South Africa: Part 2.2 - Foreign Investment - Exchange Control In South Africa

Last Updated: 9 April 1996
The Exchange Control Regulations are based on measures that came into effect in 1961. The regulations are administered by the central bank (Reserve Bank of South Africa), assisted by the commercial banks, which are appointed to serve as authorised dealers in foreign exchange. These exchange control measures were introduced to stem the out-flow of capital from South Africa and to ensure a measure of stability in currency markets.

Measures were introduced during 1995 to reduce the controls applicable to non-residents, and there are indications that further reductions will follow. The Government has affirmed a policy of eliminating exchange controls, certainly as regards non-residents, as soon as economic conditions permit. Exchange controls affecting residents will remain for longer, but already steps are being taken to provide some relaxation for resident businesses, and further liberalisation is expected.

2.2.1. Exchange Rates

Political disturbances in 1961 resulted in large capital outflows from South Africa. Before that time, South African securities quoted on foreign stock exchanges stood virtually at par with the South African share prices, but with the decline of confidence in the rand on foreign markets, a price differential developed. This inevitably gave rise to profit-taking by non-residents who were in a position to buy shares cheaply abroad, send the shares to South Africa for sale and export the proceeds at the expense of the country's reserves.

This facility was withdrawn, and the proceeds from sales of South African securities by non-residents became credited to "blocked" accounts. Blocked rands could be used to purchase in South Africa any shares quoted on overseas markets, the shares being exportable for sale abroad at the price that non-resident investors would be prepared to pay.

The "blocked rand" evolved into the "securities rand" and became officially traded on The Johannesburg Stock Exchange and elsewhere. In 1979 the name was changed to "financial rand" and non-residents were able to use the financial rand to invest in certain other assets as well as unlisted securities.

During 1983, the two-tier system of exchange rates was replaced by a single system. However, because of continued political unrest and a deterioration in South Africa's economy, the authorities reintroduced the two-tier system on 1 September 1985 and simultaneously effected a freeze, known as the "foreign debt standstill" on repayments of foreign liabilities existing at 28 August 1985.

Early in 1995 the financial rand was abolished, and the rand is again a single currency quoted with a single rate against other currencies.

2.2.2. Application of Exchange Control


Non-residents are those persons who are not resident in South Africa and are not emigrants from South Africa. Generally, there are no restrictions on inward or outward transfers of funds of which non-residents are the sole beneficial owners. If a non-resident grants a loan to a South African resident, the South African debtor is required to obtain approval from the exchange control authorities, to ensure that the rate of interest charged on the loan is reasonable.

Capital invested in South Africa can be remitted, as can income flowing to non-residents, like dividends, interest, royalties and directors' fees. Dividends must be declared from revenue profits. Directors' fees are limited, to avoid the disguised payment out of capital. The same applies to management and other fees. Royalty agreements require the approval of the exchange control authorities.


South African residents are entitled to foreign exchange facilities to meet their business or personal travel needs subject to certain limits.


Emigrants who permanently relinquish their South African residency are entitled to the following facilities:

 -    cash per family unit                    R200 000
 -    unmarried persons                       R100 000
 -    motor vehicles:                         R 75 000
 -    household and personal effects:         R 75 000

Excess South African capital remains blocked, but the income may be remitted overseas (up to R300 000 a year). Blocked funds of up to R30 000 a year may be used by emigrant families on South African visits.


First-time immigrants can bring unlimited funds into South Africa provided that the funds are brought into the country within three years of immigration. They are entitled to retain their foreign assets indefinitely, but any income accruing on their foreign assets must be brought into South Africa.

2.2.3. Distributions to Non-Residents from Local Estates

Cash bequests from the estates of persons who were permanently resident in South Africa at the time of their death to beneficiaries who are permanently resident outside the Common Monetary Union may be remitted up to a limit of R100 000 for each beneficiary. The exchange control authorities may permit bequests exceeding that limit to be transferred in stages. Items of a purely personal nature bequeathed to non-resident beneficiaries may be exported, but the total value of jewellery may not exceed R20 000 for each beneficiary.

2.2.4. Borrowing Restrictions for Foreign-Owned Businesses

There is a restriction on the local borrowings of business entities that are 25% or more owned or controlled by non-residents. The purpose of this restriction is to ensure adequate capitalization of foreign investments. Local borrowings include overdrafts, local discounting, financial leasing of capital equipment, mortgage bonds, preference shares and debentures not subscribed for by equity shareholders, and local shareholders' loans in excess proportion to foreign shareholders' loans. Excluded from the restriction is normal commercial credit for the sale of goods and services rendered.

The level of local borrowing is limited to a percentage of the "total effective capital". The percentage may be simply represented as 5 000 divided by the percentage of non-resident participation. Thus, the maximum local borrowing if non-resident participation is 75% will be 5 000 divided by 75, or 66.67% of effective capital and, if non-resident participation is 25%, the maximum local borrowing will be 5 000 divided by 25, or 200% of effective capital. "Effective capital" is basically the net worth of the company, together with shareholders' loans (which are regarded as investment funds because of their permanence) and "hard core" trade credit extended to the company by non-resident shareholders. Local shareholders' loans that are proportionately in excess of foreign shareholders' loans are excluded from effective capital.

Although these local borrowing restrictions are for the most part strictly applied, the authorities adopt a more flexible approach for businesses that are established in decentralisation areas or that have a substantial import substitution or export potential.

2.2.5. Dividends and Branch Profits

All applications for remittances of profits or dividends by entities that are 25% or more controlled by non-residents must be referred to the central bank for approval if any local borrowing facilities are available. (Whether the facilities are used is immaterial. The mere existence of an arrangement requires an application.) If the entity's borrowings are within the formula referred to in 2.2.4, there is no difficulty in obtaining authorization to remit the dividends and profits to which a non-resident is entitled.

Profits or income earned prior to 1 January 1984 and dividends based thereon are not eligible for transfer to non-residents or emigrants without express Reserve Bank consent. Furthermore any dividends paid out of profits after 1 January 1994 cannot include any profits of a capital nature.

2.2.6. Management Fees

Payments of management fees by a South African company to a foreign affiliate are subject to approval by the exchange control authorities. It must be demonstrated that the services in question are necessary and cannot be as readily obtained in South Africa. The exchange control authorities will seldom approve the payment of management fees by a wholly owned South African subsidiary to its foreign parent, since it is considered that in these circumstances the payment of fees rather than dividends could be a mechanism for avoiding normal tax and the secondary tax on companies.

2.2.7. Royalty Payments

All agreements relating to payments for the right to use know-how, patents, trademarks, copyrights or other similar property are subject to approval by the exchange control authorities. The industrial development branch of the Department of Trade and Industry acts in an advisory capacity to the central bank in connection with royalties that involve the local manufacture of goods. A distinction is made between consumer goods, in the production of which South Africa is basically self-sufficient, and capital goods, for which foreign technology is needed. For consumer goods, a royalty of up to 4% of the factory selling price is regarded as acceptable. For intermediate and finished capital goods, a royalty of up to 6% may be considered. However, if the agreement does not provide for underlying know how, but deals exclusively or mainly with the use of patents or trademarks, the authorities will seldom approve a royalty of more than 0.5% of turnover.

2.2.8. Temporary Residents

Temporary residents who come to South Africa on secondment or on a contract basis may make regular transfers of funds abroad from their local earnings. On completion of their secondment or contract, they will be allowed to transfer abroad their savings from local earnings.

Temporary residents who elect to stay on in South Africa become subject to the same requirements that apply to immigrants, effective as of the date of their arrival in South Africa.

For further information please contact: 

Werksmans Attorneys 

Werksmans Chambers, 22 Girton Road, Parktown, Johannesburg 2193 
P.O. Box 927, Johannesburg 2000 South Africa

Enquiries:        Mr Charles Butler
Telephone         27 (011) 488-0000
Telefax           27 (011) 484-3100/3200
E-Mail Address

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