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Increased foreign investment allowances for individuals on the cards?

This would mark a significant departure from the existing regime.
Image: Shutterstock

Many will be aware of the South African Reserve Bank’s announcement in January of this year that it is lifting the prohibition against “loop” structures. Previously, the Reserve Bank disallowed South African individuals investing in South African assets via an offshore entity, creating a “looped” investment structure.  As part of the large-scale relaxation of the exchange control regime announced by Minister Mboweni in the 2020 Budget, the lifting of the “loop” structure prohibition marks the beginning of what is bound to be a significant overhaul of the exchange control regime as existed until now.

In terms of exchange controls, South Africans may not enter into cross border transactions without first obtaining permission from an Authorised Dealer (generally commercial banks and who mandated by the Reserve Bank to approve certain transactions) or from the Reserve Bank itself.

In terms of the new policy being developed by the Reserve Bank, South Africa will however, come March of this year, move away from a system in terms whereof permission needs to be obtained prior to cross border transactions being entered into, to a new capital flow management system in terms whereof all cross-border transactions will be automatically permissible, other than for a number of to be identified transactions which will still require upfront approval.

This presents a significant development for South Africans wishing to invest abroad as well as for South African companies looking to attract foreign direct investment from offshore more easily.

The departure of the “loop” structure regime should be seen in the broader context in terms of which the Reserve Bank, as part of its overhaul, is looking to do away with the concept of “residence” for exchange control purposes.  Tax laws have already been amended to provide for the concept of an “exchange control resident” to be abolished and one is left wondering what this may hold for the future.

To date, exchange control residence for individuals involved a limitation on two fronts.  First, the ability to invest in South African assets via an offshore structure (the “loop” structure prohibition) and secondly a ceiling being placed on the amount that individuals may invest offshore annually.

In looking to do away with the concept of exchange control residence, it is possible that South Africans wishing to invest abroad in own name may be in for a pleasant surprise when the South African Budget is tabled in Parliament on 24 February 2021.

If the concept of residence as applies to exchange control is truly to be done away with, it would mean that individuals would be subjected to the same exchange control regime as would exist for companies in the future and that limitations on annual foreign investment spend may as a result be significantly relaxed.

This would mark a significant departure from the existing regime in terms whereof many South Africans are frustrated when wanting to invest abroad due to red tape and limitations hampering those abilities.

Dr Albertus Marais is director at AJM Tax

COMMENTS   8

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I have heard mention by a few prominent financial commentators that only around 20% of equity investments should be invested in the JSE to reduce country and segment exposure risk. This makes a lot of sense but people with living annuities are being hamstrung by exchange control measures.

A “Loop structure” via Crypto wallets is the way to go.

Works well. Nothing required form nobody.

Exchange controls are dead and what gets “Tabled” in Parliament has no effect.

Except, of course, that international anti-laundering (what you are suggesting) legislation between SADC countries and various other countries require that all financial holdings in bank accounts that below to South Africans be reported to the SARB and hence to SARS.

With the new law changes from SARS, the onus is on you to make sure that your taxes are reported correctly and that you don’t make supposed “mistakes” of not keeping to tax laws. Otherwise, criminal record with possible jail time.

The crypto fantasy is a fantasy. Not real.

What “financial holding” and what “Bank Account”??

Since when can SARS “Change the law”?? I thought that’s why SA has a parliament but I agree that they are incapable of doing what they are supposed to do.

The SA law refers to “Foreign Currencies etc. etc. ???????? Is crypto Foreign??? Is crypto an asset?? Certainly does not behave like one.

SARS CANT MAKE ANY LAW AND FOR YOUR CORRUPT anc GOVERNMENT TO ENFORCE LAWS THEY MUST FIRST EXIST.

This lot is clutching at straws at the moment and without doing their job properly (which they cant) they are doing what you are doing. Making a “mistake”.

There is NOTHING to declare as it stands. Go and check the law. Not the one SARS makes up or SARB wants to enforce.

As you say.

“CRYPTO IS A FANTICY. NOT REAL”

So how would it be possible to tax something that does not exist and is unreal???

Loop de Loop!!!!!!

@Mmmm all Crypto exchanges will be required to provide information at the transactional level, so SARS will receive your trading statement irrelevant of the “asset” held.

You can use capitalized wording as much as you like. If you make a gain, you need to pay tax. If you don’t, it is now a criminal offence in South Africa.

Why do all Crypto fanatics also seem to lose common sense?

What is often not mentioned is your crypto i.d being deposited into
Authorities biggest hurdle is not so much determining what crypto’s one has purchased through which platforms but what coins you have received
Crypto’s are encrypted ( its why hundreds of millions are lost to forgotten passes globally, annually) and need not necessarily be stored/banked on any platform

Just like money can be washed, so can crypto’s

@Charles.

Nothing fanatical. ????

I was not talking about making a taxable gain or trading crypto but with crypto you don’t need permission from the reserve bank or SARS to shift “Crypto”

Use your common sense.

Any move to have exchange control relaxed, also has a long-term positive effect on incoming Foreign Direct Investment.

(Any country that has draconian exchange control rules where it’s difficult to get your funds repatriated, foreign investors will avoid from the outset.)

End of comments.

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