South Africa- Relaxation of loop structure restrictions
The South African Reserve Bank issued Exchange Control Circular Number 1 of 2021 which essentially relaxes the restrictions on loop structures with effect from 1st January 2021. These relaxations aim to promote growth and incentivize investments in South Africa.
A loop structure is when a South African resident invests in an offshore vehicle that successively invests in South African assets situated in the Common Monetary Area. The Exchange Control Regulations, 1961 expressly prohibited loop structures under regulation 10(1) (c). With the introduction of the Circular, the Currency and Exchanges Manual for Authorized Dealers has been amended to allow private individuals and resident companies to enter into new loop structures subject to such an investment being reported to an authorized dealer and submission of a report for the same to the Financial Surveillance Department of the South African Reserve Bank through an authorized dealer. Written confirmation from an independent auditor verifying the transaction shall be submitted to the authorized dealer for a fair market price.
Upon conclusion of the transaction, the authorized dealer shall provide a report to the Financial Surveillance Department of the South African Reserve Bank regarding names of South African affiliated foreign investors, description of assets to be acquired, names of South African target Investment Company, date of acquisition, actual foreign currency amount and so on.
Regarding foreign inheritance, if the asset inherited is held by the deceased offshore then the resident who has inherited such assets may apply for approval to retain such assets offshore in compliance with the exchange control regulations. Further, such approval was subject to certain conditions, in that such assets could not be used to invest in a loop structure; however, restrictions regarding loop structures have been removed.