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Exchange Control; still a bug bear. |
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The complications of Exchange Control
- Queries Pour in about Exchange Control
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There has been a considerable upturn in legal queries made to me relating to remitting monies off-shore of late. In his Budget Manuel announced a major relaxation in that Financial Institutions would be allowed to invest substantially more monies offshore. For individuals the exchange control restrictions remain intact, save for an interesting shift in providing an additional R500 000 a year without a tax clearance relating to monetary gifts, loans, maintenance or a greater travel allowance. This change means that an adults allowance is increased from R160 000 up to R500 000 a year (if the other categories are not used) with children limited to R160 000 per year each. Self evidently this allowance can be used only for travel purposes and will no doubt be prudentially scrutinised by the Financial Surveillance Department of the Reserve Bank. ie, dont try and take out the full allowance for a week-end visit to the Follies Berges!
- Spiraling Depreciation.
In 2003 when the Amnesty was introduced I suggested that it was effectively the end of Exchange Control in that SARS would then receive their share of income from previously non-disclosed foreign assets and Exchange Control would be dropped. Unfortunately this has not come and for the individual Exchange Control still remains a very real issue. In addition the spiraling depreciation of the Rand over the years can be attributed in no small part to the perception Exchange Control creates for potential investors with its inherent pessimism like a self fulfilling prophecy!
- Details of Restrictions.
Emigrants: A person emigrating can take up to R4million per family unit together with a container of personal assets of up to R1million plus the then applicable traveling allowance. The remaining Blocked Rand can now be remitted subject to a levy of 10%. This latter provision may be changed if there is a substantial increase in demand.
Residents: The foreign allowance has been increased to some R2million per person. Residents were entitled to donate up to R30 000-00 per annum as of right but this is now included under the R500 000-00 entitlement except for Kruger Rand which remain remittable up to R30 000-00 per annum. Purchases (small transactions e.g. imports over the internet..) can be made offshore with the use of local credit cards but not to exceed R20 000-00 per transaction but without and aggregate limitation but prudential supervision is presumably maintained by both Authorised Dealers and the Reserve Bank.
Deceased Estates and Trusts: Cash bequests and proceeds of legacies due to non-resident beneficiaries including Emigrants can be remitted abroad provided the Liquidation and Distribution Account has been approved and furnished to the Authorised Dealer. If however a non-resident heir has not formally emigrated, application must first be made to formally emigrate before any monies can be remitted offshore. The same position adheres in regard to non-resident beneficiaries of Testamentary Trusts created in terms of a deceased's Last Will. A different position applies however insofar as Intervivos Trusts are concerned. If the Founder or Funder of the Trust dies then the capital in question can be remitted without restriction to non-resident beneficiaries and Emigrants. If however a Third Party has funded the Trust then only income can be sent offshore provided the funding is in place at least 3 years before the Beneficiary in question emigrated. If a Beneficiary was the Third Party Funder of the Trust and thereafter emigrates, the capital cannot be remitted until the death of that Emigrant Beneficiary.
- The Real Effect
The point is that many individuals who make this country work want to feel secure in their undertakings in South Africa while having eggs in some other basket but without actually emigrating! The effect is that high net worth individuals and Intervivos Trusts are unable to sensibly invest offshore or indeed hedge in any manner against the devaluation of the Rand other than through foreign currency deposits with authorised Foreign Exchange Dealers but limited as aforesaid to the sum of R2million. In the result I believe many individuals who would otherwise have remained proud South Africans are now seriously considering the emigration route with whatever the consequences might be to best safeguard against a declining value of the Rand and political uncertainties. This is an unfortunate consequence of the failure of the Treasury to drop Exchange Control once and for all!
- Conclusion
As is abundantly clear Exchange Control is still complicated for the individual to comply with, requiring professional guidance and even then with its provisions often known only to Excon/Authorised Dealers but its effect starkly evident on an undervalued Rand!
ANDREW DUNCAN
Fiscal, Estate Planning and Tax Specialist
Walkers Inc. Attorneys
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