What is exchange control? Article provided by Adams & Adams From - TopicsExpress

What is exchange control? Article provided by Adams & Adams From time to time, businesses encounter situations where exchange control approval is necessary for a transaction. Below, we provide a brief explanation of the exchange control system. South Africa has an exchange control system in place which regulates the transferring of capital (goods or money) in and out of the South Africa. Exchange control is regulated by the Exchange Control Regulations, 1961 (“Excon Regulations”) together with certain orders, rules and rulings, promulgated in terms of the Regulations. The National Treasury has delegated the administration of exchange control to the South African Reserve Bank (“SARB”), which is responsible for the day to day administration and regulation of exchange control. SARB has, in turn, delegated some of its powers in relation to exchange control matters to local banks (“authorised dealers”). A transaction dealing with the in or outflow of capital from South Africa may require exchange control approval from SARB. As such and in order to avoid an instance where an agreement relating to foreign exchange is void or penalties are enforced, it is imperative that one ascertains whether exchange control may be applicable to a transaction. Exchange control approval is required for, inter alia, the payment of royalties to non-residents outside the country and payments made to suppliers overseas. In view of recent amendments to the Regulations, it is also necessary to obtain exchange control approval for the transfer of intellectual property (copyright, trade marks and the like) offshore. A South African resident, for purposes of exchange control, is any person (i.e. natural person or legal entity) who has taken up permanent residence i.e. domiciled or registered, in South Africa, irrespective of whether that person is of South African nationality or not. A non-resident is a person whose normal place of residence is outside of the common monetary area (i.e. RSA, Lesotho, Swaziland and Namibia). Exchange control is not intended to interfere with the operation of the commercial, industrial and financial systems of South Africa, but it is intended to effectively control the available foreign exchange reserves and to ensure that it is applied in the best interest of the country. Be that as it may, one should not disregard the importance exchange control to a transaction, as it may result in the nullification of an agreement relating to foreign exchange or bring about penalties