Thursday, 29 October 2009

South Africa - Exchange controls: limits and red tape relaxed

PRETORIA - Treasury has announced several measures designed to reduce the administrative burden of exchange controls. The limits of some exchange controls have also been relaxed, allowing individuals and business more freedom to put money overseas.

The Mini-Budget Statement says that South Africa continues to welcome foreign direct investment and encourages local firms that wish to diversify offshore from a domestic base .

One of the proposed reforms is to increase the amount a company may invest offshore tenfold, from the current limit of R50m to R500m. For individuals, the foreign capital allowance has been increased from R2m to R4m. The single discretionary allowance has been increased from R500 000 to R750 000.

The following relaxations are proposed for business transactions:

SA companies will be allowed to invest in Southern African Development Community (SADC) member countries through offshore intermediaries. The relaxation excludes investment in member states that are part of the Common Monetary Area.

Increasing the current R50m limit for company applications to undertake outward investment to R500m. Applications below this limit will be processed by authorised dealers, subject to all existing criteria and reporting obligations.

Removing the 180-day rule requiring companies to convert their foreign exchange into rand. However, South African companies are still required to repatriate export proceeds to South Africa.

Doing away with the R250 000 limit on advance payments for imports.

Allowing South African companies to open foreign bank accounts for permissible purposes without prior approval, subject to reporting obligations.

Replacing the current paper-based monitoring system of exports (Form F178) with a more efficient electronic system in due course.

Treasury is also trying to boost foreign direct investment by relaxing borrowing restrictions for non-residents. It has abolished a rule which restricts borrowing for foreign direct investment by non-residents to a ratio of 3:1. According to this rule, non-residents must invest R1 for every R3 borrowed locally.

After it's abolishment, they will be able to finance 100% of their investment. However, the relaxation does not apply to emigrants, the acquisition of residential properties by non-residents, or any other financial transactions - such as portfolio investments, securities lending, hedging or repurchase agreements - by non residents. For these cases, the existing finance ratio of 1:1 still applies.

More announcements on these reforms will be provided in due course by the Reserve Bank, whose task is to police exchange controls.

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