Exchange control implications on business arrangements

According to the RBZ Foreign Investment and Trade Framework (framework) investors can invest through Zimbabwe Investment Development Agency (for greenfield projects), the Zimbabwe Stock Exchange for listed companies or the RBZ Exchange Control (for other investments and loans). According to the framework investors will be able to repatriate dividends, net of taxes, as well as their capital in the event of disinvesting.

This article is further to my previous ones titled “Overview of Exchange Control Regulations”, “Key Exchange Control Regulations on Exports”, “Key Exchange Control Regulations on Imports” and “Implications of Exchange Control Regulations on Investments, loan”.

Exchange Control

According to various sources foreign exchange controls are measures or controls imposed by Governments on the purchase or sale of foreign currencies by residents or locals, on the purchase or sale of local currency by non-residents or the transfer of any currencies across national borders. These controls are meant to control inflows and outflows of currency to avoid exchange rate volatility. Most exchange controls are enforced through central banks and in our case the Reserve Bank of Zimbabwe (RBZ).

To understand exchange control regulations in Zimbabwe kindly refer to my previous article referred to above.

Effect of exchange control regulations on business

Exchange control policies and procedures of a country impact on the following areas which may be key to a business:

Exports

Imports

Investments

Loans

Considering exchange control regulations in business arrangements

Exchange control regulations usually impact business arrangements or deals. Entrepreneurs, bankers, business advisors, legal advisors and executives should familiarise with exchange control regulations that may impact their businesses. Some of the implications are explained below.

Exports

Many businesses in Zimbabwe wish to earn foreign currency for various reasons. These include having own foreign currency to use for future foreign payments or need to earn revenue in more stable currencies. At times the nature of the business is such that its markets are foreign, for example mining and some agricultural produce.

A lot of exporters are interested in especially the foreign currency surrender requirements and retention policy. Surrender requirement refers to the portion of export earnings that is required by law to be liquidated for local currency. According to the RBZ Exchange Control Circular No.1 of 2021 (circular) the current surrender requirement is 40 percent and is liquidated at the foreign currency auction rate of the day. If the surrender requirements, in this case 40percent, is liquidated at an exchange rate considered unviable this may erode overall revenue of a business and consequently the viability of the exporting company.

They may even encourage smuggling of local goods to foreign markets. The surrender requirement is reviewed from time to time.

The retention period, being the period an exporter can maintain foreign currency earnings in a local foreign currency account (FCA), is reviewed from time to time. According to the circular currently there is no limit on the retention period.

Exporters are required to receive payment and acquit CD1 forms within 90 days of export.

Imports

Businesses that import have many factors to consider including the following:

Whether an import permit is required. A Government may restrict imports to protect local industries or conserve scarce foreign currency. For example the Government of Zimbabwe, for justifiable reasons, recently banned the importation of maize and maize meal following the recent bumper harvest.

Even where import permits may not be required Exchange Control may simply restrict or outlaw certain payments.

How easy it will be to secure foreign currency on the foreign currency auction market. According to the RBZ Directive RV175/2020 foreign payments are grouped into Category One and Two, the former receiving priority.

Advance foreign payments have to be acquitted within three months using the Bill of Entry. Importers should familiarise with acquittal requirements including recourse in the event of difficulties in acquitting advance foreign payments as well as penalties for non-compliance.

Investments

Most foreign investors are interested in knowing where to invest and procedures to be followed in investing in the country. They also wish to know if they will be able to repatriate dividends or their capital in the event of disinvesting.

According to the RBZ Foreign Investment and Trade Framework (framework) investors can invest through Zimbabwe Investment Development Agency (for greenfield projects), the Zimbabwe Stock Exchange for listed companies or the RBZ Exchange Control (for other investments and loans). According to the framework investors will be able to repatriate dividends, net of taxes, as well as their capital in the event of disinvesting.

Local companies may wish to know which foreign or offshore investments are permissible. Further, they may also want to know exchange control obligations if they have business arrangements such as foreign marketers, head office, branches or if they can receive and retain offshore payments from the diaspora, etc.

Loans

Providers of debt finance wish to know the policies and procedures on loans into the country and if interest and repayments will easily flow. According to the framework such financiers will be able to receive their interest earnings, net of taxes, and loan repayments. Obviously, these are subject to foreign currency availability.

Conclusion

Exchange Control regulations have a significant bearing on businesses through exports, imports, investments and loans. They should be as practical as possible and also balancing the needs of Government, business and the general populace.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice. Laws on exchange controls change frequently. To be compliant organisations and individuals are advised to consult adequately and seek prior exchange control approvals where necessary. Violations can result in penalties, some which can have far reaching implications.-herald.cz.