Fiscal and estate planning specialist Andrew Duncan discusses exchange control issues. 
The continuation of exchange control is partly to blame for the brain drain in South Africa. In recent months clients, motivated by their need to safeguard the wealth they have accumulated here, ask whether they should emigrate or relocate.
Currently, residents can invest in fixed property in South African Development Community (SADC) member countries. The dream of a farm in Tanzania or beach cottage in Mauritius or Mozambique has a distinctive allure.
Likewise, small and medium-sized companies are entitled to make new outward foreign direct investments outside the Common Monetary Area (CMA), not exceeding R50 million per company per calendar year, without prior approval of exchange control.
This is a massive advance and I have suggested to clients that, rather than emigrate, it would make much more sense to invest offshore via the entrepreneurial company they have built up over the years.
For whatever reason this approach has had limited appeal. Most are concerned that the 10% levy on expatriating monies in excess of R5 million will be withdrawn and that the value of the rand will deteriorate over time.
Substantial monies have left South Africa this year because of the Eskom factor and other political considerations. If there was an unrestricted right to transfer monies, I do not believe that this Afro-pessimism would succeed.
It seems to me that outside the CMA it must become extraordinarily difficult to police compliance with investment monies exited. In particular, if the resident investor leaves South Africa the power to deal with such investment offshore is difficult, if not impossible to constrain. It will certainly bring a host of administrative problems in its wake.
In regard to the 10% levy, it appears that although regulations only require - at best - actual departure, the approach adopted is that no expatriation of monies will be allowed until permanent resident status in a foreign jurisdiction is obtained. This of course will delay the process with the consequent possible exchange losses.
|
