November 3 2020

South Africa to Relax Exchange Control Rules

Source: IBFD Tax Research Platform News

South Africa has announced reforms aimed at phasing out the current exchange control regulations to make it easier to invest in South Africa, these measures are:

  • In respect of inward listing instruments: all debt, derivatives and exchange traded instruments referencing foreign assets, that are inward listed, traded and settled in Rand on South African exchanges, will be classified as domestic. The classification of all inward listed shares denominated in Rand remains domestic.
  • In respect of loop structures for foreign direct investment purposes: the full 'loop structure' restriction has been lifted to encourage inward investments into South Africa, subject to reporting to the South African Reserve Bank (SARB) as and when the transaction is finalized. A 'loop structure' entails the formation by a South African resident of an offshore structure which, by reinvestment into the country, acquires shares, loan accounts or some other interest in a South African resident company or a South African asset. This reform will be effective from 1 January 2021 for companies, including private equity funds, provided that the entity is a tax resident in South Africa.
  • In respect of corporate foreign borrowings: all bond and note issuances by South African corporates offshore (excluding State owned companies) with recourse to South Africa, will be subject to framework and reporting conditions determined by the SARB, which will replace the current prior-approval process.

In addition to the above-mentioned reforms, several measures aimed at widening the tax base and increasing tax revenue for the financial years 2021/22, 2022/23 and 2023/24 have been announced. These include:

  • finalizing the tax gap study in December 2020 to quantify the difference between how much tax should be collected and how much is collected;
  • remaining focused on international taxes, particularly aggressive tax planning using transfer pricing;
  • increasing enforcement to eliminate syndicated fraud and tax crimes;
  • continuing to use third-party data to find non-compliant taxpayers; and
  • collecting pay-as-you-earn and value added tax debt and ensuring that outstanding taxpayer returns are filed, and liabilities paid.

These measures were presented to the parliament by the Minister of Finance on 28 October 2020, through his 2020 Medium Term Budget Statement.