Is Forex trading legal in South Africa?
With a growing number of successful Forex traders in South Africa, more and more people are considering to get into the business of trading for a living.
However, unlike the running of a traditional business where the proper licenses and certifications are generally well known, many people are still unsure of the legality of retail Forex trading.
When it comes to conducting financial transactions in South Africa - especially when it involves the regular exchange of foreign currencies - the wise and prudent thing to do is to first find out the government's stance on the matter.
After all, you don't want to spend years learning the trade and finally making a living from it, only to have the government crack down on you soon after.
In court, ignorance of the law is not a valid defence. So with all matters regarding business and self-employment, it pays to be aware of the legality of your actions.
So... is retail Forex trading actually legal in South Africa?
The short answer is yes.
However, this is subject to a few limitations that you'll need to be aware of.
To understand these limitations, we'll first have to find out why there are laws restricting currency flows in and out of the country.
Why South Africa restricts currency flows
Like all small countries with a local currency, South Africa is susceptible to large swings in the value of the Rand (ZAR) when there’s a large and sudden buying or selling of the currency.
This is will negatively impact South African businesses, and at extreme levels may even crash the economy.
On the other hand, increased import and export business activity benefits the economy, and some level of currency exchange is necessary to support it.
So the job of the South African government is basically to limit negative speculative currency flows while encouraging positive investment and trade currency flows.
Foreign Exchange restrictions in South Africa
First of all, it’s important that you don’t confuse transporting physical currency across South African borders, with Forex trading for investment purposes.
The former has to do with customs law, and is governed by the South African Revenue Service (SARS), while the latter is governed by the South African Reserve Bank (SARB).
SARB exchange control manual section 2.2.2 states that:
“Residents (natural persons) who are 18 year and older may be permitted to avail of a single discretionary allowance within an overall limit of R1 million per individual per calendar year, without the requirement to obtain a Tax Clearance Certificate, which may be used for any legal purpose abroad (including for investment purposes).”
So basically, you can fund an overseas Forex trading brokerage account of up to R1 million per year without having to file any paper work with the government.
If you want to fund an account of more than R1 million, then you’ll need to obtain a Tax Clearance Certificate to do so. This method allows you to invest up to R10 million in an offshore trading account.
If you want to transfer more than R10 million offshore, you’ll need to submit an application to the Financial Surveillance Department of the SARB together with your Tax Clearance Certificate.
Note that these restrictions are only valid for overseas trading accounts. If you’re trading with a regulated South African broker, these limitations are not relevant.
Choose your Forex broker carefully
For most Forex retail traders in South Africa, the best option is go with an overseas broker that’s regulated in a strict financial jurisdiction like the U.S., U.K., Australia or Singapore.
The brokers operating in these countries are structured in ways that make “running away with your money” or carrying out fraudulent practices very, very difficult.
Also, as much as possible, go with a broker with a capitalisation of at least 20 million USD, and that has been in operation for at least 10 years.
There are no downsides to trading with an established Forex broker, so always go with one that has been around for a long time.
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