SARB Proposes Removal of Interest Rate Caps on Inward Foreign Loans

The South African Reserve Bank has released a draft circular under Exchange Control Circular No. 3/2026 proposing the removal of the prescribed exchange control interest rate thresholds applicable to inward foreign loans and foreign trade finance facilities obtained by South African residents from non-residents. In place of those thresholds, Authorised Dealers would be able to approve these facilities provided the interest rate is market related and/or normal in the trade concerned. The proposal gives effect to the 2026 Budget announcement aimed at easing administrative constraints on inbound funding, while leaving the broader exchange control framework in place.

From a tax perspective, the draft does not change the position for related-party cross-border debt. It specifically provides that, where transactions involve connected persons, Authorised Dealers must refer to SARS Interpretation Note 127 dated 17 January 2023, which sets out the transfer pricing and interest limitation rules applicable to intra-group loans. The removal of prescribed exchange control interest rate thresholds should therefore not be interpreted as altering the existing tax treatment of related-party funding

Affected parties should use the draft period to review both pricing support and reporting readiness. In particular, borrowers, lenders and Authorised Dealers should ensure that inbound loan pricing is appropriately supportable, that related-party funding is reviewed with reference to Interpretation Note 127, and that Loan Reporting System processes are accurate and up to date, including the reporting of drawdowns, repayments and any required change requests involving Non-resident Rand accounts.