May 12, 2025
Navigating Foreign Direct Investment for South African Companies
Expanding internationally is an exciting opportunity, but when it comes to Foreign Direct Investment (FDI), South African companies must carefully navigate regulatory requirements to stay compliant. Understanding the legal framework and practical implications is key to making informed, strategic investment decisions abroad.
What is a Foreign Direct Investment?
Foreign Direct Investment (FDI) occurs when a South African company acquires at least 10% of the shares in an offshore entity and participates actively in its management and operations. This isn’t just about owning foreign assets – active involvement is key. Importantly, under South African exchange control regulations, FDIs are not allowed for NGOs, Close Corporations (CCs), Sole Proprietors, Partnerships, or Trusts under current South African exchange control regulations.
Regulatory Approval and Fund Transfers
Before investing, companies must secure prior approval from the South African Reserve Bank (SARB). It’s a common misconception that funds can be transferred directly from a Customer Foreign Currency (CFC) account. In fact, all FDI funds must first be routed through a South African Rand (ZAR) account before they are remitted offshore.
Qualifying Criteria for FDI Approval
To gain SARB approval, your investment must meet several non-negotiable conditions:
- The foreign company must not be listed on a South African exchange.
- The South African company must hold at least 10% voting rights and be involved in management – passive investments are not allowed.
- The investment should be funded from retained earnings. If you’re using borrowed funds, SARB must be informed.
- The investment must serve a legitimate business purpose, comply with South African regulations, and not conflict with foreign policy or exchange control rules.
- It must have a positive economic impact, ensuring the foreign subsidiary generates profit, which may allow the SA company to raise management fees.
Required Documentation
To apply, you’ll need:
- A completed and signed application form.
- A detailed motivational letter on your company’s letterhead.
- Your latest audited financial statements.
Keep in mind: SARB may request additional documents, and approval isn’t guaranteed. Processing typically takes 4-6 weeks.
Subsequent conditions after a FDI approval has been obtained
Once approved, certain conditions must fulfilled under the FDI:
- All payments offshore must be converted into foreign currency in South Africa and cannot be remitted from a Customer Foreign Currency account (CFC account). This applies to any form of capital which consists of equity and loan funds, i.e., no capital payments can be made to or from a CFC account.
- On an annual basis, the SA company is required to submit to the SARB a progress report on the offshore investment, supported by their latest audited FinStats.
- Any changes to the foreign entity’s business model must be reported and if the foreign investment is sold, net sale proceeds must be repatriated to South Africa within 30 days and the SARB must be notified of this.
- Foreign entities must declare any excess profits as dividends annually.
Need help with the process?
Currency Partners has helped many South African businesses successfully manage their FDI applications – from initial approval and documentation to annual reporting and renewal of lapsed approvals. We simplify the process, reduce risk, and guide you every step of the way.
If you have questions about Foreign Direct Investment or need expert support, our specialist business team is ready to help.
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