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Individual Tax Consultant Randburg

Loop structure prohibitions abolished: Attracting inward investment in SA

3 Feb 2021

The South African Reserve Bank (Sarb) recently published a circular setting out changes to the rules around loop structures in South Africa. First talks of this came about in February last year during the minister of finance's budget speech and was reiterated in the country's medium term budget policy statement in October.

Judy Snyman, fiduciary specialist, AlphaWealth

A loop structure is an arrangement whereby a South African resident invests in an offshore vehicle which, in turn, invests in South African assets, or assets in the Common Monetary Area (CMA).

The latest changes confirm that loop structures entered into by South African-resident individuals, companies and private equity funds with authorised foreign assets will no longer be prohibited. However, the circular is silent on local trusts which means that, for the time being, local trusts are still prohibited from owning offshore assets or creating a loop structure.

Changes designed to bring in more investments

These changes are designed to encourage inward foreign investment into South Africa and to make the country a more attractive destination for foreign investors. There have also been a number of changes to the Income Tax Act to allow for the tax revenues flowing from these structures to be accounted for.

These changes create some interesting estate and financial planning opportunities for South African residents but cautions that the exchange control and tax changes are not straightforward. “We strongly suggest seeking sound advice from a trusted advisor when restructuring your affairs in light of these changes.