing or new foreign holding companies.
The following criteria will be strictly applied by Authorised Dealers when
considering these requests:
(1)
Parastatals may not use tax haven countries as a conduit for outward
foreign direct investments elsewhere in the world. This moratorium is
not applicable where the investment is made directly into a tax haven
country;
(2)
at least 10 per cent of the foreign target entity’s voting rights must be
obtained;
(3)
passive real estate investments are excluded from this dispensation;
and
(4)
foreign currency denominated facilities may be extended by Authorised
Dealers to South African companies for the financing of approved foreign
direct investments. When applying to the Authorised Dealer, companies
must indicate how the proposed foreign investment will be funded.
Where Authorised Dealers are in doubt, such requests must be referred to the
Financial Surveillance Department.
(April ‘15) O2
The following conditions would be applicable to approved investments:
(1)
The audited Financial Statements of the foreign target entities and holding
companies, as well as salient details of benefits, must be submitted to the
Financial Surveillance Department on an annual basis;
(2)
the Financial Accounts of approved foreign branch operations and the
Income and Expenditure Statements of approved foreign offices, as well
as salient details of benefits, must be submitted to the Financial
Surveillance Department on an annual basis;
(3)
in the event of the foreign investment being disposed of, the net sale
proceeds must be repatriated to South Africa in terms of the provisions of
Regulation 6, under advice to the Financial Surveillance Department;
(4)
expansion of the target entity’s business is permitted, provided that such
expansion is without recourse to South Africa;
(5)
South African companies are permitted to acquire from 10 to 20 per cent
equity and/or voting rights, whichever is the higher, in a foreign target
entity, which may hold investments and/or make loans into any CMA
country. This dispensation does not apply to foreign direct investments
where the South African company holds an equity interest and/or voting
rights in excess of 20 per cent;
(6)
South African owned Intellectual Property may not be transferred by way
of a sale, assignment or cession and/or the waiver of rights in favour of
non-residents in whatever form, directly or indirectly, without prior
approval of the Financial Surveillance Department;
(7)
applicants may increase their approved equity interest and/or voting rights
in the offshore target entity, subject to the provisions of paragraph (9)
below. Applicants may not reduce or dilute their voting rights to below
below 10 per cent, without prior approval of the Financial Surveillance
Department;
(8)
any change in the nature of the target entity’s business must be reported
to the Financial Surveillance Department;
(9)
requests to transfer any additional working capital to the foreign target
entities and/or to increase an applicant’s approved equity interest and/or
voting rights in an offshore target entity may be approved by Authorised
Dealers provided that:
(10)
(i)
The request to remit such additional funds are received an
approved by the Authorised Dealer in the same calendar year in
which the initial investment in the particular foreign target entity
was sanctioned;
(ii)
The amount to be remitted will not result on the applicant
exceeding the permissible limit of R1 billion per applicant per in the
particular calendar year; and
(iii)
Full details of such additional funding as well as the purpose
thereof must be forwarded to the Financial Surveillance
Department.
profits earned by foreign branches and offices must be repatriated to
South Africa annually, since these entities have not been exempted from
the provisions of Regulation 6;
(April ‘15) O3
6.1.2.3
(11)
in terms of the provisions of Regulation 6, parastatals and companies are
obliged to receive their pro rata share of excess profits by way of a
dividend on an annual basis and to repatriate same to South Africa.
Dividends declared by offshore subsidiaries of South African companies
after 2004-10-26 may be retained offshore and used for any purpose,
without recourse to South Africa, except as provided for in paragraph (13)
below. Such dividends repatriated to South Africa after 2004-10-26 may
be retransferred abroad at any time and used for any purpose, provided
that there is no recourse to South Africa, except as provided for in
paragraph (13) below;
(12)
all dividends declared by the offshore operation(s), the amounts
repatriated to South Africa or alternatively the dividend amounts retained
abroad together with an indication of how such funds were utilised
offshore should be reported to the Financial Surveillance Department on
an annual basis;
(13)
dividend proceeds may be used to acquire from 10 to 20 per cent equity
and/or voting rights, whichever is the higher, in a foreign target entity,
which may hold investments and/or make loans into any CMA country.
This dispensation does not apply to foreign direct investments where the
South African company holds an equity interest and/or voting rights in
excess of 20 per cent;
(14)
where guarantees from South Africa have been issued and such
guarantees are implemented, full details of the circumstances giving rise
thereto must immediately be reported to the Financial Surveillance
Department; and
(15)
the original share certificates of the foreign target company (and holding
company, where applicable) must be lodged with the Authorised Dealer
approving the investment. In instances where the applicant company
needs the foreign shares as collateral for foreign borrowings/debt abroad
or for the disposal of the foreign investment, the share certificates may be
released for that purpose.
(16)
South African must remain the place of effective management for the
applicant company and under no circumstances may the applicants redomicile without the specific prior approval of Financial Surveillance
Department.
Investments exceeding R1 billion per applicant company per calendar year
Foreign direct investments outside the CMA by mandated parastatals, as defined
in Schedule 2 of the Public Finance Management Act, 1999 (Act No. 1 of 1999)
and companies, where the total cost of such investments exceed R1 billion per
investment, require prior approval from the Financial Surveillance Department.
In terms of the current policy at least 10 per cent of the foreign target entity’s
voting rights must be obtained.
South African owned Intellectual Property may not be transferred by way of a
sale, assignment or cession and/or the waiver of rights in favour of non-residents
in whatever form, directly or indirectly, without the prior approval of the Financial
Surveillance Department.
Foreign currency denominated facilities may be extended by Authorised Dealers
to South African companies for the financing of approved foreign direct
investments. When applying to the Financial Surveillance Department,
(April ‘15) O4
companies must indicate how the proposed foreign investment will be funded.
Applications to the Financial Surveillance Department for making direct
investments in excess of R1 billion abroad, should, inter alia, include the
following:
(1)
The business plan of the applicant;
(2)
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.
(3)
a pro forma Balance Sheet of the offshore entity reflecting the financial
position immediately prior to and after the investment from the Republic;
(4)
the percentage equity to be acquired in the foreign target company as well
as the percentage voting rights to be acquired;
(5)
the names and domicile of the shareholders of the applicant company;
(6)
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.;
(7)
the manner in which the funds required will be employed; and
(8)
where applicable, an estimate of the annual running expenses of the
offshore entity.
The following conditions/policy principles would inter alia be applicable to
approved investments exceeding R1 billion:
(1)
Whilst there are no exchange control limits on new outward foreign direct
investments by South African companies, the Financial Surveillance
Department reserves the right to stagger capital outflows relating to very
large foreign investments so as to manage any potential impact on the
foreign exchange market.
(2)
On application, foreign finance may be raised on the strength of the
applicant company’s South African balance sheet to finance foreign
acquisitions.
(3)
Companies wishing to invest in countries outside the CMA may apply to
the Financial Surveillance Department to engage in corporate asset or
share swap transactions in order to fund such investments or to repay
existing offshore debt. Similarly, requests for share placements and bond
issues offshore by locally listed companies will also be considered.
(4)
Companies which have existing approved subsidiaries abroad are allowed
to expand such activities without prior approval of the Financial
Surveillance Department, provided that such expansion is financed by
foreign borrowings, without recourse to South Africa, or by the
employment of profits earned by that subsidiary, subject to the benefit to
South Africa being demonstrated. The local parent company is required
to place their proposed plans for the expansion of the investment on
record with the Financial Surveillance Department at an early stage.
The retention of any balance of the profits earned would, bearing in mind
the provisions of Regulation 6, have to be negotiated with the Financial
Surveillance Department at the time of normal annual report back. In
addition, the Financial Surveillance Department also requires to be
advised of all dividends declared by the offshore operation(s), the
(April ‘15) O5
amounts repatriated to South Africa, or alternatively the dividends
amounts retained abroad, together with an indication of how such funds
were utilised offshore, on an annual basis.
(5)
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.
Dividends declared by offshore subsidiaries of South African companies
after 2004-10-26 (i.e. dividends declared out of normal trading income of
a non-capital nature) may be retained offshore and used for any purpose,
without any recourse to South Africa. Such dividends repatriated to South
Africa after 2004-10-26 may be retransferred abroad at any time and used
for any purpose, provided that there is no recourse to South Africa, except
as provided for in paragraph (6) below.
(6)
6.1.2.4
South African companies are permitted to acquire from 10 to 20 per cent
equity and/or voting rights, whichever is the higher, in a foreign target
entity, which may hold investments and/or make loans into any CMA
country.
Reporting requirement
All companies establishing subsidiaries, branches, offices or joint ventures
abroad are required to submit financial statements on these operations to the
Financial Surveillance Department annually. In certain instances regular progress
reports are also required.
6.1.2.5
Expansion of business abroad and remission of funds
Where it is required to remit funds on a continuous basis from the RSA to finance
running expenses or working capital requirements of offshore operations (i.e.
branch operations or offices) that do not generate income at all or insufficient
income, an annual application should be submitted to the Financial Surveillance
Department supported by:

A report on the operations of the past year; and

an up-to-date financial statement of the foreign concern.
South African companies are allowed, without prior approval of the Financial
Surveillance Department, to expand their existing offshore business via the
existing/newly established offshore entity, through the acquisition of further
assets/equity interests offshore.
The expansion must be financed without recourse to South Africa through foreign
borrowings or by the employment of profits earned by their offshore company. No
recourse to South Africa may occur to fund or guarantee such offshore expansion
and all expansion plans including an enhanced monetary benefit must be placed
on record with the Financial Surveillance Department at an early stage.
Companies that wish to expand their existing South African operations with
recourse to South Africa, i.e. by transferring cash or issuing guarantees from
South Africa, have to submit a fresh fully motivated application to the Financial
Surveillance Department. Such application must meet the same criteria
requirements for foreign direct investment abroad as outlined in point 6.1.2.1
above.
(October ‘11) O6
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 Financial Surveillance
Department 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 a shareholders loan, which on
application is normally favourably considered.
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:
6.1.3

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 approval from the Financial
Surveillance Department.
Loans by residents to non-residents

Corporates
Loans by South African corporates to non-residents are subject to the
approval of the Financial Surveillance Department, which will usually only
be given in exceptional circumstances if the loan is in lieu of dividends or
if it is related to an approved foreign investment by a company.

Individuals
An individual may transfer loans within their overall discretionary limit of
R1 000 000 per applicant during a calendar year to persons normally
resident outside the Republic or to South African residents who are
temporarily overseas, excluding those residents who are abroad on
holiday or business travel.
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 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
(December ‘11) O7
exceed 25% in the case of retirement funds and underwritten policy business of
long-term insurers. Collective investment scheme management companies,
investment managers registered as institutional investors for exchange control
purposes and the investment-linked business of long-term insurers are restricted
to 35% of total retail assets under management. Institutional investors are
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 investments,
excluding inward listed shares, 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, Section W for the definition of inward listed shares).
A separate registered fund or collective investment scheme in South Africa
sanctioned by the Financial Services Board, is preferred in instances where
the institutional investor wishes to obtain direct African exposure by means of
a pooling arrangement, e.g. an African fund set up specifically by a managing
institution. It is, however, not a requirement that such a direct African
exposure should always be undertaken through a separate fund (registered
or unregistered).
All institutional investors should ensure that their investments in African
portfolio assets are in compliance with the Financial Services Board’s
requirements and regulations. All direct or indirect transactions executed in
terms of the five per cent African allowance, must be reported via the
Reporting System.
Institutional investors are permitted to invest in Rand denominated products
issued abroad or foreign currency denominated instruments issued by local
entities as part of their foreign portfolio investment allowances on condition that
the requirements of the Financial Services Board are complied with, as is the
case in respect of investments into any other product.
It should be noted that compliance with the foreign exposure 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.
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 Internet at the
following address: http://www.reservebank.co.za. Follow the links: Home >
Regulation and supervision > Financial surveillance and exchange controls >
Guidelines > General > Guidelines – South African institutional investors.
6.1.4.3
Prudential limit on foreign diversification by Authorised Dealers
Authorised Dealers are able to acquire direct and indirect foreign exposure up to
a macro-prudential limit of 25% of their total liabilities, excluding shareholder’s
equity. Furthermore, Authorised Dealers are allowed to invest an additional five
per cent of their total liabilities, excluding total shareholder’s equity, for expansion
into Africa.
6.1.4.4
South African Private Equity Funds
Private equity funds that are members of the South African Venture Capital
Association, mandated to invest into Africa, may apply to the Financial
(April ‘13) O8
Surveillance Department for an annual approval to invest into Africa. The
following information must accompany such applications:



A copy of the local en-commandite partnership’s mandate to invest into
Africa or in the case of a local fund running parallel with an offshore
fund, a copy of the co-investment agreement between the local and
foreign partnership;
cash flow projections for a 36 month period indicating the amount of
capital to be exited from South Africa for investment purposes into
Africa; and
confirmation that the local private equity fund will obtain a minimum of 10
per cent of the voting rights in the respective investment into Africa. In
the context of a local fund running parallel with an offshore fund where
the private equity fund is managed from South Africa, the minimum 10
per cent requirement may be measured on a fund-wide basis, after the
conversion of investment rights into voting rights.
Applications will also be considered where an unintended loop structure is
created as a result of private equity funds investing into companies in the rest of
Africa with a portion of their business in South Africa.
Institutional investors must be aware that in terms of the look through principle,
any offshore investment held indirectly via the local private equity fund must be
marked off against the respective foreign portfolio investment allowances. The
Financial Services Board Regulations governing the permissibility of these
investments as part of their portfolios, must also be complied with.
6.1.4.5
International Headquarter Companies
Subject to registration with the Financial Surveillance Department for
reporting purposes, new established headquarter companies who meet the
following shareholding and asset criteria may invest offshore without
restriction:

No shareholder in the headquarter company whether alone or together
with any other company forming part of the same group of companies
as a shareholder may hold less than 10 per cent of the shares and
voting rights;

no more than 20 per cent of the headquarter company shares may be
directly or indirectly held by residents; and

at the end of each financial year, at least 80 per cent of the assets of
the holding company must consist of foreign assets. For the purposes
of the above requirements, cash, cash equivalents and debt with a
term of less than one year should not be taken into account.
For the purposes of the above-mentioned requirements, cash, cash
equivalents and debt with a term of less than one year should not be taken
into account.
Registration with the Financial Surveillance Department will remain valid,
provided the above-mentioned requirements are adhered to for the duration
of that year of assessment as well as all previous years of assessment.
(April ‘13) O9
Reporting of the extent of the offshore investments will be required for
statistical purposes which must, inter alia, include the source of funds, new or
existing funds, destination, loan funds from local sources, etc.
Headquarter companies will be treated, for exchange control purposes, as
non-resident companies other than for their reporting obligations.
Transactions by South African entities with headquarter companies will,
therefore, be viewed as transactions with non-residents.
Headquarter companies can freely borrow from abroad and such funds may
be deployed locally or offshore. These transactions are regarded as occurring
outside South Africa.
Any lending by local banks to headquarter companies will form part of the
banks’ macro prudential limits.
6.1.4.6
South African holding company for African and offshore operations
Entities listed on the JSE Limited may establish one subsidiary (“HoldCo”) to
hold African and offshore operations which will not be subject to any
exchange control restrictions. HoldCo will, however,be subject to the following
conditions:

Registration with the Financial Surveillance Department;

HoldCo must operate as a South African tax resident and be
incorporated and effectively managed and controlled in South Africa;

Authorised Dealers may authorise transfers from the parent company
to the HoldCo up to Rand 2 billion per calendar year. Up to this
amount, there will be no restriction on transfers in and out of the
HoldCo, provided that such transfers are not undertaken to avoid tax.
Additional amounts of up to 25 per cent of the listed company’s market
capitalisation will be considered on application to the Financial
Surveillance Department, provided there are demonstrated benefits to
South Africa;

HoldCo will be allowed to freely raise and deploy capital
offshore,provided that these funds are without recourse to South
Africa. Additional domestic capital and guarantees will be allowed to
fund bona fide foreign direct investments in the same manner as the
current foreign direct investment allowance;

HoldCo will be allowed to operate as a cash management centre for
South African entities. Cash pooling will be allowed without any
restrictions and local income generated from cash management will be
freely transferable; and

HoldCo may choose its functional currency and operate a foreign
currency account and a Rand denominated account for operational
expenses.
Unlisted entities may establish one subsidiary (“HoldCo”) to hold African and
offshore operations, which will not be subject to any exchange control
restrictions, subject to certain conditions.
(February ‘14) O10
6.1.5
Share incentive schemes offered by foreign companies
Private individuals are allowed to participate in offshore share incentive or share
option schemes, provided that such participation is financed in terms of the
foreign capital allowance dispensation (see point 6.1.1 above) and/or from the
proceeds of authorised foreign assets. All applications falling outside the ambit of
this dispensation must be referred to the Financial Surveillance Department with
full details.
Where an application is submitted to the Financial Surveillance Department and it
is agreed to, the following guidelines will normally apply:
Participation where the acquisition of shares will have a direct impact on the
country’s foreign exchange reserves, i.e. employee must transfer funds abroad in
order to purchase the shares:

Requests of this nature must be dealt with in terms of in terms of the
foreign capital allowance dispensation (see point 6.1.1 above).

Should an employee who qualifies in terms of the incentive scheme wish
to acquire shares in excess of the amount of R10 million, payment
thereof may be effected provided such shares are immediately disposed
of and the full sale proceeds thereof transferred to South Africa in terms
of Regulation 6. Such transfer(s) may not be regarded as capital
transferred from abroad as outlined in point 6.1.1 above.
Participation where the acquisition of shares will not have any impact on the
country’s foreign exchange reserves, i.e. shares are acquired by employees by
means of a parent company or third party loan to be serviced from dividends
earned abroad or the employee is awarded the share free of charged:

All levels of employees of the company who qualify in terms of the rules
of the share incentive scheme may acquire shares to any value and may
retain such shares. The value of the shares acquired in this matter need
not be deducted from the foreign capital allowance dispensation.
Any income earned abroad in this regard may be retained abroad.
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
approval from the Financial Surveillance Department .
6.1.7
Borrowing abroad by residents
6.1.7.1
Control over borrowing abroad by residents
Whilst permission is generally granted for residents to raise foreign loans, it is
necessary for prior approval to be obtained, from Authorised Dealers or the
Financial Surveillance Department, 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, 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
(July ‘10) O11
Dealers. Any other request which falls outside the applicable criteria, an
application must be submitted to the Financial Surveillance Department, for
consideration.
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.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 the underlying borrowing has been approved. The policy
regarding borrowing abroad applies to both corporate entities and individuals.
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;

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.
monthly/quarterly instalments;

copy of the loan agreement, if available/applicable;

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;
(July ‘10) O12

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; and

details of any commitment fees, raising fees and/or any other
administration fees payable by the borrower.
Adjudication process
The following criteria must be strictly applied by Authorised Dealers when
adjudicating applications for inward foreign loans and foreign trade finance
facilities:

The tenor of each loan must be at least one month;

the interest rate in respect of third party foreign denominated loans may not
exceed the base lending rate plus 2% or, in the case of shareholders' loans,
the base lending rate as determined by commercial banks in the country of
denomination;

the interest rate in respect of Rand denominated loans may not exceed the
base rate, i.e. prime rate, plus 3% on third party loans or the base rate, in the
case of shareholders' loans;

the loan funds to be introduced may not represent or be sourced from a
South African resident's foreign capital allowance, foreign earnings retained
abroad, funds for which amnesty had been granted in terms of the Exchange
Control Amnesty and Amendment of Taxation Laws Act, 2003 (Act No. 12 of
2003) and/or foreign inheritances;

there may not be any direct/indirect South African interest whatsoever in the
foreign lender;

the loan funds may not be invested into sinking funds; and

no upfront payment of commitment fees, raising fees and/or any other
administration fees are payable by the borrower.
Applications to be submitted to the Financial Surveillance Department
Authorised Dealers must submit an application to the Financial Surveillance
Department for consideration in the following instances:

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;

loan draw downs, capital and interest payments in respect of foreign
trade finance facilities for imports/exports where the transactions will not
be reported under Category 107, 999 or 407 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;
(September ‘14) O13

capitalisation of interest;

conversion of the loan to share capital;

consolidation of loans;

applications by affected persons, where the repayment of a
shareholder’s loan will result in the local entity becoming “overborrowed”
in terms of the local financial assistance ratio;

all loans where commitment fees, raising fees and/or any other
administrative fees are payable;

early capital redemptions;

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 12 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 the Financial Surveillance Department.
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.
6.1.7.4
Categories of loan finance
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:

Trade Finance, short-term working capital loans and long-term loans;

loans from non-resident shareholders to affected persons; and

loans from other non-residents.
(July ‘10) O14
6.1.7.4.1
Trade finance, short-term working capital loans and long-term loans
(a)
Short-term trade finance
Imports
The Financial Surveillance Department 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:

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 draw down of the facility
may only take place on or after date of shipment; except for
advance payments where the draw down can be done prior to
the goods being shipped.

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 Authorised Dealer in funds by crediting the latter'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
The Financial Surveillance Department 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;
(September ‘14) O15

the facilities relate to the pre- or post-shipment finance of the
export of a specific consignment of goods;

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 and the observance of the 30 day rule, are
complied with. The Reporting in terms of the Reporting System,
must take place upon receipt of the export proceeds from abroad;

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 the Financial Surveillance
Department;

in the event the overseas importer does not effect 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 the Financial Surveillance Department, who must
also be informed of the overseas importer's default; and
(September ‘14) O16

Inform Financial Surveillance Department monthly of short-term
foreign finance facilities relating to the exportation of goods and
separately, such facilities relating to the export of goods from the
Republic.
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.
(b)
Short-term working capital loans
The Financial Surveillance Department is prepared to permit local
Authorised Dealers, on application, to extend short-term foreign currency
working capital loan facilities, specifically relating to the financing of
current 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;

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; and

Inform Exchange Control of short-term foreign finance facilities
relating to the exportation of goods from the Republic and
separately, such facilities relating to the export of goods from the
Republic, on a monthly basis.
The monthly return must be submitted in two parts, the one relating to
resident borrowers (other than affected persons) and the other to affected
persons.
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.
(c)
Long-term loans
In the event of an Authorised Dealer wishing to interpose itself locally and
assume the funding of a capital goods import by substituting either local
funding or shorter-term foreign currency finance facilities and, in so doing,
bars direct utilisation of new long-term lines of credit, which were available
for that specific purpose (by e.g. negotiating any bills of exchange or
promissory notes, transferring or providing any security or acknowledging
any debt), prior approval of the Financial Surveillance Department must
be obtained.
Should, in similar circumstances, an Authorised Dealer wish to interpose
itself through a subsidiary or branch office outside the Republic, it may do
so, provided that such transactions are financed solely out of the offshore
entity's own resources abroad. It follows that no funding may be provided
(October '07) O17
from the CMA to the offshore entity, to assist either wholly or partially, with
the financing of such a transaction.
Furthermore, such financing must run for the full credit period originally
agreed and the resident debtor may not repay such financing at an earlier
date, without prior approval of the Financial Surveillance Department.
Authorised Dealers must, similarly, obtain prior approval of the Financial
Surveillance Department before entering into Export Credit Facility
Agreements with correspondent banks abroad.
Furthermore, prior
approval of the Financial Surveillance Department must be obtained for all
facilities subsequently availed of under such agreements where the
overall finance period, including any initial supplier's credit, exceeds 12
months from date of shipment of the underlying goods to the Republic.
The facilities mentioned 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.
6.1.7.4.2
Loans from non-resident shareholders to affected persons
South African companies subject to Regulation 3(1)(f)
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.
Given the restrictions on the extent to which South African companies, subject to
the provisions of Regulation 3(1)(f), may use local borrowing and other financial
assistance, the acceptance or the repayment of non-resident shareholders' loans
may affect existing local borrowing authorities, as indicated in the table below:
(October '07) O18
6.1.7.5
Type of Loan Transaction
Effect on Local Borrowing Limit
New
loan
from
non-resident
shareholders with no pro rata
contribution
from
resident
shareholders.
Amount included in effective capital
and local borrowing limit increased
by applicable percentage of this
amount.
Repayment of above loan.
Amount deducted from effective
capital and local borrowing limit
reduced by applicable percentage of
this amount.
New
loan
from
non-resident
shareholders with pro rata matching
loan from resident share-holders.
Both loans included in effective
capital and local borrowing limit
increased by applicable 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.
Fraudulent practices involving purported foreign loan facilities
Any applications for foreign exchange to meet the purported cost of raising fees
or administrative charges in connection with any proposed borrowing abroad by
residents must be referred to the Financial Surveillance Department for approval
with full details of the terms of the proposed loan together with the original
documentary evidence submitted in support of the request.
Furthermore, should Authorised Dealers be approached by prospective
borrowers with the request to issue, on the borrower's behalf, stand-by letters of
credit or other forms of guarantees, make promissory notes or avail of
promissory notes or other forms of debt instruments made by the borrower, in
favour of the lender, all such requests must be referred to the Financial
Surveillance Department for approval with full details as enumerated above.
(October '07) O19