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Foreign Bank Accounts – Financial Surveillance Requirements




As a South African individual or a local ‘Legal Entity’, have you wondered whether current Exchange Control legislation allows you to open Bank accounts in foreign jurisdictions? The answer is yes, but with the proviso that whether you are an individual or a company, you fully comply with certain prescriptive Exchange Control conditions, as laid out in the Currency and Exchanges Manual.


By way of a little ‘legislative’ background, South Africa has applied exchange controls since 1939, with the applicable legislation being the Currency and Exchanges Act, 1933 (Act No. 9 of 1933) (the Act) and the Exchange Control Regulations (Regulations) promulgated in terms of section 9(1) of the Act, on 1961-12-01. In terms of these Regulations, the control over South Africa’s foreign currency reserves, including accruals and spending is vested in National Treasury, who are authorised to grant permissions or exemptions for certain transactions, subject to certain conditions.


The Financial Surveillance Department of the South African Reserve Bank is responsible for the day-to-day administration of Exchange Controls in South Africa. The Currency and Exchanges Manual is available on the South African Reserve Bank’s website and provides considerable insight into current Exchange Control administrative practices and procedures.

To clearly differentiate between the principles under which a resident individual (Natural Person) can operate a bank account offshore of South Africa, versus a company (Legal Entity), this summarised advice is presented in two parts, one in respect of individuals and one for Legal Entities.


 

Individuals

Single Discretionary Allowance (SDA)

Individuals can create a foreign bank account via the utilisation of the Single Discretionary Allowance (SDA), which is available to parties who are 18 years and older, within an overall limit of R1 million per individual per calendar year, without the requirement to obtain a TCS PIN letter from SARS. These funds may be used for any legal purpose abroad, including for investment purposes.


Individuals can create a foreign bank account via the utilisation of the Single Discretionary Allowance (SDA), which is available to parties who are 18 years and older, within an overall limit of R1 million per individual per calendar year, without the requirement to obtain a TCS PIN letter from SARS. These funds may be used for any legal purpose abroad, including for investment purposes.

This dispensation may be utilised solely at the discretion of the resident without any documentary evidence having to be produced to your Bank. The one exception would be for travel purposes outside the CMA where you would need to produce a passenger ticket.

The single discretionary allowance may be transferred abroad in Rand, however, transfers of a capital nature (i.e., for investment purposes) must be converted to foreign currency through your local Bank.

A resident individual must produce a valid green bar-coded South African identity document or Smart identity document card to the Bank for identification purposes, as the relevant identity number is mandatory when reporting these transactions, to the SA Reserve Bank.


Foreign Investment allowance (FIA)

Furthermore, individuals who are taxpayers in good standing and are 18 years of age or older are also able to similarly benefit from a foreign bank account, via the transfer offshore of a Foreign Investment allowance (FIA) up to an amount of R10 million per calendar year.

This allowance is designed for investment purposes offshore and needs to be converted to foreign currency at time of transfer from South Africa. You will need to present to the transferring Bank a valid green bar-coded identity document or Smart card identification before they will make the transfer.

Furthermore, individuals who are taxpayers in good standing and are 18 years of age or older are also able to similarly benefit from a foreign bank account, via the transfer offshore of a Foreign Investment allowance (FIA) up to an amount of R10 million per calendar year.

In addition to the aforementioned identification, there would be a need to obtain a TCS PIN letter from SARS, also for presentation to the transferring Bank, to prove tax compliancy, in terms of the SARS Tax Compliance System. The Bank will use this PIN letter to physically verify that the individual taxpayer is indeed tax compliant, before making any outward currency transfer. These PIN Letters are valid for a twelve-month period.


Private individuals who do not have a tax reference number will have to register at their local SARS branch to obtain a tax number, before Banks will allow them to action FIA type transactions.

Local Banks also need to advise their clients that they may not enter into any transactions whereby capital or the right to capital will be directly or indirectly exported from South Africa (e.g., may not enter into a foreign commitment with recourse to South Africa)

Other circumstance or opportunities to legitimately hold an offshore bank account, can be summarised as follows.

Foreign Earned Income

Effective from 1997-07-01, private individuals, resident in South Africa can retain income offshore, earned on approved foreign assets, or in respect of services rendered to non-residents whilst physically abroad. However, the proceeds of exports must still be repatriated to South Africa within 30 days of becoming entitled to such funds


Inheritances from Foreign Estates

Residents need not declare to their Bank/SA Reserve Bank, inheritances or legacies from bona fide foreign estates that accrued after 1998-03-17 and may retain the capital and any income generated abroad.


Gifts and Donations from Non-Residents

Any foreign asset received by a resident from a non-resident as a gift or donation on or after 2022-02-23 does not have to be declared to a local Bank/SA Reserve Bank and can be retained offshore, subject to local tax disclosure and compliance.



Foreign Inheritance from a South African Estate with Foreign Assets

Residents, who on or after 2022-02-23 became entitled to a foreign inheritance from the estate of a resident, need not declare the inheritance to a local Bank/SA Reserve Bank and may retain the funds offshore, subject to local tax disclosure and compliance. However, in respect of assets that accrued to residents prior to 2022-02-23 or where the foreign assets inherited were held by the deceased in a manner contrary to the provisions of the Exchange Control Regulations, an application for regularisation of these assets must be submitted via a local Bank, to the Financial Surveillance Department.


Legal Entities

A local company’s Banker, may in terms of the Currency and Exchanges Manual authorise the Legal Entity to establish and operate a foreign bank account, for certain purposes, provided the entity in question has legal or genuine sources of income offshore which may be credited to this account, e.g. dividend accruals, export receipts, service payment receipts, accruals in terms of the Currency and Exchanges Manual, or accruals in terms of specific authorities from SA Reserve Bank Financial Surveillance Department.

The operation of these accounts is subject to stringent Financial Surveillance conditions, e.g.

  • All foreign credits to such bank accounts are subject to the provisions of Regulation 6, except in respect of foreign earned dividends which are exempted from the requirements of this Regulation

  • Funds that accrue in foreign bank accounts must be in respect of transactions permissible in terms of the Currency and Exchanges Manual or a specific authority granted by the Financial Surveillance Department

  • Legal Entities must provide a written undertaking to the Bank approving the account confirming that no debits other than transfers to South Africa, debits permissible in terms of a specific authority from the Financial Surveillance Department or bank charges, will be passed over the foreign bank accounts. Ie the principal of ‘set-off’ between offshore credits and debits would not be encouraged, without prior SA Reserve Bank, Financial Surveillance Department approval

  • Legal Entities have the primary obligation to ensure that the foreign bank accounts are conducted within the ambit of the aforementioned conditions. If it is proven that they have not been properly conducted when the SA Reserve Bank can instruct the legal Entity to close the account and repatriate any funds accumulated, to South Africa.

It will be noted that Exchange Control Regulation 6 is referenced above. In brief, this represents a legal obligation for the Legal Entity to sell any foreign currency, which has accrued to them offshore, to a local bank within 30 days of becoming entitled to the currency and may not take actions which delay the receipt of the currency in South Africa within the 30-day timeframe. It follows that balances in a foreign bank account inclusive of receipts in respect of exports, other than the likes of an offshore dividend accrual, or funds which may be retained or utilised offshore, in terms of a specific approval received from SA Reserve Bank, must be regularly repatriated to South Africa within a period of 30 days from becoming entitled to the funds.

It would also be as well to point out that when a local Bank authorises the opening of an offshore Bank Account for a Legal Entity, the company would need to provide the SA Reserve

Bank Financial Surveillance Department with the following details.

  • The name and registration number of the Legal Entity

  • The domicile of where the foreign bank account has been opened

  • The name of the account holder and the account number

  • The purpose for opening the foreign bank account


By way of alternatives, a private individual may, under certain conditions choose to open a Foreign Currency Account with a local Bank, to inter alia accommodate the likes of their investment allowance and a Legal Entity can also choose to open a Customer Foreign Currency Account (CFC) with their local bank to accommodate trade and ‘current account’ type transactions, eg export receipts and import payments. Certain ‘set-off’ type arrangements are permitted across a CFC Account.


For further guidance and assistance with your foreign currency account requirements, please contact us at BeztForex. We will be delighted to help.


Regards

Keith White

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