New cross-border payment process and transfer pricing reporting requirements for royalties and fees payable by South African resident entities to non-residents

Effective 26 November 2024, South African resident entities are no longer required to submit requests to the South African Reserve Bank also referred to as the “Financial Surveillance Department”, for consideration via Authorised Dealers, to make royalty and fee payments abroad. Previously, Authorised Dealers would approach the Financial Surveillance Department on behalf of the South African resident entity and seek approval for such transactions. Concerning extensions of approved related and/or unrelated party agreements however, this was mandated by the Authorised Dealer provided such agreement originally entered into or an addendum to the agreement, made provision for an extension of the agreement.

Moving forward, amendments to section B.3 (C) of the Currency and Exchanges Manual for Authorised Dealers issued on 26 November 2024, confirms that the South African Reserve Bank no longer must be approached for approval of these payments. The new process requires that prior to the Authorised Dealer affecting a payment by South African resident entities to non-residents for royalties and fees, the Authorised Dealers should view a copy of the agreement entered into. In all instances an invoice, verifying the purpose and amount involved from the relevant non-resident party should be presented.

In respect of transactions involving related parties, Authorised Dealers must receive confirmation from senior management of the applicant company that transfer pricing documentation is maintained as prescribed by the South African Revenue Service (“SARS”). Where ad hoc services are rendered between related parties, Authorised Dealers must receive written confirmation from senior management of the applicant company, that the transaction was concluded at fair and market-related prices.

As in the past, Authorised Dealers may approve the extension of agreements including agreements previously approved by the Financial Surveillance Department, provided that the agreement originally entered into or an addendum to the agreement, makes provision for an extension of the agreement.

Due to the new procedures explained above, South African resident entities are required to assess and ensure that appropriate regulatory requirements for cross-border royalty and fee payments are met, and necessary documents are kept in place to support such payments to non-resident related and or unrelated parties.

We are a team of specialists who are experienced and knowledgeable in exchange control reporting and transfer pricing analysis and related SARS reporting. Should you require assistance, please feel free to reach out to us.

Cynthia Gatsi

Manager: Tax & Financial Advisory