Exchange controls are implemented by a country to limit and control the outflow and inflow of capital. The level of official reserves of foreign currency is the key to the value of the Rand currency and indirectly to the level of interest rates and economic growth. During the apartheid era when South Africa was viewed negatively and the price of gold declined, South Africa’s exchange controls became increasingly restrictive to protect the rand from further devaluation. As South Africa re-integrates into the global economy, complying with world norms and standards, it will attain the international credibility and recognition required to attract greater confidence by investors, local and foreign, and create the economic environment for the further easing of controls.
Exchange Control Territory
In South Africa, official control is exercised over all transactions involving the receipt and payment of foreign exchange into and out of the Common Monetary Area (CMA). The Monetary agreement between South Africa, Namibia, Swaziland and Lesotho provides for the free flow of funds and access to capital markets between the countries.
Note: Lesotho, Namibia and Swaziland have their own exchange control authorities. It follows that authorised dealers are not permitted to enter into foreign currency transactions with customers of banks in other CMA countries. If such requests are received, customers will be referred back to their banks in the CMA country concerned.
Administration of Control
Exchange control is the responsibility of the Treasury, which has largely delegated this authority to the South African Reserve Bank (Reserve Bank). Reserve Bank has, in turn, delegated the execution of official policy to the commercial banks, appointing them as authorised dealers in foreign exchange.
Prescribed Currencies for Control
The prescribed currencies for settlement of transactions with countries outside the Common Monetary Area must be in rand from a local non-resident account, or in any foreign currency as listed in the South African Exchange Control Regulations. However, customers must contact their banks first, to establish which currencies the banks are prepared to negotiate.
Foreign currency means any currency that is not legal tender in the Republic, and includes any bill of exchange, letter of credit, money order, postal order, promissory note, travellers cheque, or any other instrument for the payment of currency.
Declaration Regarding Removal or Export of Goods from Republic of South Africa
F178 and Balance of Payments Reporting System
All South African residents are required to sell foreign currency, regardless of the source to an authorised dealer within thirty days of accrual. The purpose of this control over both visible and invisible exports is to ensure that accruals are indeed received in RSA and that there is no unnecessary delay in the transfer of receipts. The receipt of export proceeds is controlled through the form F178 (merchandise exports) and the Balance of Payments Reporting system. Proceeds from foreign exchange are monitored by comparing the information on the related F178 and subsequent information received via the BoP reporting system.
The F178 is completed by the exporter for every transaction or consignment except for exports to countries within the CMA and exports, irrespective of the origin of the goods involved if the value does not exceed R50 000. The F178 contains a description of the goods and their value. There must be a minimum of three copies. A set bears a unique number. The forms are taken to the exporter’s bank where the original is attested (stamped and signed) and returned with a copy. The bank retains a copy for control purposes. Customs require the original F178 as part of the essential export documentation without which goods may not leave the country. Customs subsequently pass the form on to Exchange Control where information is captured in a computer. The use of the F178 is prescribed where the relevant export from South Africa will result in the accrual of foreign exchange to the exporter and to the country.
The Balance of Payments Reporting system was introduced in South Africa on 1 April 2001 to enable authorised dealers to report to the South African Reserve Bank on outward payments and inward receipts of South African residents. It was designed according to international standards for managing BoP data which requires that all transactions are recorded, irrespective of their value. There are separate BoP forms for outward payments and inward payments with detailed fields and categories. Information on how to complete these forms must be obtained from a bank.
It is a requirement of the SARB and the BoP reporting system that banks must capture and process required BoP data at the same time as they capture the underlying financial transaction. Delays in supplying information to the banks will result in delays in processing of transactions.
NEP – No Exchange Proceeds
Where the ‘export’ will not result in payment from abroad FORM NEP (No Exchange Proceeds) must be completed by the exporter. Banks have authority to attest a Form NEP in certain cases. Companies wanting to export in terms of the Form NEP, must contact their bank to determine whether the relevant goods qualify for this facility or whether the bank needs to make a special application to the Reserve Bank. Banks, for example, may attest a Form NEP which covers:
- the export of advertising matter and trade samples on a ‘no-charge’ basis, provided they are satisfied that the goods are being shipped purely for advertising/promotional purposes;
- goods to be shipped in replacement of rejected or defective goods previously shipped or in completion of a previous short shipment, provided they are satisfied that:
- the full invoice value of the original shipment has been, or will be, received from consignee;
- the exporter is bound by guarantee or trade practice to make good the deficiency without charge and where applicable;
- the replaced goods are being destroyed, re-imported or sold abroad for payment in an approved manner.
Defective goods already paid for, to be re-exported to the original supplier, provided there is documentary evidence to prove that the foreign supplier has agreed to:
- replace the consignment on a ‘no charge’ basis with goods of an equivalent value (may require import permit for replacement goods); or “
- to refund the costs of the defective goods in full.
The temporary export of used equipment to Angola, Botswana, Democratic Republic of Congo, Malawi, Mauritius, Mozambique, Seychelles, Tanzania, Zambia and Zimbabwe, irrespective of country of manufacture, for use on construction contracts provided the equipment belongs to the contractor and has not been specifically purchased abroad for re-export. The bank is required to ensure that the equipment is returned to South Africa on completion of the contract. If the equipment is written off and abandoned or sold abroad, full details must be provided to Exchange Control.
Surrender of Export Proceeds
Unless exemption has been obtained, South African exporters must surrender all foreign exchange proceeds from exports to the Treasury through an authorised dealer. Proceeds are converted to rands at the rate fixed by the exporters forward cover contract, or at the prevailing market rate if the exporter has no forward cover contract. All export proceeds must be received in South Africa within six months of the date of shipment – unless exporters have obtained permission to extend longer credit periods to their foreign buyers (see next paragraph) – and converted within 30 days of the date of collection.
Authorised dealers may, under advice to the Reserve Bank, authorise exporters to grant up to 12 months credit to the importer. In this case, exporters may obtain forward exchange cover for up to 12 months. However, the banks must satisfy themselves that this credit period is necessary to: ”
- the particular trade concerned, particularly in the case of capital goods;
- protect an existing export market; or
- capture a new export market.
Where an exporter wishes to provide a foreign customer with export credit of more than 12 months duration, the bankers will have to make special application to the Exchange Control Department of the Reserve Bank on the exporter’s behalf.
Off-Setting Imports against Exports through Customer Foreign Currency Accounts
Companies which import and export on a regular/daily basis, may apply to an authorised dealer/bank for the cost of imports to be off-set against the proceeds of exports. This means that through special Customer Foreign Currency accounts (CFC), the exporter is not required to convert proceeds to rands, but may utilise export proceeds to pay for relative imports. Export proceeds and/or proceeds from services may be retained in CFC accounts for up to 180 days from the date which such funds were first credited to a CFC account; thereafter, it must be offered for sale to a bank.
Companies must contact their bank to determine whether their transactions are sufficient to qualify for the facility. Once a company qualifies for the facility, the authorised dealer, for set-off purposes will open CFC’s, which are maintained in foreign currency, for those corporates which are actively engaged in export and import transactions or, where applicable, existing CFC’s, may be used. Note: import and export transactions are required to be housed in separate accounts.
Off-Shore Investments by Residents (Private Individuals)
South African residents (natural persons) who are taxpayers in ‘good standing’ and over the age of 18, may invest up to R750 000 abroad, to be dealt with freely in any manner. A Tax Clearance Certificate (in respect of foreign investments) must be presented to the bank. These funds can be invested abroad or in a foreign currency account with South African local banks. Individuals who utilise this facility may not enter into any transactions whereby capital or the right to capital will be directly exported from the Republic i.e. may not enter into a foreign commitment with recourse to South Africa.
South African individuals will also be able to apply to invest in fixed property in SADC member countries.
Note: passive income from overseas dividends and interest will be taxed and legislation is in place to this effect.
Off-Shore Investments by South African Companies
South African entities (legal persons) who wish to invest outside the Common Monetary Area require the approval of the Reserve Bank and each application will be considered on its merits. In terms of the Reserve Bank policy, corporate entities wishing to invest outside the Common Monetary Area have to demonstrate the benefits to South Africa e.g. by way of enhanced foreign exchange earnings derived from export of goods and services, job creation etc.
Where the total cost of investment off-shore does not exceed R500 million, consideration will now be given to the funds being transferred from South Africa. Furthermore, in respect of investments into Africa, consideration will be given to transfer funds up to an amount of R750 million per new investment.
Companies with existing approved subsidiaries overseas are allowed to expand such activities without prior approval, provided expansion is financed by foreign borrowings (with no recourse to or guarantee from South Africa), or by the employment of profits earned by that subsidiary, subject to the expansion being in the same line of business and that benefit to South Africa can be demonstrated. The local parent company is required to place their proposal plans for the expansion of the investment on record with the Reserve Bank at an early stage.
The Reserve Bank judges applications on their individual merits and the benefits that will accrue to the Republic, and will also consider those investments made to:
- foster new exports;
- protect existing markets overseas or;
- secure a future source of supply.
All income accrued from the foreign source must regularly be transferred back to South Africa through normal banking channels in the form of declared dividends in terms of the requirements of Exchange Control Regulations, unless approval has been obtained from the Reserve Bank to retain such profits abroad.
Foreign Portfolio Investments by South African Institutional Investors
Institutional investors, namely, long term insurers, pension funds and unit trusts, are no longer able to invest abroad. The asset-swap mechanism introduced in 1995 which allowed institutions to invest up to 15% of their assets abroad or for institutions that had not reached the limit to invest 10% of net cash flows outside South Africa, was abolished and is effective from 21 February 2001.
Foreign bank notes and other foreign currency instruments of exchange are allowed to persons who are permanent residents of South Africa within specified limits when proceeding for visits abroad.
A travel allowance may be made available at the respective rate of R140 000 per adult and R45 000 per child under the age of 12 years, per calendar year for one or more visits outside the CMA. In according a person a travel allowance, the foreign exchange made available per applicant may be provided in any form including travellers cheques, foreign bank notes and credit and/or debit cards.
Omnibus Travel Allowances
Companies requiring a travel allowance in excess of the usual limits for frequent travel abroad can apply to an authorised dealer for omnibus travel facilities up to R2 million per calendar year to be allocated at the discretion of the company. In this regard the bank will require:
- a budgeted projection of estimated expenses;
- the countries to be visited;
- the estimated number of visits to be undertaken;
- the number, designation and names (if possible) of employees who would undertake the visits;
- the turnover of the company during the last three years; and
- the nature of its activities eg. export, import etc
As omnibus allowances are granted on a calendar year basis, it is advisable in November to submit a request to the bank for the renewal of the facility for the coming year.
On the renewal request for an omnibus allowance, the Exchange Control Department requires full details of the usage of the previous authority, viz.
- the amount of exchange utilised by each individual and subsequently sold;
- the duration of each visit;
- the name and designations of each representative involved;
- an indication of the success of visits.
When an omnibus allowance is not applicable and an individual requires an additional business allowance, special application must be made to the exchange control authorities via the bank.
The information contained in this document consists of extracts from the SARB Exchange Control Regulations manual. Due to the gradual elimination of exchange controls, this document is subject to change and exporters must consult their bank/authorised dealer and/or South African Reserve Bank.
- South African Reserve Bank
- Reserve Bank Forms