Most Read Contributor in South Africa, September 2016
In the 2013 Budget Speech, the Minister of Finance, Pravin
Gordhan announced that over the past five years, the South African
Reserve Bank approved approximately 1,000 investments into 36
These investments have provided political and strategic
benefits, as well as, economic stimulus in general for South
Investments in Africa and the rest of the world also provide a
sustainable market and continuity of work for South African
companies outside of South Africa and contribute to enhancing the
international profile of South Africa. There are also benefits to
social upliftment and skills transfer through additional employment
and generally foreign currency earnings are remitted back to South
Africa in the form of dividends. As these investments are
fundamentally beneficial to South Africa, a number of measures are
proposed to be put in place, to reduce the current exchange control
regulations governing South African companies investing in African
countries. It is anticipated that these measures will incentivise
South African companies to manage their African operations from
South Africa instead of from offshore, and in so doing maximise the
benefits to the South African economy.
To this end, it was announced that every company listed on the
JSE will be permitted to incorporate one wholly-owned subsidiary
company to house all its African and offshore investments. This
subsidiary company must be a South African tax resident, but it
will not be subject to any exchange control regulations.
It is proposed that:
R750 million per year may be transferred from the listed
company to the subsidiary company;
the subsidiary company will be allowed to freely raise and
utilise capital offshore;
additional capital and guarantees will be allowed to fund bona
fide foreign direct investments by the subsidiary company;
the subsidiary company will be allowed to operate as a cash
cash pooling will be allowed without any restrictions;
income generated by the subsidiary company from cash management
will be freely transferrable;
the subsidiary company may choose its functional currency and
operate a foreign currency account whilst retaining a
rand-denominated account for operational expenditure.
At present, only one wholly-owned subsidiary per JSE-listed
company will be permitted. However, in future, jointly owned
subsidiary companies, multiple subsidiary companies and
subsidiaries of non-listed companies may also be
A corresponding tax incentive is also being evaluated to allow
the subsidiary company to use foreign functional currency for tax
reporting purposes. This would ensure that the subsidiary company
is not taxable on foreign currency gains and losses arising in the
course of its treasury operations.
The recent announcements are a further attempt by National
Treasury to position South Africa as a favourable jurisdiction in
which to establish a holding company as a gateway for investments
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the milieu of global financial markets, securities of various types are often classified as either ‘listed’, ‘unlisted’ or ‘quoted’.
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