Times Of Swaziland: RELAXATIONS ON SA INVESTMENTS IN ESWATINI

RELAXATIONS ON SA INVESTMENTS IN ESWATINI
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BY ASHMOND NZIMA   on 12/01/2021 21:57:00


MBABANE – The South African Reserve Bank is said to have announced a
relaxation of the rules relating to loop structures.
They involve investments through foreign structures that in turn own assets here
in Eswatini and three other countries. The other three countries are South
Africa, Namibia and Lesotho.  According to BizNews, these structures are
attractive to South African entrepreneurs looking for foreign investors.
“The long-awaited relaxation of the rules relating to ‘loop structures‘
has finally been announced and most South African residents may now invest in
these structures.
“However, such investments may still be subject to some form of supervision.
It is also important to note that various tax measures are currently being
introduced to address potential tax leakage arising as a result of the
relaxation,” reads the report in part.
Arises
It has been gathered that a loop structure arises where a South African exchange
control resident (individual or company) has an interest in a foreign structure
and that foreign structure directly or indirectly owns assets in the Common
Monetary Area (CMA) consisting of South Africa, Eswatini, Lesotho and Namibia.
CMA links the member countries into a monetary union so that they can have the
same development and equitable economic advance to be treated as a whole.
According to the report, until recently, these structures were permitted only in
very limited circumstances, typically where South African exchange control
residents in aggregate did not own more than 40 per cent of the shares in the
foreign company, regardless of the extent of ownership held by the foreign
company in the South African assets, including resident companies.
“In terms of Exchange Control Circular No. 1/2021 (Circular), the restrictions
on loop structures pertaining to individuals, companies and private equity funds
that are tax resident in South Africa have been further relaxed. The circular
does not refer to trusts and it thus seems that trusts will still not be
permitted to invest in loop structures.
“The changes outlined in the circular apply with effect from January 1,
2021,” reads the report. Where a South African resident has inherited foreign
assets held by a deceased person offshore in compliance with exchange control
regulations, the resident may apply to an entity styled Finsurv for approval to
retain the assets offshore.
Scrapped
Until recently, such approval would be subject to the condition that the assets
may not be used to invest in a loop structure. The prohibition on the investment
in loop structures has now been scrapped.
“Inward foreign loans received from foreign lenders will no longer be subject
to the restriction that; the loan funds may not represent or be sourced from a
South African resident’s authorised foreign assets; and there may not be any
direct/indirect South African interest in the foreign lender.
“All clients who are either currently invested in loop structures or who have
been unable to make investments as a result of the loop structure restrictions,
should carefully consider the impact of the proposed relaxations on their
current or future investments.
“It is particularly important for investors to obtain advice regarding the
impact of the proposed tax changes on existing loop structures. As the proposed
changes are intended to address potential tax leakage arising from the
relaxation of loop structures, it could have a negative impact on the tax
treatment of existing loop structures,” further highlighted the report.