Property investments in UAE and SA exchange control - What do you need to know? Part 2

Understanding and complying with South African exchange control regulations

In our first article, we introduced the appeal of property investments in the UAE, particularly Dubai, and touched on some factors that South African investors should consider. Now, as we continue, we turn our attention to the complexities of money movement related to international investments. In this second part of our series, we delve into South Africa's exchange control regulations, how to comply with these rules, and the allowances available for international money transfers.

As an esteemed real estate agency honoured with numerous awards, Meridian Realty delivers unrivalled property investment opportunities in the UAE, backed by a profound understanding of related regulations - a vital partner for your investment journey.

Understanding SA Exchange Control Regulations

South Africa's exchange control regulations govern the movement of capital (in and) out of the country, and compliance with these regulations is crucial for individuals and businesses looking to transfer money overseas. These regulations that have been in place since 1939 have evolved, placing more emphasis on tax compliance as a determining factor for capital flow. Understanding the current regulations is important to ensure compliance and facilitate smooth money transfers.

Complying with SA Exchange Control (Excon) Regulations

To make an international money transfer, individuals must have a South African bank account with an authorised dealer that facilitates international transfers. The necessary information must be provided to the authorised dealer, including the recipient details and the amount to be transferred. Depending on the amount, tax clearance status certification (or TCS Pin letter issued by SARS), and SARB approval may be required. Recent changes allow South African investors to transfer more than R10m foreign investment allowance into a foreign company or trust. The UAE has recently introduced trust laws, yet for most property investors, the use of a trust in or outside the UAE is often discouraged by UAE property lawyers.

Excon regulations also now allow SA investors to borrow funds in the UAE, i.e., secure a UAE or non-SA mortgage bond over a UAE property. The UAE banks very seldom will ask for guarantees provided from outside the UAE, as they follow strict Sharia-law provisions. Profit-sharing rather than interest payments is the norm, yet the profit share will seldom exceed market-rated interest rates. South Africans can provide the Dubai property and the future rental income stream as security, yet no SA assets may be placed at risk i.e., no guarantees from SA will be allowed.

The flip side of the coin is that once the foreign allowances (SARS AIT or Approved International Transfer process) were taken abroad, the foreign rental income (for that matter interest and dividend income) and foreign capital gains realised, need not be remitted back to South Africa.

Since last year, the Dubai property can also be bequeathed to the deceased SA resident legatees and heirs. SA investors are advised not to rely on their SA wills to deal with the immovable property acquired in the UAE. It is best advised to have a UAE (so-called Christian or non-Muslim) will registered at the relevant UAE authority. Unlike South Africa, to ensure freedom of testation, a non-Muslim investor has to have a UAE will be registered before death.

Allowances for Money Transfers

Different categories of exchange control or capital allowances govern money transfers out of South Africa. The Single Discretionary Allowance (SDA) and Foreign Investment Allowance (FIA) are two common allowances applicable to individuals. The SDA allows SA tax residents, 18 years and older, to transfer up to R1 million per calendar year for various purposes without seeking permission from the SARS or the SARB. The FIA, on the other hand, allows tax residents and emigrants to transfer up to R10 million per calendar year for investment purposes, subject to approval from the SARS.

SARS has implemented changes to the tax clearance process for FIAs effective from 24 April 2023 the TCS Pin letter or approval process is now known as the Approval of International Transfers (AIT) process. The AIT process now requires a separation between local and foreign assets and liabilities for residents, as well as information on tax residency status, beneficiary status in and loan accounts to and from local or international trusts, shareholding in legal entities, and specific bank account number disclosure. Residents need to ensure they disclose their worldwide assets and liabilities to SARS.

It's important to emphasize that the changes to the tax clearance process do not alter the Exchange Control Regulations. The allowances for South African resident individuals and emigrants remain unchanged. The SDA of R1 million per calendar year is available only to South African tax residents aged 18 and older. The Foreign Investment Allowance (FIA) allows for the transfer of R10 million per calendar year for investment purposes, subject to approval from SARS. Where the FIA approval exceeds R10m per calendar year, the application is somewhat more complex, as not only SARS but also SARB need to approve the AIT.

From a practical approach, first, apply for the R10m FIA and transfer R11m (including SDA R1m to the extent it is available) before one applies for an FIA of more than R10m per calendar year, as the special applications (for amounts above R10m) are subject to more stringent SARS and SARB reviews.

Considerations for International Money Transfers

When transferring money internationally, it is crucial to consider fees, exchange rates, and the timing of the transfer. Banks charge fees for international transfers, and these fees can vary. Comparing fees and rates charged by different banks can help ensure getting the best deal. Monitoring the exchange rate is also important, as it can significantly impact the final amount received. Opening a special foreign exchange trading bank account can provide better rates and services for international transfers.

Meridian Realty is a distinguished player in the vibrant Dubai property market and boasts an extensive portfolio of properties starting from AED 1.6 million. We offer a selection of residential and commercial spaces tailored to a spectrum of investment aspirations. Our involvement extends far beyond the mere provision of property options; we take pride in simplifying the acquisition process and delivering expert insights into the ebb and flow of the market. Rooted in our in-depth understanding of local and global regulatory structures, we ensure investors embark on a stress-free and confident property investment journey. Whether your interest is piqued by high-end residential villas or premier office spaces nestled in business districts, Meridian Realty remains your reliable partner in navigating the intricate terrain of UAE property investments.

For expert advice on exchange control, structuring, cross-border taxes, and accounting consider reaching out to Mathys Briers-Louw and Hugo van Zyl at twenty2@taxforum.co.za.

• Mathys Briers-Louw is an attorney, specialising in cross-border transactions, exchange control, international money transfers and fiduciary services.
• Hugo van Zyl CA(SA) and Chartered Tax Advisor is an industry leader in cross-border transactions, taxes, and exchange control.

Stay tuned for Part 3 of this series, where we'll discuss property management in Dubai, including an overview of the services provided by local property management companies, and tackle important considerations regarding taxation for South African investors in Dubai.

Ready to take the next step in your investment journey? Explore our premium range of properties listed in Dubai and let us guide you in making the best investment decision. Check out our portfolio here: https://www.meridianconnect.co.za/Page/Dubai.aspx

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)