South Africa Relaxes loop structures for boost to Mauritius

The South African Reserve Bank (SARB) has, earlier this year, taken steps to enhance the country’s destination as an investment hub for Africa by lifting the prohibition on loop structures. Individuals, companies and private equity funds who are SA tax residents are now permitted to invest in an offshore structure that would then invest back into South Africa, on the condition that these transactions are then reported.

A loop structure is when a resident holds an asset indirectly through a non-resident entity (i.e. offshore structure), to then reinvest back into the country of origin through loan accounts, acquisition of shares, or other assets.

Within the real estate context; a South African resident, residing in Johannesburg, can create an offshore structure in Mauritius and have this capitalized with repatriated funds from his country. He may then bring these funds back into South Africa for a home purchase that is then owned by the Mauritian entity.

The relaxation on loop structures does not only pertain to real estate or equity investments, but also intellectual property. IP now developed in South Africa is eligible as consideration for shares to be issued in a Mauritian Intellectual Property holding entity, therefore expanding the global reach of their products through licencing.

With the double-taxation agreement between South African and Mauritius, investors would be able to optimise their tax situation and take advantage of new competitive benchmarks now available.