South African business entities must be aware that they may not enter into a transaction or a series of transactions (Transactions), the purpose and/or effect of which is to export capital, directly or indirectly, from South Africa in contravention of the permissible dispensations granted to entities within the Authorised Dealer Manual. These Transactions, which invariably contravene the Regulations entail, among others, the formation by (or at the instance of) a resident entity of an offshore structure which, by means of a re-investment into the CMA, acquires shares or some other interest in a CMA company or CMA asset (‘loop structures’).
The above-mentioned Transactions result in or have the potential to result in the direct or indirect export of capital abroad by the resident entity to the non-resident company or other relevant non-resident trust or entity for the ultimate benefit of a resident, of dividends including dividends arising from increased profits, revenue reserves or capital reserves accruing from the introduction of carefully selected CMA growth assets to a CMA company.
Outward investments that involve the creation of an unintended loop structure require prior approval from the Financial Surveillance Department. As an exception, South African private, public and listed companies are, on application to their Authorised Dealer, permitted to acquire from 10 to 20 per cent equity and/or voting rights, whichever is the higher, in a foreign target entity, which may in turn hold investments in and/or make loans to any CMA country. This dispensation does not apply to foreign direct investments where the South African company on its own or where several South African companies collectively hold an equity interest and/or voting rights in the foreign entity exceeding 20 per cent in total.
Reply With Quote
Originally Posted by Basment Dweller
Did you like this article? Share it with your favourite social network.