In 2013, the South African government introduced the Domestic Treasury Management Company (DTMC) regime to allow South African companies that are registered with the Financial Surveillance Department (FinSurv) of the South African Reserve Bank (SARB) to expand into the rest of Africa and abroad. The DTMC Regime, in essence, allows unlisted companies to establish one subsidiary within the group as a DTMC, not only to hold offshore operations for foreign direct investment purposes but also domestic treasury management operations, without being adversely restricted by the exchange control regulations of the SARB.

Incorporating a DTMC allows South African groups to avoid having to set up an offshore treasury company. To this end the group is able to utilise a South African entity to fund their offshore operations, allowing them to gain increased access to the open market abroad. Specific legal requirements must be complied with for a company to be a DTMC. Amongst others, the company must be a South African tax resident that is not subject to any exchange control restrictions that might be imposed by virtue of its registration with FinSurv.

On applying for registration at FinSurv, the following information must be provided:

  • Names of the offshore target companies;
  • A description of the business types the DTMC will be involved in;
  • Jurisdictions in which the offshore companies are operating in;
  • An overview of the treasury management operations;
  • Details of the envisaged investment; and
  • The percentage equity interest and voting rights acquired in the foreign target entity.

The appointed DTMC must remain a wholly owned subsidiary of the South African parent company and must at all times be a South African tax resident. It is important in this regard to note that the advantage attached to a DTMC does not result in the waiver of tax compliance. The annual SARB reporting requirements must still be adhered to.

The use of a DTMC also holds certain tax benefits specifically when considering currency translations. For tax purposes, generally, any amount received by or accrued to, or expenditure or losses incurred by a company in a foreign currency must be translated to South African Rand (“ZAR”) at the spot rate on the date the amount was so received or accrued. A DTMC may however use its functional currency (as opposed to ZAR), providing relief in respect of unrealised foreign currency gains and losses.

Where an amount is received by or accrues to a DTMC, in any currency other than the currency of the DTMC (not being ZAR), it must be determined in the functional currency of the DTMC and be translated to ZAR by using the average exchange rate for that year of assessment. The tax relief in this regard is limited to exchange gains and losses, resulting in the DTMC being taxable on, amongst other things, its interest income.

To this end it is clear that the DTMC regime was introduced to promote the expansion of investments into other African countries who holds tremendous economic potential and economic growth that can be utilised in favour of all regions.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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