The restrictions which prevented South African corporations or individuals from setting up and investing in offshore entities, which in turn invests back into South Africa, has been significantly relaxed as of 01 January 2021.
Subject thereto that the so called ‘loop-structure’ is set up in accordance with the Reserve Bank’s Exchange Control Circular No. 1/2021, individuals, companies and private equity funds may now utilize authorized foreign assets to invest in South African assets.
The loop-structure may be implemented subject thereto that:
- The investment is reported to an Authorised Dealer (local commercial bank) upon finalization of the investment transaction;
- The transaction must be conducted ‘at arms-length’ and at a fair market related value;
- The Authorised Dealer must, upon completion of the transaction, submit a report to Finsurv setting out the details of the transaction;
- Any inward loans still comply with the current exchange control rules; and
- Existing unauthorized loop-structures must be regularised with Finsurv.
Whether the relaxation of the pre-2021 loop-structure restrictions will result in significant exporting of capital from South Africa, or whether the same will result in greater investment into South African assets / resident entities, remains to be seen.