Foreign Permissible Investment (FPI) by South African residents

Foreign Permissible Investment (FPI) by South African

General Exchange Control Comments & Updated Policy:

In is important to note that no locally owned Intellectual Property (IP) may be transferred  directly or indirectly, without the prior approval of Exchange Control.

The word “transferred” is interpreted to include a alienation or transfer by way of a sale, assignment or cession and/or the waiver of rights in favour of non-residents in whatever form.

Making it available subject to a recurring fair and reasonable revenue stream (be it a license fee, royalty payment none of which may be in the form of a lump sum) appears to be permissible, provided full effective ownership and further development rights are retained in South Africa.

The SARB policy updated April 24th is as follows:

The Exchange control department of the South African Reserve Bank (EXCON) issued the following policy in respect of intellectual property (IP):

  1. Requests by South African resident individuals and/or corporates to sell, cede or transfer IP to unrelated third party non-residents for a fair and market related price must be submitted to EXCON via an Authorised Dealer.
  2. Requests by South African resident individuals and/or corporates to sell, cede or transfer IP to related non-resident parties (i.e. family or a parent company, associate company or a subsidiary company) for a fair and market related price will be declined by EXCON.
  3. Requests by South African resident individuals and/or corporates to license South African IP to unrelated third party non-residents for a fair and market related royalty do not require the prior approval of EXCON, but if an application is received, EXCON may approve it for the term of the agreement. A condition of the approval would be that all royalties must be repatriated to South Africa and be converted to Rand within 30 days of such royalty having been paid.
  4. Requests by South African resident individuals and/or corporates to license South African IP to related party non-resident for a fair and market related royalty must be submitted to EXCON via an Authorised Dealer, but may on application be approved for the term of the agreement. A condition of the approval would be that all royalties must be repatriated to South Africa and be converted to Rand within 30 days of such royalty having been paid


Private individuals (natural persons)

Foreign Investment Allowance (FIA) – once a life time R2million per taxpayer 18+ years old

Outside Common Monetary Area (CMA)  – Cash, land, equity  – provided no loop is created – so called R2m FIA

18+ year old tax-payers in good standing may invest up to of R2 million outside the CMA, once an electronically completed “TAX CLEARANCE CERTIFICATE (IN RESPECT OF FOREIGN INVESTMENTS)” were  issued by the South African Revenue Service (SARS) are presented to the bank.The tax clearance certificate is applied for on SARS form FIA001 or FIA002, provided the taxpayer is registered (SARS Form IT77).

There is no absolute requirement that the taxpayer need to be tax resident in South Africa. So called Excon residents temporarily aboard may also apply for the R2m FIA and indeed for their R500 000 discretionary (previously the travel allowance) on departure provided they give a written undertaking not to use their SA credit card whilst aboard.

Travel Allowance – now referred to as the discretionary allowance is not a permissible long term foreign investment option, it is intended to cover actual expenses and create no foreign assets. South Africans advancing their annual R500 000 to non-residents are therefore presumably creating a local Rand denominated asset i.e. the loan agreement may not be entered into in a foreign currency or if denominated in a foreign currency, the repayment terms must refer to a repayment to South Africa i.e. it is a short term foreign asset. Taxpayers are reminded that these R500 000 advanced on loan account or in fact our right donated to foreigners may result in the subsequent income being attributed back to South Africa. In additions said donations (excluding the interest free element) will be subject to normal donations tax rules.

SADC Countries –increased FIA – no upper limit of immovable property

In addition to the R2m FIA, SARB Exchange Control  (Excon) is prepared to consider applications by private individuals to invest in fixed property in SADC member countries which is not part of the CMA), against submission of a (further) Tax Clearance Certificate. Mauritius and Seychelles are now both members of the SADC, which allows South Africans to invest in the so-called IRS properties in Mauritius (MRU)

CMA properties are bought using ZA Rand and therefore not subject to Excon control, however the income may remain subject to SARS reporting

Foreign Earned Income & Capital (Excon Regulation B.02(H) whish in effect increases the R2m FIA allowance)

Income earned abroad and own foreign capital (FEI) introduced into the Republic on or after 1997-07-01 (e.g. a foreign inheritance or income earned after 1997-07-01) and provided the Authorised Dealer concerned is satisfied that the income and/or capital had previously been converted to Rand (by either having done their client the favour to retain the necessary deal sips or by viewing documentary evidence confirming the amounts involved) MAY be re-transferred abroad or remitted into a foreign currency without the FIA R2m being reduced accordingly.

Specifically excluded from the FEI permission, is he sale proceeds local in situ assets received from non-residents and the indirect export or retention of said proceeds, in a foreign currency or offshore bank account.  Furthermore in situ South African assets brought back in terms of the the  five percent tax and excon amnesty  levy (2003 to 2005) may also not be retransferred abroad.

Loops – some relation on listed inward investments?

SA residents, including a local corporate may not invested their approved funds abroad through any structure or medium which will allow for re-invested directly or indirectly back into the CMA for any purposes whatsoever. Recent changes however saw the SARB providing specific permission that such funds may, however, be used to invest in approved inward listed instruments on locally approved the bond and securities exchanges.

South African residents may, furthermore, invest domestic funds in certain listed instruments without restriction. These listed instruments are defined as products that offer South African investors exposure to offshore referenced assets. These assets may be Rand reported provided they are listed on the JSE Limited or the Bond Exchange of South Africa. Very importantly, any securities issued by local entities in the offshore market, whether priced in Rand or foreign currency are deemed as a foreign asset for Exchange Control purposes. See our comments under hedging below

South African Corporate investing abroad

         including mandated parastatals (Schedule 2 of the Public Finance Management Act, No. 1 of 1999) private, listed and unlisted public companies

New  Foreign Direct Investments (FDI) not exceeding R50 million per applicant company per calendar year

    • Norms applied and factors considered during the FDI process
      The current application process for approval for SARB’s Exchange Control (Excon) prior to the entity  undertaking new foreign direct investment has been removed for company transactions below R50 million per applicant company per calendar year, has been removed, the authorised dealer may now process the application through strict compliance with the 2008 guidelines issued. Accordingly, hence forth your commercials bank (being an Authorised Dealers) shall  be able to adjudicate your  applications and grant you the required  approval once the minimum requirements are met.    The minimum equity interest was reduced to 10% i.e. the foreign entity will no longer be Controlled as a “subsidiary”.
    • Guidelines for new applicants
      Specific reference is made to point (c) of the Guidelines : South African Institutional Investors document which states that “It should be noted that compliance with the exchange control limits on foreign portfolio investment does not preclude an institution from also having to comply with any relevant prudential regulations as administered by the Financial Services Board.”   This would entail, enter alia, the permissibility of the investment as well as ensuring that the institution is registered with the Financial Services Board.Should the investor be subject to Financial Services Board (FSB / FAIS) regulation, the relevant requirements  must be met prior to the proposed  investment offshore, including Rand denominated instruments, may be made.
    • Investment into newly established and newly acquired foreign companies
      – The local applicants may not change or allow their approved equity interest and voting interest in the offshore company,  to be diluted below 10%.  – The nature of the foreign business operations may also not be changed without Exchange Control’s specific prior approval;                                                                                                                                                                                                                               -the transfer of any additional working capital from South Africa is subject to a fresh application being submitted to Exchange Control.
    • The approved offshore “subsidiary” entities (held through a voting and equity control of at least 10%) may not acquire any assets or make loans to entities within the CMA, provided that SADC entities may re-invest into SADC assets not based in the CMA
    • Dividends earned vs. interest earned on working capital loan accounts to foreign investee
      Interest on loan accounts and the repayment of the loan account must be repatriated to South Africa, however specific permission, effective from 2004-10-26, now allows SA investors receiving dividends from approved offshore FDI investee companies may accordingly retain such dividend proceeds offshore and use it for any purpose provided the application of such dividends does not create any recourse to South Africa. The transfer of any additional working capital from South Africa is subject to a fresh application being submitted to Exchange Control (not merely to the commercial bank!). Similarly any dividends that in future are repatriated to South Africa may be retransferred abroad at any time and be used for any purpose, provided that no further recourse to South Africa is created and no so called loop investment (see above) is created
    • Nature of trade – investee
      The SA investor and the investee must be trading within the line of business  or in a supporting or complimentary industry and accordingly the nature of the foreign business operations may not be changed without specific prior approval
    • Excon recourse, continued and future compliance duty to Excon via authorised dealer
      On an annual basis the Authorised Dealer having initially approved the FDI, must together with an outline of the benefits to South Africa,  submit the annual Financial Accounts including Income and Expenditure Statements and balance sheets  (of approved investee). Where this any other of the above listed criteria as set out above are not adhered to Exchange Control reserves the right to call upon the foreign investment to be disposed of and for the proceeds to be repatriated to South Africa.


Institutional investors and private individuals (subject to strict derivative investment criteria) may “hedge” the currency exposure pertaining to inward and outward transfers and future FIA investment by individuals – see the comments below Loops above

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