[imagesource: Olivier Le Moal]
South Africa made an important tax change as of January 1, 2021, that you may not be aware of.
This is especially important for business owners looking to secure foreign investors.
As of the start of the year, announced the South African Reserve Bank, loop structures are no longer prohibited.
In simple terms, a loop structure is an arrangement whereby a resident of South Africa invests in a foreign entity, which then invests in South African assets.
Loop structures were, until recently, banned on the basis that they created a channel for indirect or direct export of capital from South Africa. This has been the case for decades, making this a landmark change to tax law.
The relaxation of these laws for individuals, companies, and private equity funds that are tax residents in South Africa which have been contested in myriad court cases, is good news for those looking to invest in these structures.
BizNews breaks it down:
A loop structure arises where a South African exchange control resident (individual or company) has an interest in a foreign structure and that foreign structure directly or indirectly owns assets in the Common Monetary Area consisting of South Africa, Eswatini, Lesotho, Namibia and South Africa.
It’s not a free for all, though.
The existing unauthorised loop structures will need to be regularised with the Financial Surveillance Department of the South African Reserve Bank. You should probably bring in someone who knows what they’re doing to make sure that this transition goes smoothly.
Loop structures will also overall be carefully monitored to ensure compliance.
All those looking to invest in South African assets through a loop structure will be subject to the following:
- The investment needs to be reported to an Authorised Dealer such as a local bank when the transaction is finalised.
- An annual progress report must be submitted to the Financial Surveillance Department of the South African Reserve Bank via the Authorised Dealer.
- The Authorised Dealer must view an “independent auditors report verifying that the transaction or transactions are concluded on an arm’s length basis” and at a fair price.
- Once the transaction is complete, the Authorised Dealer must supply the Financial Surveillance Department of the South African Reserve Bank with a report detailing the “name of the South African target investment company, the date of the acquisition and the foreign currency amount introduced”.
- All inward loans from foreign investors must comply with the current exchange control rules.
You can read up on the specifics of loop investments relating to inward foreign loans and foreign inheritance over at BusinessTech.
Or, you can stop trying to wrap your head around the complexity of all of this, and ensure compliance with the rules by trusting the experts to tackle it for you.
We recommend Galbraith | Rushby, who offer tax compliance and advisory services to individuals and businesses. If you’re looking at investing in loop structures, they can also talk you through the best way to go about it.
They’ll help you make the right decisions, and ensure that you’re doing things by the book.
[sources:biznews]
