Post by Sapphire Capital on Aug 7, 2008 1:42:48 GMT 4
South Africa: Restrictions on capital transfers
While exchange control rules are not generally aimed at non-resident investors, they do restrict the ability of South African residents to externalise funds. These rules apply both to individuals and corporates.
Individuals emigrating from South Africa are allowed to remit capital subject to a 10% levy. All such capital must be reduced to cash in the hands of the individual wishing to emigrate. Many tax issues arise from the emigration process. These include the fact that assets are disposed of in order to reduce them to cash as well as the principle that there is a deemed disposal of all capital assets when an individual (or a company) loses his South African tax residence. In addition, many individuals hold assets in trusts. In such cases it is generally preferable to distribute these assets prior to the loss of an individual's South African tax residence in order to trigger the capital gain in the hands of the individual (taxed at an effective rate of 10%) as opposed to triggering the capital gain in the trust (taxed at an effective rate of 20%).
South African resident individuals may be paid offshore for services rendered outside South Africa. They may then retain such funds outside South Africa. This is typically done in terms of split employment contracts in terms of which the individual works for an appropriate offshore entity when rendering services outside South Africa. Such income is also exempt from South African tax provided the individual is outside South Africa for periods exceeding 183 days during any 12 month period and for a continuous period exceeding 60 days during such period.
In order for South African corporates to invest offshore and, in particular, make foreign investments, such corporates must make application to the South African Reserve Bank. The application must set out the benefits which will accrue to South Africa as a consequence of such foreign investment. Since February 2008 for foreign investments of less than ZAR50 million ($6.4 million) corporates may make application to their commercial banks which may then approve such foreign investments.
The commercial banks use fundamentally the same tests as the South African Reserve Bank in assessing whether the foreign investment should be allowed, in particular, relating to the benefits accruing to South Africa as a consequence of such investment.
Institutions such as pension funds, long term insurance companies, asset managers and stock brokers may also make offshore investments up to a specified percentage of their total retail assets.
Peter Dachs (pdachs@ens.co.za) of Edward Nathan Sonnenbergs
Cape Town
While exchange control rules are not generally aimed at non-resident investors, they do restrict the ability of South African residents to externalise funds. These rules apply both to individuals and corporates.
Individuals emigrating from South Africa are allowed to remit capital subject to a 10% levy. All such capital must be reduced to cash in the hands of the individual wishing to emigrate. Many tax issues arise from the emigration process. These include the fact that assets are disposed of in order to reduce them to cash as well as the principle that there is a deemed disposal of all capital assets when an individual (or a company) loses his South African tax residence. In addition, many individuals hold assets in trusts. In such cases it is generally preferable to distribute these assets prior to the loss of an individual's South African tax residence in order to trigger the capital gain in the hands of the individual (taxed at an effective rate of 10%) as opposed to triggering the capital gain in the trust (taxed at an effective rate of 20%).
South African resident individuals may be paid offshore for services rendered outside South Africa. They may then retain such funds outside South Africa. This is typically done in terms of split employment contracts in terms of which the individual works for an appropriate offshore entity when rendering services outside South Africa. Such income is also exempt from South African tax provided the individual is outside South Africa for periods exceeding 183 days during any 12 month period and for a continuous period exceeding 60 days during such period.
In order for South African corporates to invest offshore and, in particular, make foreign investments, such corporates must make application to the South African Reserve Bank. The application must set out the benefits which will accrue to South Africa as a consequence of such foreign investment. Since February 2008 for foreign investments of less than ZAR50 million ($6.4 million) corporates may make application to their commercial banks which may then approve such foreign investments.
The commercial banks use fundamentally the same tests as the South African Reserve Bank in assessing whether the foreign investment should be allowed, in particular, relating to the benefits accruing to South Africa as a consequence of such investment.
Institutions such as pension funds, long term insurance companies, asset managers and stock brokers may also make offshore investments up to a specified percentage of their total retail assets.
Peter Dachs (pdachs@ens.co.za) of Edward Nathan Sonnenbergs
Cape Town