Budget 2021: More detail expected on exchange control regulations
By Carmen Westermeyer
A SIGNIFICANT overhaul of the exchange control regime was announced in the 2020 Budget.
The plan is to scrap the existing exchange control regulations and replace them with a completely fresh set of regulations. We would move from a “nothing is allowed unless it’s on the list” model to a “everything is allowed unless it’s on the list”.
This is a seismic change in thinking when it comes to managing exchange control.
There were several reasons given for this change:
- Incorrect and conflicting advice in the marketplace on the interplay between exchange control residency and tax residency.
- Exchange control has been a huge stumbling block for foreign investment.
The number of South African businesses moving abroad because of the red tape created by exchange control.
These are but a few of the reasons given. This move was met with high levels of scepticism by the broader public. Over the course of the last year, though, the National Treasury and the South African Reserve Bank have made several moves which show that this announcement was not just hot air.
The rules regarding cash out of retirement funds was amended to reflect the fact that “financial emigration” would no longer exist. This is now purely a tax-based residency test.
Significant amendments were made to the rules regarding the inward listing of instruments, removing the distinction between local and foreign-listed items.
South African companies borrowing money abroad no longer need SA Reserve Bank approval for the loans; they just need to be disclosed.
Most significant was the removal of the loop structure restrictions on January,1, 2021.
The lifting of the loop structure restrictions also signals a seismic shift in possibilities. Local companies can now be owned by your offshore trust structure. The need for a local structure and a separate offshore structure is now gone. The tax landscape will change to adapt to these new rules, but that can then be factored in as a cost of doing business.
The removal of the residency definitions for individuals was set for March 1, although these regulations have yet to be released. The progress over the past year tells us, though, that we can expect these to be tabled with the Budget Speech.
It is anticipated that, with these regulations, the concept of a foreign investment allowance, travel allowance and discretionary allowances will become a thing of the past as individuals will have complete freedom to invest where they want and how they want. Individuals who have left the country can retain their South African bank accounts and credit cards. Non-residents will be able to apply for mortgage loans with no limits.
The sky seems to be the limit and I look forward to seeing where the lifting of the restrictions takes us.
Carmen Westermeyer, CA(SA), is a partner at Maitland and Associates, a member of ThinkTax, a member of the Saica Eastern Region and National Tax Operations committees, and accounting member of the Tax Court.
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