Transferring intellectual property offshore might appear the obvious route to take your business global and secure funding from interested investors. But can you?
South African legal position: Transferring intellectual property offshore
The South African Currency and Exchanges Act prohibits anyone entering into an agreement which, directly or indirectly, results in the ‘exportation of capital or any right to capital’ from South Africa, without permission from the South African Reserve Bank (SARB). The Act defines ‘capital’ as including ‘any intellectual property right (whether registered or unregistered)’. ‘Exported’ is broadly defined to include ‘the cession of, the creation of a hypothetic or other form of security over, or the assignment or transfer of any intellectual property right, to or in favour of a person who is not resident in [South Africa]’.
In 2017, the National Treasury made amendments to the Currency and Exchanges Manual for Authorised Dealers which changed the authorising body who can grant permission from SARB to any Authorised Dealer.
If you are considering assigning and transferring intellectual property offshore as a means to expand your business globally or secure overseas investment, you will need an Authorised Dealer’s approval. You will also need approval where overseas investors take security over your intellectual property for purposes of securing their investment.
Is an exclusive licence a transfer?
But what if you grant an exclusive licence to a potential overseas partner to use and exploit your intellectual property offshore? Does this constitute transferring intellectual property offshore? Licensing intellectual property is not specifically included in the definition of ‘exported’. Does this mean you can do so without approval or permission? The issue of licensing has been addressed in the amendment to the Currency and Exchanges Manual, which now allows the approval by Authorised Dealers to license intellectual property to a non-South African resident.
Arguably a non-exclusive licence, which does not restrict to how many people you licence your intellectual property, is not a ‘transfer’ of intellectual property offshore and so should not require approval. An exclusive licence, however, prevents you from using your intellectual property or licensing it to anyone other than the exclusive licensee. This type of licence could be regarded as a ‘transfer’ of ownership of your intellectual property. If granted to a non-resident, it will require approval.
The SARB’s position regarding licensing intellectual property offshore is currently unclear. Until there is clarity and specific guidance on this point, it is prudent to get approval if you intend granting a licence (of whatever kind) to a non-resident to use and exploit your intellectual property offshore.
BUT: there is a small silver lining …
Realising the need to attract foreign investment to South Africa, the SARB has ‘relaxed’ the exchange control regulations somewhat. If you operate in the technology, media, telecommunications, exploration or research and development sectors, transferring intellectual property offshore is permissible where required to “raise foreign loans and capital for [your] operations’ (subject still to approval).
Take note: you will need to satisfy the Authorised Dealer that:
- you are not a listed company;
- you operate in the technology, media, telecommunications, exploration or research and development sector;
- your company is tax resident in South Africa;
- your company is incorporated in and will be effectively managed and controlled from South Africa. This means your board of directors must meet, and all the key decisions regarding your company’s affairs and operations must be taken and implemented, in South Africa;
- the intellectual property assigned must remain registered in South Africa.
How can we help?
- Advise on appropriate protection and registration of your intellectual property
- Advise on South African exchange control regulations
- Apply for and obtain, where necessary, an Authorised Dealer’s approval for transferring intellectual property offshore
- Draft appropriate intellectual property assignment, licensing or other relevant agreements with offshore partners
- Advise on and draft appropriate management and control protocols and guidelines
If you are interested, please complete the form on the right or enquire now. We will contact you to find out more about your requirements and give you a quote.