4.1. Outward foreign direct investments for private, public and listed companies (Capital Transfers)

(a) Conditions applicable to foreign direct investments

South African registered private, public and listed companies (excluding sole proprietorships, partnerships, close corporations and trusts), as well as mandated state owned enterprises as defined in Schedule 2 of the Public Finance Management Act, 1999 (Act No.1 of 1999), are allowed to transfer capital for foreign direct investment purposes to any country outside the CMA, subject to certain conditions outlined herein.

While there is no monetary limit on the amount that can be transferred offshore, requests for investments not exceeding R5 billion per entity per calendar year must be submitted to an Authorised Dealer who will assesses the application for compliance with the stated conditions for approved outward investments.

Requests for investments exceeding R5 billion per entity per calendar year must be referred to the Financial Surveillance Department via an Authorised Dealer.

To qualify for the dispensation, business entities must, for statistical purposes, acquire at least 10 per cent of the foreign target entity’s voting rights. Once approved, business entities may increase their approved equity interest and/or voting rights in the offshore target entity at any time, however, for classification purposes, should the applicants reduce or dilute their voting rights to below 10 per cent such information must be reported to from the Financial Surveillance Department.

Corporates with authorised foreign assets may invest in South Africa, provided that where South African assets are acquired through an offshore structure (loop structure), the investment is reported to an Authorised Dealer as and when the transaction(s) is finalised as well as the submission of an annual progress report to the Financial Surveillance Department via an Authorised Dealer. The aforementioned party also has to view an independent auditor’s written confirmation or suitable documentary evidence verifying that such transaction(s) are concluded on an arm’s length basis, for a fair and market related price.

Upon completion of the aforementioned transaction, the Authorised Dealer must submit a report to the Financial Surveillance Department, which should inter alia, include the name(s) of the South African affiliated foreign investor(s), a description of the assets to be acquired (including inward foreign loans, the acquisition of shares and the acquisition of property), the name of the South African target investment company, if applicable and the date of the acquisition as well as the actual foreign currency amount introduced including a transaction reference number.

Existing unauthorised loop structures (i.e. created by corporates prior to 2021-01-01) and/or unauthorised loop structures where the 40 per cent shareholding threshold was exceeded, must still be regularised with the Financial Surveillance Department.
State owned enterprises may not use low tax jurisdictions as a conduit for outward foreign direct investments elsewhere in the world. This restriction is not applicable where the investment is made directly into low tax jurisdictions.

Passive real estate investments focused on achieving long-term appreciation of asset values with limited day-to-day management of the asset itself are excluded from this dispensation.

(b) Additional conditions applicable to foreign direct investments:

(aa) All capital transfers must be converted to foreign currency in South Africa by an Authorised Dealer. Under no circumstances may Rand be transferred abroad.

(bb) The financial statements, financial accounts or income and expenditure statements of the foreign target entities and holding companies, as well as salient details of benefits generated as a result of the investment, must be reported via an Authorised Dealer to the Financial Surveillance Department on an annual basis.

(cc) In the event of the foreign investment being disposed of to non-residents, the net sale proceeds must be repatriated to South Africa under advice to the Financial Surveillance Department. Foreign investments to be disposed of to third party South African residents require the specific prior approval of the Financial Surveillance Department.

(dd) All matters relating to rights on new shares issued in foreign companies, changes in the nature of the target entity’s business or where guarantees from South Africa have been issued and implemented, prior approval must be obtained from the Financial Surveillance Department, via an Authorised Dealer.

(ee) South Africa must remain the place of effective management for the South African company and under no circumstances may the company re-domicile without the specific prior approval of the Financial Surveillance Department.

(aa) The transfer of the unutilised portion of the authorised amount to foreign target entities and/or to increase an applicant’s approved equity interest and/or voting rights in an offshore target entity within the R5 billion limit, as and when required, is permitted with recourse to South Africa. All unutilised amounts, additional capital requirements and/or expansion activities must be referred to an Authorised Dealer who may approve same, but has to report such matters to the Financial Surveillance Department.

(bb) Dividends declared by the offshore subsidiaries of South African companies may be retained abroad. If the foreign dividends are repatriated to South Africa, they may be retransferred offshore at any time and used for any purpose without recourse to South Africa, subject to an annual report to the Financial Surveillance Department. Approved foreign branches and offices of South African companies are exempted from the provisions of Regulation 6 in respect of foreign earned profits and income with effect from 2022-02-23 and such funds may be retained abroad, subject to annual reporting.

(d) Investments not exceeding R5 billion per applicant entity per calendar year

(aa) The following documents and information must be provided to an Authorised Dealer in order for them to consider requests of this nature:

(i) the name and registration number of the applicant entity;

(ii) the names, domiciles and percentage equity interest of all the shareholders in the applicant company (only applies to private companies and excludes public and listed companies);

(iii) the applicant entity’s latest available financial statements verifying, inter alia, the applicant’s nature of business;

(iv) details of how the investment will be funded (e.g. cash to be transferred and reflected as share capital or shareholders loans, guarantees to be issued);

(v) the proposed structure through which the foreign target entity will be held, that is, directly from South Africa or via an interposed company; and

(aa) the name of the offshore target company and a description of what type of business it will be involved in. Investments exceeding R5 billion per applicant entity per calendar year. The applications to the Financial Surveillance Department, via an Authorised Dealer must, inter alia, include the following:

(i) the business plan of the applicant entity;

(ii) full details of the longer term monetary benefits (excluding dividend flows) to be derived by South Africa on a continuous basis, substantiated by cash flow forecasts;

(iii) a pro forma balance sheet of the offshore entity reflecting the financial position immediately prior to and after the investment from South Africa;

(iv) the percentage equity to be acquired in the foreign target entity as well as the percentage voting rights to be acquired;

(v) the names and domiciles of the shareholders of the applicant entity;

(vi) the proposed financial structure of the foreign entity to be acquired or to be established (i.e. issued share capital, loan funds, guarantees to be issued from South Africa or credit facilities to be availed of abroad and the respective amounts involved);

(vii) the manner in which the funds required will be employed; and

(viii) an estimate of the annual running expenses of the offshore entity.

(f) Foreign portfolio investments by companies not exceeding R5 billion per applicant company

(aa) Authorised Dealers may approve requests by companies wishing to make bona fide new outward foreign portfolio investments into companies, outside the CMA, including requests that fall outside their current line of business, where the total cost of such investments does not exceed R5 billion per company per calendar year.

(bb) All conditions and requirements as outlined in subsection 4.1(a) above, except for the passive real estate investments focused on achieving long-term appreciation of asset values with limited day-to-day management of the asset itself are excluded from this dispensation and the minimum requirement of 10 per cent, will apply to this dispensation.

(cc) For statistical purposes, investments approved under this dispensation are for less than 10 per cent of the foreign target entity’s voting rights and must be suitably reported.

(dd) Foreign portfolio investments must be reported under category 830 – Details of payments not classified and in the description field insert ‘Portfolio Investments’.

(ee) Under no circumstances may local guarantees or suretyships be issued or South African assets encumbered under this dispensation.

(ff) The financial statements and/or portfolio investment status report of the foreign target entities must be submitted to the Financial Surveillance Department on an annual basis.

(gg) For classification purposes, any increase in the equity interest and/or voting rights in the foreign target entity from 10 per cent and above must be reported to the Financial Surveillance Department.

(hh) Any transaction for an amount exceeding R5 billion per applicant company must be referred to Financial Surveillance Department for prior approval.

Note: This dispensation should not be confused with portfolio investments acquired by Institutional Investors in terms of their applicable foreign portfolio investment limits.

(g) Intellectual property transfers

The transfer of South African owned intellectual property by way of sale, assignment, or cession and/or the waiver of rights in favour of non-residents in whatever form, directly or indirectly, is not allowed without the prior approval of the Financial Surveillance Department. This restriction does not apply to technology, media, telecommunications, exploration and other research and development companies, who for capital raising purposes may assign intellectual property offshore provided that the registration remains in South Africa.

South African residents, excluding mandated state owned companies as defined in Schedule 2 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) may sell, transfer and assign intellectual property to unrelated non-resident parties at an arm’s length and a fair and market related price, provided they present to Authorised Dealers the sale, transfer or assignment agreement and an auditor’s letter or intellectual property valuation certificate confirming the basis for calculating the sale price. The dispensation excludes sale and lease back agreements. All inward funds emanating from such transactions must be repatriated to South Africa within a period of 30 days from the date of becoming entitled thereto and reported under category 210 on the FinSurv Reporting System.

South African residents may license intellectual property to non-resident parties at an arm’s length and a fair and market related price for the term of the agreement, provided that they present Authorised Dealers with the licence agreement and an auditor’s letter confirming the basis for calculating the royalty or licence fee.

All royalties and/or fees emanating from such transactions must be repatriated to South Africa within a period of 30 days from the date of becoming entitled thereto and reported under category 201 on the FinSurv Reporting System.

The sale, transfer, assignment and/or licensing of intellectual property is subject to appropriate tax treatment.

Exemption from Regulation 10(1)(c) is, however, granted to institutions as defined in terms of the Intellectual Property Rights from Publicly Financed Research and Development Act, 2008 (Act No. 51 of 2008). Such institutions may transfer copyrighted material to an international publishing house when publishing an article in an international journal and/or transfer material in terms of a material transfer agreement provided the value of the transaction does not exceed R50,000. Authorised Dealers must refer transactions in excess of the stipulated amount to the Financial Surveillance Department.