South Africa’s Ambiguous Exchange Control Climate

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v14_n3_a2
• Author: Robyn Berger,Esther Geldenhuys
• Pages: 15-22
• Date: 01 September 2023
• Published date: 01 September 2023
• Published By: Siber Ink

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South Africa’s Ambiguous

Exchange Control Climate

ROBYN BERGER* • ESTHER GELDENHUYS†

ABSTRACT

Although the South African Minister of Finance announced in the 2020

Budget speech that sweeping reforms would be enacted to relax the South

African exchange control system, it is now three years later, and no mean-

ingful relaxation of exchange control has occurred. Rather, investment into

South Africa remains plagued by exchange control laws, which result in costly

and time-consuming processes for foreign investors.

In January 2021, a long-awaited change to the exchange control rules

was enacted, with the relaxation of the so-called ‘loop structure’ rules. Many

investors jumped at the opportunity to take advantage of this relaxation

and restructured their existing South African assets so that they would be

owned by approved foreign structures. The relevant parties then, in line with

the prescribed rules, reported the transactions to the Financial Surveillance

Department of the South African Reserve Bank (FinSurv), via their Authorised

Dealers. The FinSurv did not simply acknowledge receipt of the reported

information as expected under the law. Rather, the FinSurv elected to reject

applications submitted under the respective circular, without withdrawing

the circular, leading to much uncertainty in the market, especially for those

investors who have already restructured their assets, triggered taxes on the

restructure and paid the taxes.

Further, it appears that South Africa’s negative rating and greylisting, by

the Financial Action Task Force (FATF), has triggered a stricter application of

the existing exchange control regime, with more frequent application of the

penalty regime by the FinSurv to identifi ed contraventions. In the past, South

African corporates were able to regularise an exchange control contravention

with the FinSurv without diffi culty. The process was relatively straight forward.

However, lately, the responses received from the FinSurv to requests for regu-

larisation (including to standard commercial transactions) are vague with

the result that the matter does not seem to reach fi nalisation. The responses

provided suggest that the applicant may still be subject to further investiga-

tion and ultimately may be subject to fi nancial penalties. This is only one of

the challenges such applicants face.

Introduction

South Africa, like many other countries in Africa, such as Eswatini (previ-

ously Swaziland), Ethiopia, Lesotho, Malawi, Mozambique, Namibia,

Nigeria and Zimbabwe, have exchange control laws. It should, however, be

* Tax Executive, Bowmans Attorneys.

† Senior Associate, Bowmans Attorneys.