Rules governing the use of South African funds overseas

The South African Reserve Bank’s Financial Surveillance Department (or FinSurv) ultimately holds control over the free movement of South Africans’ wealth (also referred to as Exchange Control or Excon). The South African Reserve Bank (SARB) and the South African Revenue Service (SARS) jointly agree with Treasury on the processes that govern the permission for South Africans to send their hard-earned South African Rand abroad.

South Africans living abroad, albeit for many years, are often very astonished to learn that they are no longer permitted to use their South African debit or credit cards abroad. In this regard, it is important to note that the SARB distinguishes between an expat living abroad (albeit as temporarily abroad) and resident of South Africa merely travelling aboard.

The SARB Handbook on Exchange Control, Section H, is very clear on the rules of using South African credit and debit cards abroad. In the calendar year that you depart South Africa you may, subject to prior approval, use your credit card up to and until 31 December. No further use, in the following year, will be allowed unless you are due to return to the country at the end of a Christmas holiday.

The SARB rules clearly state that an Excon resident may use his or her SA credit or debit cards “to avail of up to 100% of the authorised, prescribed or remaining travel allowance applicable to the journey of such resident”. The word journey clearly suggests a return date at the end of a relatively short trip. How short, one can ask. We see clients leave in December and return during Easter after an extended trip on the high seas and a ski holiday in Italy.

The said Section H rules also deny your bankers the right to grant you the next calendar year’s allowance should your travel extend past New Year’s Day. SARB rules read that “a full allowance may still be provided for any subsequent travel during the second year, provided the traveller has first returned to the RSA”.

South African Reserve Bank penalty and process

Persons who contravene these rules can be subject to a SARB penalty as high as 40% of the irregular spend. The funds used abroad must be brought back and transferred from foreign funds into the South African current or savings account as the credit or debit card in question will by then have been cancelled.

The SARB process is not an automatic penalty regime. Where a debit or credit card linked to a cheque account was used, the initial enquiry from the SARB will normally be sent via the South African credit card company or SA bankers. People in contravention of the rules will only receive the warning if they kept their SA bankers informed of their new FICA address. Should they receive the warning at an old or invalid SA address, it cannot be used as an excuse for not knowing of the due penalty.

A recent revision was made to the SARB rules regarding the use of credit and debit cards abroad. However, the strict core rules have been applicable for some seven or more years and the general rules regarding credit card usage have been in the SARB guidelines for more than a decade.

When is a South African deemed to be living abroad?

Temporary abroad is a very wide definition. However, this clearly excludes South Africans outside South Africa while on a holiday or business trip. It is also important to keep in mind that the SARB, SARS and Home Affairs (visa and passport) rules are not aligned.

If you own the holiday apartment, you may be deemed as living abroad temporarily. In terms of SARB rules, a person earning foreign currency while physically abroad, albeit for intermittent but regular short periods, may also be temporary abroad.

Temporary does not refer to a specific length of time, but may for example refer to a South African who stays abroad although not formally emigrated, for whatever reason.

South Africans spending an entire European summer outside South Africa, staying in self or trust-owned properties, are deemed to be temporary abroad. You are not on a “journey” as intended in Section H of the Handbook.

South Africans on a cruise around the world may safely argue that they are on holiday. However, they may face an issue should they leave in one calendar year and return in another calendar year. As seen earlier, an exchange control resident cannot avail him/her to the second year’s travel allowance before returning to SA, effectively denying such persons the use of their credit card in the next calendar year, as the system may treat you as temporary abroad.

Breytenbachs Advisory has fortunately been successful in claiming full waiver on the penalties charged on clients in such positions.

Breytenbachs Advisory recommends that it is safer to deem most expats as living “emporarily” abroad and thus subject to this SARB rule on the use of SA debit or credit cards abroad.

Ignorance of the SARB rules

Ignorance of the SARB Rules by the SA Bank or the person in question can unfortunately not be used as defence against the penalty.

If the South African bank or a branch of the SA bank sent the card to the foreign address, it cannot be used as a defence and complicates the client’s defence. Unfortunately, many branch advisers and personal bankers are not trained to grasp the consequences of the South African Exchange Control Regulations applicable to South Africans living abroad, with dire consequences.

Breytenbachs Advisory currently deals with a case where a client is claiming the Exchange Control penalty from his bankers, as they failed to advise him correctly. The Ombudsman for Banking Services (OBS) is considering a ruling as the SARB refused to budge on a 25% penalty despite Breytenbachs Advisory being able to show the client’s bank knowingly couriered the cards to Australia and thus failed to warn their client of the risk they exposed him to. We hope to have an OBS ruling soon.

In the meantime, we warn users of the card that the risk is on them.

Cancellation of SA Cards while living abroad

South African credit and debit cards do NOT need to be cancelled if you are living abroad.

The cards will remain current and valid as the rules do not require a person to cancel it. It may be used within Common Monetary Area (CMA).

A person living temporarily abroad will be allowed to use his/her SA bank cards while outside South Africa for online purchases delivered to a South African address.

How can I get permission to use my SA Bank cards abroad?

It is possible to obtain permission to use your South African credit and debit cards abroad. This permission is granted by the SARB and not by your local SA bank.

The current bank form for use abroad speaks to corporate credit cards where your South Africa employer seconded you for a FIXED period. Clients are advised to make sure that the form they sign indeed allows total freedom of use abroad and not only for say international airline tickets and car hire in South Africa.

Penalty letters received in cases of contravention

If you have received a penalty letter from the South African Reserve Bank it is possible to rectify the illegal spent retrospectively so you don’t have to pay the full 40% penalty.

However, it is always advisable to rectify your mistake before receiving the enquiry letter from the SARB.

For more information on or assistance in your unique case, please contact Breytenbachs Advisory at info@bcbadvisory.com or visit our website at http://www.bcbadvisory.com/.