SA startups catch a tax break as Reserve Bank allows for offshore IP transfer

The South African Reserve Bank (SARB) has relaxed regulations for private companies in the country, which now makes it possible to transfer intellectual property (IP) offshore, reports TechCentral.

According to ENS Africa IP director Chris Bull, restrictions on intellectual property assets has been one of the key obstacles for local businesses to tap into the international venture capital market.

For private companies operating in technology, media, telecommunications, exploration and research and development sectors, it’s now possible to seek approval for a primary listing offshore and to raise capital outside the country on the back of their IP assets.

Raising capital outside of the country is a lot less restricted since business owners can now choose to keep company assets where taxation is more flexible.

A month shy of a year ago, South African billionaire and founder of Ubuntu, Mark Shuttleworth, opened a case against the SARB, declaring the country’s exchange control system unconstitutional. He argued that the South African tax system made it impossible for him to run his entrepreneurial ventures and eventually forced him to move most of his assets out of the country.

TechCentral reports that while these recent relaxations are a step in the right direction, companies still need to comply with strict criteria to take advantage of this. There are companies that already hold their their intellectual property offshore but have been regarded as special cases.

It is nonetheless interesting that the Reserve Bank has decided to make the allowance now, especially given that it claimed that Shuttleworth’s attempt to reclaim some R250-million (US$24.5-million) from the bank and have its system of exchange controls declared unconstitutional could ruin the country’s economy.

At the time, the bank’s legal representative Jeremy Gauntlett went so far as to call Shuttleworth a “financial refugee” who had no place commenting on the country’s exchange control system.

It’s clear however that something has sparked a change, however minor, in the bank’s thinking. It remains to be seen exactly how much of an effect the change ends up having on startups.