Gateway to Africa
23 March 2013
Posted by: SAIT Technical
By Arnaaz Camay (ENS Tax ENSight)
The SARB has approved
approximately 1,000 investments into 36 African countries over the past
five years. Recent Budget announcements are a further attempt by
National Treasury to position
South Africa as a favourable jurisdiction in which to establish a
company as a gateway for investments into Africa.
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 African countries.
These investments have provided political and strategic benefits, as well as,
economic stimulus in general for South Africa.
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
It is proposed that:
- R750 million per year may be transferred from the listed company to the
- the subsidiary company will be allowed to freely raise and utilise capital
- 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 management
- cash pooling will be allowed without any restrictions;
- income generated by the subsidiary company from cash management will be
- the subsidiary company may choose its functional currency and operate a
foreign currency account whilst retaining a rand-denominated account for
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 into Africa.