Here is a quick look at three essential points South African companies should keep in mind as they step into the global arena:
Non-resident shareholders in local South African companies
It is increasingly common for South Africans to emigrate and establish tax residency abroad yet still retain shares in South African companies. What many do not realise is that this requires a specific compliance step: the endorsement of share certificates to reflect the shareholder’s new non-resident status.
In terms of exchange control, a South African company must obtain approval from the Financial Surveillance Department of the South African Reserve Bank (SARB) to endorse shares held by non-resident individuals. This “non-resident endorsement” ensures that future share transactions involving these holders including dividends, sales, and distributions are processed correctly from an exchange control perspective.
Without this step, companies could face administrative headaches and delays when processing transactions linked to their non-resident shareholders. If your company has shareholders who have left South Africa and ceased to be tax resident, it is important to regularise this as early as possible.
Investing Abroad Foreign Direct Investment or Financial Assistance?
If your company is planning to buy shares in a foreign company or establish an offshore subsidiary, you are in good company. International expansion is a common strategic move for South African businesses looking to scale.
Under the SARB Currency and Exchanges Guidelines for Business Entities, such transactions can fall into one of two categories, each with distinct requirements and implications:
- Foreign Direct Investment (FDI):
This applies where the South African company acquires at least 10 percent of the voting rights in the foreign entity. In such cases, approval must be obtained from the SARB via an Authorised Dealer for investments up to R5 billion, with a comprehensive SARB application being required for amounts exceeding this threshold.
- Financial Assistance to Non-Resident Companies:
If the shareholding is less than 10 percent or if no shares are acquired and only a loan is advanced the transaction is considered financial assistance. These transactions fall under a stricter compliance regime requiring direct SARB approval, facilitated through an Authorised Dealer.
| Type |
Equity Threshold |
Approver |
| Foreign Direct
Investment |
≥ 10% voting rights |
≤ R5 billion |
Authorised Dealer |
| > R5 billion |
SARB (via Authorised Dealer) |
| Stand-Alone Loan |
< 10% or no equity |
SARB (via Authorised Dealer) |
Regardless of the route whether it is equity-based FDI or a loan classified as financial assistance early engagement with the applicable rules and an experienced exchange control advisor can make all the difference in navigating the regulatory process smoothly.
Transacting with related offshore entities
Cross-border transactions and various services between related parties are also becoming more common, especially in the software development industry. South African companies may invoice, receive services from, or lend funds to foreign companies that share common shareholding especially where expansion has led to offshore group structures.
These related-party transactions are subject to additional scrutiny under the exchange control framework. The SARB looks closely at the nature and purpose of such dealings to ensure there is no disguised capital export or mispricing of goods or services. Depending on the structure, advance approval may be required, and ongoing compliance with arm’s-length principles is key.
In short where South African companies transact with related foreign companies, particularly those with common shareholding, it is essential that such transactions are conducted in accordance with the arm’s length principle, supported by appropriate documentation. Given the complexity of regulatory expectations, meticulous documentation and seasoned advice is required to anticipate statutory demands and avoid delays from SARB.
In Closing, going global is exciting and full of potential. But South African companies should always factor exchange control compliance into their expansion plans. From shareholder reporting and foreign investments to related-party transactions, there are technical rules that must be followed to avoid delays or penalties down the line.
Fortunately, these rules are navigable especially with the right advice. If your company is looking to take the next step abroad, we would love to help you get there, with the peace of mind that comes from knowing your exchange control bases are covered.
