Budget speech proposed exchange control relaxations

By Shona Nicoll on 8 June 2020

During the 2020 budget speech, it was announced that the exchange control regulations were to be relaxed. There was a huge positive response to this proposition as the exchange control regulations create a mine field of compliance requirements for most South African companies and residents. However, the practical implications of the proposed relaxations are still not fully clear.

Loop structures

Loop structures refer to a structure where South African residents hold assets in South Africa indirectly through a non-resident company, which is not liable for tax in South Africa. This structure can result in an erosion of the South African tax base. For example, if a South African resident acquired shares in a non-resident company who in turn acquired shares in a resident company the dividends payable to the South African resident may be tax exempt in terms of Income Tax Act No. 58 of 1962. 

As it stands the creation of loop structures are restricted in terms of exchange control regulations as a means to avoid the erosion of the South African tax base and for this purpose it was proposed that the tax legislation, as opposed to exchange control, be utilised as it is in the best position to protect the tax base. 

The creation of loop structures extending beyond the currently permitted structures under exchange control will be permitted, however, tax legislation is to be amended to ensure that dividend exemptions available to loop structures are limited so that dividends are taxed at a rate of 20% (the same rate applicable from dividends received in South Africa). 


From 1 March 2021, a South African resident will be unable to emigrate in terms of exchange control. At present, when a South African resident emigrates they are required to carry out this process under different systems such as exchange control and tax. Those who emigrate in terms of exchange control are permitted to export assets within the confines of the exchange control regulations and are able to withdraw funds from their pension preservation fund, provident preservation fund and retirement annuity. Emigrating in terms of exchange control does not result in an emigration in terms of tax as the person emigrating may still be deemed a resident for tax purposes. It is proposed that emigration as recognised by SARB be phased out therefore the withdrawal of the abovementioned funds will be undertaken under a new process yet to be determined. 


The process of removing any listed shares/securities from a South African exchange and placed onto a foreign exchange currently requires SARB approval. The budget speech proposed the such a transaction will no longer be subject to exchange control but will rather be regulated by the tax regime. The export of the listed securities will be deemed a disposal attracting capital gains tax or normal tax and should the exporter remain a South African tax resident, they will be liable on any future gains when the securities are sold in the future. 

The sale of intellectual property is considered an export of capital and as such requires SARB approval. It has been proposed that the export of intellectual property for fair value to non-related parties will not be subject to exchange control approval. The export to related parties will continue to be regulated by exchange control. 

It is further proposed that the exchange control treatment for individuals be removed while strengthening the tax treatment. Individuals will be entitled to transfer up to R10 million for investment purposes however any transfers over R10 million will be subject to a more stringent verification process. The verification process will trigger a risk management test that will include a certification of tax status and the source of funds, and assurances that the individual complies with anti-money laundering and counter-terror financing requirements. This will be phased in by 1 March 2021. 


The relaxations proposed merely shift the compliance of South African residents from one of an exchange control issue to a tax related issue. Certain SARB approvals will therefore be disregarded however this will be substituted with the compliance of tax legislation. Our corporate and commercial team are well versed in exchange control regulations and are on hand to be of assistance in this regard.

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