Why exchange control reaches your software deal
Most founders meet exchange control for the first time when a foreign investor asks them to flip the company under a Delaware or UK holdco — and a lawyer tells them the IP cannot simply follow. The reason is Regulation 10(1)(c): no person may enter into a transaction whereby capital, or any right to capital, is directly or indirectly exported from South Africa without approval. Regulation 10(4)(b) then expressly deems intellectual property to be capital — patents, trade marks, copyright (which includes your source code), designs and unregistered rights like know-how all count.
The result: an assignment, cession or grant of security over SA-owned IP in favour of a non-resident is a deemed export of capital and requires prior approval, applied for through an authorised dealer to the SARB’s Financial Surveillance Department. This catches far more than holdco flips: acquisitions of SA tech companies by foreign buyers, group reorganisations that consolidate IP in an offshore IP-holding entity, and security packages for offshore venture debt all trigger the same rule.
Licensing is different — a licence leaves ownership in South Africa — but it is not outside the framework. Royalty flows in both directions move through the authorised dealers under Financial Surveillance rules, and a licence drafted widely enough can be treated as if it were a transfer. The classification of your deal, before anything is signed, is the whole game.
Licensing vs assigning — very different excon treatment
The same commercial outcome — a foreign party using your software — can be structured as a licence or a transfer, and exchange control treats the two completely differently. Note that this table answers the permission question only; the tax on cross-border royalties is a separate analysis covered in our withholding tax guide.
| Transaction | Excon classification | What is required |
|---|---|---|
| Assigning, ceding or granting security over IP to a non-resident | Capital export — Regulation 10(1)(c) read with 10(4)(b) | Prior approval before signing, applied for through an authorised dealer to the SARB Financial Surveillance Department. |
| Outbound licence — royalties flowing INTO South Africa | Current-account inflow | No prior SARB approval. Your bank (the authorised dealer) processes and reports the receipts; the IP stays SA-owned. |
| Inbound licence — SA company paying royalties OUT to a non-resident | Current-account outflow under the November 2024 framework | Related-party royalties: transfer-pricing compliance confirmation (see the relaxation below). Manufacturing royalties: separate DTIC approval. Offset or non-standard settlement: SARB approval. |
The practical takeaway: if you are the SA owner licensing out and collecting royalties, your bank handles the inflows and no approval is needed. If you are moving ownership — or anything that functions like ownership — offshore, you need permission first. And if you are the SA company paying royalties out, the November 2024 framework below governs.
The November 2024 relaxation (Exchange Control Circular 13/2024)
For years, an SA company paying royalties to a related offshore party — typically its own foreign parent — needed prior Financial Surveillance Department approval for the licence agreement. Under the revised framework set out in Exchange Control Circular 13/2024, that changed: standard cross-border royalty payments to related non-resident parties no longer require prior FinSurv approval, provided the arrangement is transfer-pricing compliant. Senior management must confirm that the company holds SARS-compliant transfer-pricing documentation and that the royalty rates are arm’s length, and the authorised dealer processes the payments on that basis.
Two carve-outs survive the relaxation. Royalties tied to a process of manufacture still require separate approval from the Department of Trade, Industry and Competition. And offset arrangements or other non-standard settlement structures — netting royalties against other intra-group balances, settling in kind, or anything that does not look like a plain payment for a plain licence — still need SARB approval.
Treat this as the current framework rather than a permanent state of affairs: exchange-control rulings and circulars change, and the conditions are applied to the facts of each arrangement. A specific transaction should be confirmed with your authorised dealer or with the firm before payments begin. And note what the relaxation did not touch — transfers of IP ownership offshore still require prior approval exactly as before.
The six structures that trip SA tech companies
The founder flip without approval
SA founders incorporate a Delaware or UK holdco at a US investor's insistence and "move" the IP up the new structure. That assignment to a non-resident is a capital export — doing it without prior approval contaminates the whole structure, and it surfaces in the next funding round's due diligence.
IP "drift" to offshore affiliates
No one signs an assignment, but offshore group companies accrete rights informally — developers employed by the foreign affiliate commit improvements, the offshore entity registers marks or files patents, customer contracts name the wrong owner. Substance accumulates offshore without anyone applying for approval.
The perpetual, exclusive, worldwide licence
A licence so wide that nothing of commercial value remains in SA — perpetual, exclusive, irrevocable, worldwide, royalty-free — functions as a disguised assignment. The label "licence" does not immunise it; the question is whether value has in substance been exported.
Royalty-free licences to offshore parents
Letting a foreign parent or affiliate use SA-owned IP for nothing exports value without consideration. Transfer pricing and exchange control both bite: SARS expects an arm's-length royalty, and the excon framework's related-party relaxation is conditional on exactly that.
Security over IP to foreign lenders
Venture-debt and offshore facility agreements routinely take a cession in securitatem debiti over the borrower's IP. A cession or pledge of IP to a non-resident sits in the same Regulation 10 net as an outright assignment — it needs approval before the security is granted.
M&A where the buyer assumes the IP "just transfers"
Foreign acquirers of SA tech companies often assume the SA-held IP simply moves to the buyer or its IP holdco at closing. It does not — the transfer needs approval, which should be a condition precedent with realistic timing built into the transaction timetable.
Penalties and unwinding
A transfer made in contravention of the Regulations is at risk of being void, and contraventions attract penalties under the Regulations. That risk does not stay theoretical: it surfaces in due diligence, where a foreign investor’s or buyer’s lawyers ask for the approval that should sit behind the IP chain — and a gap in the chain becomes a pricing issue, an indemnity demand, or a deal-breaker.
Retroactive approval can be sought, but it is discretionary — there is no right to have an unlawful transfer regularised after the fact, and the negotiating position is far weaker once the value has already moved. The inexpensive version of this problem is the one solved before signing: classify the transaction, obtain the approval, and build it into the documents as a condition precedent with realistic timing.
Exchange-control rulings change and applications are fact-specific — confirm the current position for your transaction before signing.
Frequently asked
Do I need SARB approval to license my software overseas?
For outbound licences where the royalties flow into South Africa: generally no. Royalty inflows are current-account receipts processed by your commercial bank as authorised dealer — you invoice, the bank reports the receipt, the IP stays SA-owned. The caution: a licence drafted so widely that nothing remains in SA — perpetual, exclusive, worldwide, especially if royalty-free or for a lump sum — can be treated as a disguised assignment, which is a capital export needing prior approval.
Do I need approval to assign my IP to my foreign holdco?
Yes. Assigning or ceding IP — registered or unregistered, including software source code and know-how — to a non-resident is a deemed export of capital under Regulation 10(1)(c) read with 10(4)(b), and requires prior approval through an authorised dealer to the SARB Financial Surveillance Department. This is the single most common excon issue in SA tech: the investor-driven "flip" to a foreign holdco cannot lawfully include the IP without approval.
Is unregistered IP like source code and know-how really caught?
Yes. The Regulations' deeming provision covers intellectual property whether registered or unregistered. Source code, proprietary algorithms, datasets, trade secrets and know-how are all capable of being "exported" by assignment or cession to a non-resident, even though there is no register recording the transfer. That is precisely why IP drift to offshore affiliates is dangerous — value moves without any registrable event.
What changed in November 2024?
Under the revised framework in Exchange Control Circular 13/2024, standard cross-border royalty payments to related non-resident parties no longer require prior Financial Surveillance Department approval, provided the arrangement is transfer-pricing compliant — senior management must confirm SARS-compliant transfer-pricing documentation and arm's-length rates. Two carve-outs survive: royalties tied to a process of manufacture still require separate DTIC approval, and offset or other non-standard settlement arrangements still need SARB approval. Excon rulings change — confirm the current position for your specific payment with your authorised dealer or the firm.
Does exchange control apply to SaaS subscription fees paid offshore?
Paying a foreign SaaS provider's subscription fees is an ordinary current-account payment for services, processed by your bank in the normal course — it is not the royalty analysis, and it is not a capital export. The classification matters because the tax treatment also diverges: whether a cross-border software payment is a royalty or a service fee drives withholding tax as well. The two analyses should be run together before the contract is signed.
What happens if we transferred IP without approval?
A transfer in contravention of the Regulations is at risk of being void, and contraventions attract penalties under the Regulations. Retroactive approval can be applied for, but it is discretionary — there is no entitlement to have an unlawful transfer regularised, and the application is harder to make after a funding round or sale has priced the structure. The practical rule: plan the approval before signing, not after the due diligence finds the gap.
How does exchange control interact with withholding tax on royalties?
They are separate regimes answering different questions. Exchange control is about permission to move value across the border — whether the transfer or payment may happen at all. Withholding tax is about the tax levied on royalty payments to non-residents once they do happen. A payment can clear excon and still attract 15% royalties withholding tax (or a reduced treaty rate), and vice versa. See our guide on withholding tax on international software payments for the tax half of the analysis.
What does a transaction-structuring opinion cost?
From R12,500 for a transaction-structuring opinion covering the exchange-control classification of your deal — assignment versus licence, the approval pathway, and how to sequence the excon condition into the transaction documents. Where an application to the Financial Surveillance Department is needed, the application work is quoted separately based on the transaction's complexity.