South Africa: The gateway into Africa
Recent amendments to South African exchange control rules aim to facilitate domestic investment in Africa and other offshore operations by relaxing exchange controls in relation to headquarter companies and holding companies in specific circumstances.
Companies are entitled to certain tax benefits if they qualify as headquarter companies in terms of section 9I of the Income Tax Act.
Furthermore, should a company qualify as a headquarter company for exchange control purposes, such company will be treated as an exchange control non-resident.
Both from a tax and an exchange control perspective each shareholder must hold at least 10% of the shares in the headquarter company. From an exchange control perspective at the end of each financial year at least 80% of the assets of the company will be required to consist of foreign assets excluding cash or debts with a term of less than one year.
From a tax perspective at the end of a year of assessment at least 80% of the cost of the assets excluding cash of the company will be required to consist of equity shares in, debt owed by or intellectual property licenced by the headquarter company to another foreign company.
Should a company meet the exchange control requirements of a headquarter company, transactions by South African exchange control resident entities with headquarter companies will be viewed as transactions with non-residents. In addition, headquarter companies may freely borrow from abroad and such funds may be deployed locally or offshore.
A new holding company regime applicable to entities listed on the JSE has recently been introduced. In terms of this regime, a listed entity may establish one subsidiary, to be registered with the Financial Surveillance Department. This company will be entitled to:
Upon receiving authorisation from an authorised dealer, receive transfers from its parent entity of up to ZAR750 million ($76 million) per year (although transfers in excess of ZAR750 million will also be considered upon application to the Financial Surveillance Department);
Raise and deploy capital offshore without restriction, provided such capital is without recourse to South Africa, that is not the subject of any South African guarantees;
Act as cash management centre for South African entities;
Engage in cash pooling without restriction;
Choose their functional currency;
Make use of foreign currency and rand denominated accounts; and
Freely transfer any income generated from cash management.
To achieve this status, the parent entity will be required to incorporate an entity which will operate as a South African tax resident and be incorporated and effectively managed in South Africa.
National Treasury has indicated that this regime may in future be extended to other entities.
Peter Dachs (email@example.com)
ENSafrica – Taxand
Tel: +27 21 410 2500