Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship?
Or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in South Africa?
South Africa has significant exchange control regulations in place that restrict and require approvals for payments in international licensing relationships.
The exchange control regulations of the South Africa Reserve Bank (SARB) are applicable are Regulations 10(1)(c) and 10(4).
Regulation 10(1)(c) prohibits ‘[entry] into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic’ without ‘permission granted by Treasury in accordance with such conditions as the Treasury may impose’.
Regulation 10(4), stipulates for purposes of 10(1)(c) that: ‘capital’ shall include without derogating from the generality of that term, any IP right, whether registered or unregistered; and ‘exported from the Republic’ shall include, without derogating from the generality of that term, the cession of, the creation of a hypothec or other form of security over, or the assignment or transfer of any IP right, to in favour of a person who is not resident in the Republic.
An application for approval is made by the South African entity through an authorised dealer in foreign currency, which is usually the entity’s commercial bankers. Exchange control approvals are invariably granted on the basis that: the consideration payable represents a price payable between notional arm’s-length parties; and that it is fair and reasonable in all the circumstances; and further, invariably, is supported by that an auditor’s confirmation that the proposed price meets these requirements.
Typically, where the IP right in issue has been commercialised or commercialisation is imminent, exchange control requires an appropriately motivated valuation substantiating the price to be furnished.
Are there any restrictions on transfer and remittance of currency in South Africa? Are there are any associated regulatory reporting requirements?
The SARB has placed several restrictions on capital flows to and from South Africa. The restrictions are regulated in terms to the SARB exchange control regulations. The authorisation of some payments where the parties are unrelated, the payment is for fair value (as supported by an auditor’s letter) and is part of an arm’s-length transaction may be authorised by commercial banks.
For more information, contact:
Head: Commercial Department
Tel+27 11 324 3025