The Exchange Control Regulations, 1961 (promulgated under the Currency and Exchanges Act, 1933) (the “Regulations”) impact on how businesses can manage and exploit their intellectual property (IP). This matters because IP provides the legal platform through which research, innovation and technology is incentivised, protected and commercialised. In today’s brand-conscious, technology-driven and knowledge-sharing economy, IP is an important value-driver and source of competitive advantage for almost all businesses.
Prior to the recent amendments, the regulations mandated that prior approval from the South African Reserve Bank (SARB) be obtained for at the least the following:
In practice, the regulations are triggered for any sales, joint ventures, technology transfers, outsourcing, development, service arrangements or other transactions which involve outward IP transfers and payments of royalties.
The penalties are potentially severe for non-compliance, which is a criminal offence. Convicted persons could face imprisonment for up to five years and/or a substantial fine.
The IP restrictions imposed by the regulations have been widely criticised as having several unintended negative consequences.
In response to growing concerns, National Treasury proposed, as part of the 2017 Budget Review, that “standard” IP transactions no longer require SARB approval.
On 1 March 2017, the SARB partially implemented this proposal by issuing amendments to the Currency and Exchanges Manual for Authorised Dealers to provide that:
These changes are welcomed. The revised dispensation may provide some relief if authorised dealers are able to process applications more expeditiously. However, some “red-tape” remains: exchange control approval is still required, albeit in a different form for some transactions. The revised dispensation also does not solve the core concerns of companies wishing to transact with their IP intragroup. While constructive steps have been taken by the regulators, the regulations still present problems and barriers for the start-up, technology, research-intensive and IP-rich sectors in South Africa.
Contact Aalia Manie, Webber Wentzel, 011 021 4317-378, firstname.lastname@example.org