On 31 October 2019, the Financial Surveillance Department of the South African Reserve Bank (FinSurv), released Circular 18/2019 (Circular) regarding the creation of loop structures by South African residents investing abroad, which relaxed the rules regarding loop structures.
Time and time again, you break the news to a client: “The intended transaction creates a loop structure, which is impermissible according to SARB rules and regulations”.
A loop structure entails the formation by a South African resident of an offshore structure which, by reinvestment into the Republic, acquires shares, loan accounts or some other interest in a South African resident company or a South African asset.
On 31 October 2019, the Financial Surveillance Department of the South African Reserve Bank (FinSurv), however, released Circular 18/2019 (Circular) regarding the creation of loop structures by South African residents investing abroad, which relaxed the rules regarding loop structures.
Simply put, private individuals may now individually or collectively acquire up to 40% equity and/or voting rights, whichever is the higher, in a foreign target entity, which may in turn hold investments and/or make loans into any CMA country. The rule change will only apply in respect of loop structures formed after 30 October 2019.
Not even a week following the ruling, we sat down with one of our UK clients and advised them that their proposed transaction inadvertently creates a loop but that it is now in fact permissible! The transaction entails an investment into an SA resident entity and includes a share swop, whereby SA residents will acquire shares in the offshore entity that invests into the SA resident company.
The inbound investment and the intended share swop, allow the SA residents to diversify their interests offshore and in turn our UK clients now have the ability to expand its footprint into Africa whilst keeping the brain’s trust of the SA entity on board and fully incentivised.
What goes around comes around and the relaxation of the loop structure rule is a welcome one, which give SA residents more options regarding their offshore investments and structuring aspirations and inversely encourage international interest and investments into South Africa.
If you have any questions or need more info don’t hesitate to give us a call!
021 9488 273
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