Blocked Rands

The SARB oversees all exchange transactions in South Africa.

Since the changes made to exchange controls in the 1960s in South Africa, the phenomenon of “blocked rands” has arisen. The term “blocked rands” is used to refer to funds that are legally not allowed to leave the country when their owners do. What this means in practice is that people who emigrate from South Africa cannot take all their money with them. The portion of their funds that they have to leave behind, while retaining ownership, is referred to as “blocked rands“.

Obviously, this is a very frustrating to position to be in, especially when you are in a new country and you need every last cent to make your emigration move a success. However, recent developments point in the direction of making it far easier to re-locate blocked funds. What follows below is more information on how to do so.

Rationale behind blocked rands

The South African government introducted the system of “blocked rands” in order to protect the national balance of payments account. What this means in simple English is that the government did not want large sums of money and assets to leave the country, as this could weaken the national fiscal position.

However, as time has passed, so the amount permitted to leave the country has increased, and in the mid-term budget of October 2010 a proposal was made to eliminate the concept of “blocked rands” entirely, in line with the South African government’s approach of relaxing exchange controls.

At the time of writing, the limits on transferable rands are as follows:

* An allowance of ZAR4 million per adult and ZAR8 million per family unit per annum;
* Personal Goods: An amount of personal goods not exceeding ZAR1 million may be exported, in addition to the annual allowance;
* Discretionary Travel Allowances: Emigrants may also transfer capital to be used as discretionary travel allowances amounting to ZAR1 million per annum per adult and ZAR160 000 per annum per child;
* Additional amounts: additional money transfers can also be made, but only on approval by the South African Reserve Bank (SARB), and subject to a 10% exit levy.

Any transfer made under Section 0 (point 6.1.1) of the Exchange Control Manual has to be subtracted from the allowances outlined above.

Where are blocked rands held?

Blocked rands are required to be under the physical control of the Authorised Dealer involved, so that would usually mean the emigrants’ bankers, often a commercial bank, in South Africa.

What can emigrants do with blocked rands?

The following information has been taken from a SARB publication.

Money may be released:
* when blocked rands are to be invested in quoted South African securities, but this must be restrictively endorsed, and held by an Authorised Dealer without being released, unless temporarily for switching purposes, without the approval of Exchange Control. If an unquoted security is sold, the proceeds of the sale can be invested in a security quoted on the JSE Securities Exchange South Africa. However, if the emigrant wishes to invest these funds in an unquoted security, the approval of Exchange Control is required.
* when blocked rands are to be invested in unit certificates issued by certain approved companies, and the investment certificates then have to be deposited with an Authorised Dealer, and may only be released for credit of the proceeds to the emigrant’s blocked account. An Authorised Dealer should be able to provide the names of these approved companies.

Getting your money out of South Africa doesn't have to be a tug of war.

* when the emigrants visit South Africa, to cover their expenses while they are in the country. The amount released in this way is capped at ZAR75 000 per family unit per calendar year, or ZAR3 000 per day per adult and ZAR1 500 per day per child under 12 years of age. Unused money that has been released must be returned to the blocked account on departure.
* to South African travel agency in order to pay the travel fares of the emigrants should they travel directly to or from South Africa and their new country of domicile. This type of release requires documentary proof.
* in order to cover expenses incurred during the emigration process, such as moving costs. This type of release also requires documentary proof.
* to pay the South African revenue Service (SARS), on submission of proof of income tax on income earned before emigration.
* for the purposes of paying school and university fees for children who have returned to South Africa or who have remained in South Africa in order to finish their education. This type of release requires documentary proof.
* in order to pay rates and taxes on vacant erven (plots) which are not earning an income and which form part of the emigrants’ blocked assets. This type of release requires the submission of an appropriate assessment.
* in order to pay membership fees and affiliation fees due to local clubs and medical, engineering and technical societies. Documentary proof of membership must be submitted.
* in order to pay premiums on long term insurance policies (Life, Endowment and Retirement Annuity), where such policies were opened before emigration. In such cases the insurance company concerned must provide documentary proof of the policy or policies, and any proceeds stemming from such policy or policies would also be blocked.

By following correct procedure, you can avoid unnecessary blocked Rand losses.

* where a court order stipulates the payment of maintenance to a local resident. A copy of the court order must be submitted as documentary proof of the situation.
* in order to pay accountants, attorneys and (income) tax advisors who are administering the emigrants’ residual (blocked) local assets – this requires documentary proof.
* to pay a hospital, doctor or dentist for medical/dental treatment received by any member of the emigrant family unit in the Republic during a visit in the Republic – the relevant account must be submitted as documentary proof.
* in order to pay a broker who is handling a securities transaction, as well as all expenses related to that transaction.
* for the purposes of winding up the South African estate of an emigrant, where the estate does not possess sufficient cash reserves to fund the process – documentary proof is required in such cases.
* relating to option monies payable by emigrants.
* pertaining to margin payments due to the SAFEX Clearing Company (Pty) Limited (SAFCOM).Any margin payments paid by SAFCOM have to be credited to the relevant blocked account as soon as they are received.
* when the proceeds of mortgage bonds and/or mortgage bond participations, which make up part of an emigrant’s blocked assets, are re-invested in more bonds and/or participations.
* where gifts, maintenance and donations are being made to parties resident in South Africa. Such payments may not exceed ZAR100 000 per annum.
* where money is required to make alterations to and perform maintenance work on fixed assets in South Africa. Documentary proof is required.
* where it is necessary to pay capital gains tax on the sale of blocked assets after emigration, as long as the assets formed part of the emigrant’s blocked assets at the time of emigration.
* when a request relating to a situation other than those described above is made. Such a request must be submitted to Exchange Control. Any such application must clearly stipulate its purpose and be cogently argued. Usually, payments relating to local disbursements are considered favourably.

Is it possible to make use of income generated by blocked rands?

It is possible to transfer certain types of income out of South Africa, including:

* Dividends
* Interest and profits;
* Income distributions from close corporations;
* Monthly pension payments – paid by registered pension funds only;
* Directors’ fees/close corporation members’ fees;
* Income received from a trust created in terms of a last will and testament;
* Cash bonuses on insurance policies;
* Rentals on fixed property;
* Income received from an inter vivos trust;
* The difference between the purchase consideration and maturity value of quoted gilts.