Exchange control risks when moving funds offshore
Many South Africans are looking to move funds offshore, for reasons that range from travel and investing to importing or exporting new products and launching new businesses.
But without observing the correct exchange control procedures, you or your business could quickly land in hot water with the South African Reserve Bank (Sarb).
Introduced in 1961 in an effort to ensure currency stability and manage the country’s balance of payments, exchange controls are used to manage, measure and report total foreign exchange inflows and outflows.
Consequently, all foreign exchange transactions must be reported by authorised dealers to Sarb as the relevant regulatory authority by way of a Balance of Payments form.
South Africa is one of just a few countries globally that still imposes exchange controls on individuals and entities (others include China and India), and failure to comply could mean a hefty fine, the freezing of your bank accounts, or even, in severe cases, the forfeiture of assets.
And despite some claims to the contrary, do not be hoodwinked into believing that you can bypass exchange control through the use of cryptocurrencies such as Bitcoin, as all transactions into or out of the country must be reported if you are to avoid wrangling with Sarb in the future.
In terms of individuals, each South African has a single discretionary annual allowance of R1 million, and may invest a further R10m offshore subject to certain criteria, such as acquiring a tax clearance certificate.
While this effectively means that the individual limits are likely to be felt only by the super wealthy, it is nonetheless essential to ensure that you do not exceed these amounts without the Sarb’s express approval.
Additionally, you need to be careful to ensure that your funds are utilised in accordance with the restrictions provided for by the Sarb. Other details such as assigning your transactions the correct category codes, reporting accurate amounts and supplying the necessary supporting documents are further key for compliance.
There are also specific exchange control procedures that entities such as businesses and trusts must comply with, such as the requirement that entities convert foreign dividend receipts into rands within specific time frames according to Sarb requirements.
The Sarb has published separate exchange control manuals for individuals, companies and authorised dealers, and updates these regularly in order to assist individuals and entities to ensure their continued compliance.
Bianca Botes is a treasury partner at Peregrine Treasury Solutions.