South African residents who create intellectual property and invest offshore are in for some good news. In its 2017 Budget Review, the National Treasury has amended its exchange control policy to state that companies and individuals no longer need SARB’s approval for standard intellectual property transactions.
The reviewed policy also proposes that the ‘loop structure’ restriction for all intellectual property transactions be lifted on the condition that they are at arm’s length and are a fair market price. A ‘loop structure’ is defined as a restriction that prohibits residents from holding any South African asset indirectly through a non-resident entity.
This means that authorised dealers may now approve the outright sale, transfer and assignment of IP by residents of South Africa to unrelated non-resident parties, as long as the transaction in question is at arm’s length and at a fair, market-related price. As such, the involvement of the SARB in these cases is no longer needed.
While it may become easier to complete IP transactions abroad, there are certain mitigating conditions that must be upheld. The authorised dealers must view the sale, transfer or assignment agreement, as well as an auditor’s letter or IP valuation certificate confirming the basis for calculating the royalty or licence fee. The person transferring the IP must repatriate the funds to SA within a period of 30 days from accrual and the transaction is subject to appropriate tax treatment. The transferors are also unable to transfer the IP offshore and then license it back into SA.
These conditions may prove costly and time-consuming for many South African residents. However, despite the red tape, the relaxing of IP exchange controls remains good news for those transacting in the global economy.
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