South Africa: Goodbye to the “loop structure” prohibition
In its typical form, a so-called “loop structure” arises where a South African exchange control resident (individual or company) holds an investment in a foreign company that directly or indirectly owns shares or assets (including loan claims) in the Common Monetary Area, which includes South Africa.
In its typical form, a so-called “loop structure” arises where a South African exchange control resident (individual or company) holds an investment in a foreign company that directly or indirectly owns shares or assets (including loan claims) in the Common Monetary Area, which includes South Africa.
The policy of the South African Reserve Bank that in principle prohibits loop structures, emanates from Regulation 10(1)(c) of the Exchange Control Regulations, on the basis that such a structure creates a channel for the direct or indirect export of capital from South Africa to an offshore vehicle, for the ultimate benefit of South African residents.
“The full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa, subject to reporting to Financial Surveillance Department of the SARB as and when the transaction is finalised. This reform will be effective from 1 January 2021 for companies, including private equity funds, provided that the entity is a tax resident in South Africa.”
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