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THE 8 CONDITIONS FOR THE PROCESSING OF PERSONAL INFORMATION: PART III

Protection of Personal Information Act

Addressing compliance with the Protection of Personal Information Act, 2013 (“POPI“) may seem like a daunting task. The good news is that it is not too late; the better news is that you may be further along than you think.

Over the next few weeks, we will be briefly unpacking POPI’s minimum requirements for the processing of personal information. These requirements are set out in Part A of Chapter 3 of POPI, and incorporate the following conditions:

1) Accountability of the Responsible Party

2) Processing Limitation

3) Purpose Specification

4) Further Processing Limitation

5) Information Quality

6) Openness

7) Security Safeguards

8) Data Subject Participation

Our previous two articles looked at conditions 1 through 4. This article addresses the 5th and 6th conditions, namely, information quality, and openness.

Condition 5: Information Quality

In terms of POPI, a responsible party must take reasonably practicable steps to ensure that the personal information it processes is complete, accurate, not misleading and updated where necessary. This is applicable to information collected both electronically and manually.

In doing so, the responsible party must have regard to the purpose for which personal information is collected or further processed. In other words, the purpose for collecting personal information must be considered in deciding on the mechanisms to keep information updated. In this regard, compliance with condition 3 (purpose specification) is essential to compliance with condition 5 (information quality).

POPI does not specify what constitutes “reasonably practicable steps”. Accordingly, each business must consider its own operations to ensure that personal information is correct and updated as and when required.

Data subjects must be informed of and reminded of their duty to provide personal information that is up-to-date and to notify the responsible party where any such information requires correction.

Practically, in dealing with the processing of personal information belonging to your customers, for example, you may use your customer terms and conditions as the mechanism to draw attention to the customer’s duty to notify you of any changes to their personal information.

It has been stated, in the context of the European Union’s data protection laws, that personal information utilised merely as a historical record of a transaction does not require updating as its purpose is to record information at the time of the relevant transaction.

Condition 6: Openness

The condition of openness relates to transparency, and has two primary elements, namely maintaining documentation relating to processing operations, and notifying data subjects of the collection and processing of their personal information.

Documentation:

In terms of section 17 of POPI, a responsible party must maintain documentation of all processing activities. Furthermore, where applicable to the responsible party, a manual must be developed in terms of the Promotion of Access to Information Act, 2000 and made available to data subjects.

Notifying data subjects:

When personal information is collected from a data subject, the responsible party must take reasonably practical steps to ensure the data subject is kept notified of such collection each time personal information is collected from the data subject.

These steps include ensuring that the data subject is aware of:

  • The fact that the information is being collected.
  • The name and address of the responsible party.
  • The purpose for which the information is collected.
  • Whether is collection of the information is voluntary of mandatory.
  • The consequences of failing to provide the information.
  • Any laws that authorise the collection of the information.
  • Where applicable, that the responsible party intends transferring the information to another country.

Data subjects should be notified before their personal information has been collected (or as soon thereafter as possible). You may use a privacy notice displayed on your website to achieve compliance with the above, provided the privacy notice is easily accessible and sufficient attention is drawn to its existence.

There are certain exclusions to the general rule of having to notify data subjects. It is important to consider these exclusions carefully so that, if relying on any such exclusions, you don’t fall foul of POPI.

Read Part I here. Read Part II here

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Exchange Control – An investors nightmare?

Exchange Controls

Essentially, Exchange Controls are limitations and rules imposed by governments on currency transactions.

The intention is that these controls will create a way to stabilize economies by limiting and controlling how money flows in and out of a country, which left unchecked, would (this is the logic) detrimentally affect currency stability, and would create an unacceptable level of currency volatility.

How does exchange controls affect foreign investment

Unfortunately, while the intention to protect the currency may be good, the fall out is that Exchange Control regulations can be problematic for potential investors into South Africa, who may not be aware of them, or who underestimate the consequences of not having the correct approvals and structures in place, when investing.

If not dealt with at the time of investment, this can lead to a potential nightmare for the foreign investor down the line when wanting to disinvest, when wanting to repay loans or when wanting to reap the benefits of any investment upside, such as dividends.

If you are looking to invest into South Africa, for example,  by way of equity investment, or by way of lending money, you must consider the Exchange Control implications upfront and ensure that your proposed investment is properly structured and approved in terms of the applicable Exchange Control regulations.

What steps should an investor take?

When making an investment into South Africa it is crucial that you consider whether you need to obtain the approval of the South African Reserve Bank (SARB) through an Authorised Dealer. Approval is generally required for most movement of capital/funds in and out of South Africa. 

Whilst SARB has relaxed exchange controls over the last few years with the intention of decreasing the administrative burden for businesses, where foreign investors subscribe for shares in a South African company, it is a requirement for the share certificates to be endorsed ‘nonresident’ by an Authorised Dealer (generally one of the large commercial banks in South Africa). This allows for any dividends declared in such shares to be freely repatriated from South Africa. Where the foreign investor advances a loan to a South African company, it is necessary to obtain exchange control approval for the loan. Once approval has been obtained, any interest or capital repayments on the loan may be freely remitted from South Africa.

Without these approvals in place, it would be extremely difficult to repatriate any investment.

Author: Shelley Mackay-Davidson

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Endorsement of non-resident share certificates

Endorsement

Introduction

The Exchange Control Regulations of 1961 (“Regulations”) were promulgated in terms of the Currencies and Exchanges Act, 9 of 1933. This is to regulate the flow of funds into South Africa from external or foreign sources. As well as the outflow of funds from South African residents in South Africa to non-South African residents. In terms of the Regulations, natural and juristic persons acquiring ownership of shares in South African companies must obtain a ‘non-resident’ endorsement on their share certificates.

Submission for non-resident endorsement

The Regulations provide that within 30 days of a natural or juristic person purchasing or subscribing for shares in a South African company. Their share certificates must be submitted to an authorised dealer, along with the following information:

  • the name and country of residence of the foreign acquirer, together with a declaration of non-residency;
  • the name of the South African company in which the shares are being acquired;
  • the total number of shares being acquired; and
  • the name and residential address of the person in possession of the shares.

Once the authorised dealer has satisfied itself with its assessment of the submission, it will affix a ‘non-resident’ stamp to the relevant share certificate.

Consequences of non-compliance

The ‘non-resident’ endorsement is more of a formality than an ‘application’. However, failure to obtain this endorsement will mean that the non-resident shareholder will not be entitled to repatriate any sale proceeds or dividends (or other distributions) is in respect of the South African company until it has successfully been granted condonation from the South African Reserve Bank.

Author: Candice Dayton

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Are Loop Structures “Still A Thing”?

Loop Structures

For years, many of our South African clients raising capital have struggled to attract investment from offshore.  It is a familiar story. Investors are willing to bet on South African companies. However, they would prefer to do it via an offshore holding company. This would typically be in an investment friendly jurisdiction with which they are familiar. Importantly, the jurisdiction of choice typically has a more favorable regulatory and tax regime than South Africa. For example, R&D tax credits. However, these structures have not been allowed thanks to the South African Reserve Bank’s infamous loop structure prohibition.

What is a Loop Structure?

A loop structure can be summarized as a structure where a South African has an interest in a foreign structure, and that foreign structure in turn (directly or indirectly) owns assets in South Africa.

Since 2018, South African exchange control has only permitted South Africans to hold no more than 40 per cent equity in a foreign structure which in turn has investments in South Africa. Previously, the permitted equity percentage threshold was even lower.

There is an exception to the loop structure restrictions. Unlisted South African technology, media, telecommunications, exploration and other R&D companies are allowed to establish an offshore company to raise foreign funding. Crucially, however, the established offshore company still has to be a tax resident of South Africa. The tax implications meant that this exception had little to no effect practically speaking. Our clients continue to implement complex, clunky (and expensive) alternative structures in order to establish an offshore presence, without falling foul of the Exchange Control Regulations.

Removal of Loop Structures

However, in October 2020, there was good news. The October medium term budget speech announced the “removal” of loop structure restrictions.

National Treasury stated that:

“the full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa, subject to reporting to Financial Surveillance Department of the South African Reserve Bank (FinSurv) as and when the transaction is finalized. This reform will be effective from 1 January 2021, provided that the entity is a tax resident in South Africa.”  

Tax residency is accordingly still a requirement for any company wishing to set up a loop structure. Once again, we cannot realistically see any of our clients embracing this new exemption with any gusto.  

No circulars have yet been issued amending our Exchange Control Manuals to make this “removal” of loop structure prohibitions effective. As at the date of writing, the loop structure restrictions are alive and well in the existing manuals. Hopefully publication of these amendments is imminent.

However, with the tax residency disclaimer in place, this “liberalization” may turn out to be a damp squib.

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Juliette Thirsk
Author: Juliette Thirsk