On March 1, 2021, the concept of financial emigration as previously recognised by the Financial Surveillance Department (FinSurv) of the South African Reserve Bank (Sarb), was phased out. For many South African residents, who were considering possible emigration at the time, this was a cause for concern as it meant that, for those under 55, they would not have immediate access to funds locked away in retirement and pension savings.
The change meant that you would now have to be able to prove that you have been a non-tax resident for at least three years, before being able to access those funds to facilitate your life in a new country. Commentators, however, have pointed out that while this change might at first glance appear to hinder the ability to take financial assets offshore, it is actually part of a process of eliminating exchange controls that have steadily been effected over the past 26 years.
“Each South African resident, who is a taxpayer and in good standing with the South African Revenue Service (Sars) and is 18 years or older, may transfer up to R10 million per calendar year for investment purposes abroad, provided that they have obtained a tax clearance system PIN letter from Sars. It is called your foreign investment allowance (FIA),” says Janeal Haskins, Head of Forex and International Banking at Absa Relationship Banking. “Residents may also transfer more than that R10 million. This entails, however, a more stringent process for verification of the source of funds and the tax status compliance of the individual before approval is given by FinSurv.”
A resident can, of course, also externalise up to R1 million per calendar year, without any Sars clearance as part of the single discretionary allowance (SDA).
“Ordinarily, our clients use this allowance for travel, or to pay for donations and gifts, but many also use their SDA for investment purposes,” Haskins says.
Disappearing exchange controls
This dispensation is worlds removed from the difficulties that a South African faced before 1994, when the exchange control regime implemented in 1985 severely limited the way in which individuals could expatriate funds.
“Being able to make international investments allows South Africans the opportunity to invest in shares and industries that are not ordinarily available if you only focus locally on the Johannesburg Stock Exchange,” says Haskins. “Also, in the volatile times in which we live, it allows you to access investment products that may currently produce a higher yield.”
According to Haskins, her division at Absa has seen significant fund flows since the Covid-19 pandemic hit.
“In the affluence segment, we have seen clients externalising funds. This could be for various reasons – some clients have family members living or studying abroad and some were taking advantage of the yield in offshore investments. However, we’ve also seen clients bring funds back into the country,” she says.
“There was a lot of onshore convergence, specifically clients in Covid-19-induced business cashflow situations where the currency volatility meant that the weaker exchange rate would benefit them from a rand perspective.”
FinSurv also put a temporary dispensation in place where it allowed banks to assist with straight-through processing of inward telegraphic transfers within a specific limit, so that clients could easily access their funds.
A depreciating and volatile rand
The bank continuously has clients coming to it for assistance on how to manage and hedge their risk in terms of the exchange rate volatility. In a world fraught with uncertainty, one of the constants seems to be the volatility of the rand, steadily depreciating over time. In December 2004, one rand fetched R5.64 when exchanged for a US dollar. In August 2021, market commentators would pitch a “strong” rand at around R13 to the dollar.
“We have a team of specialists who engage with clients to understand their requirements. It is not just about executing and buying and selling currency,” says Haskins. “Our team of forex specialists can assist with providing market trends as produced by our research teams and analysts, as well as trading ranges for the day, that could assist in helping our clients make informed decisions on when best to execute their transfers. We can then engage in a conversation with the client to help manage the exchange rate risk that they are facing.”
This currency volatility is one of the reasons many ordinary South Africans also seek an easy, uncomplicated way to save in a foreign currency. Once the type of option only available to the rich and famous who had access to offshore accounts, with fintech solutions and innovative banking developments it has become possible for any banking client to own foreign currency, topping up your dollars, euros or pounds when the exchange rate is favourable.
Absa offers this solution through its Currency Investment Account, which is held locally, but serves the same purpose as an offshore currency-denominated account and is reported to FinSurv as a cross-border transaction. The account can be opened in over 18 currencies and clients use their SDA or FIA for these transfers.
“These accounts are also commonly referred to as international savings accounts. They are fully transactional and do not incur any monthly charges,” says Haskins.
While dealing with exchange controls might have become a lot simpler, Haskins admits that there are still some processes and applications that could prove daunting for a client. That, she says, is where the Forex and International Banking team steps in. This is a seasoned team of specialists and subject matter experts as far as exchange control regulation is concerned.
“What we strive to do, is to walk the journey with our clients and educate them on the options and types of products that are available to them. We strive to provide the guidance so that they will know what is available for transmitting and remitting their funds in a way that is allowed and prescribed by regulation. It is our job as the authorised dealer to really help the client, through the mechanisms available to them,” she says.
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