Regulatory Framework for Foreign Exchange Transactions

International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2015
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This section surveys the measures reported by members with respect to the regulatory framework for foreign exchange transactions from January 2014 through July 2015. The measures are divided into five major categories: trade-related measures, current invisible transactions and transfers, account transactions, capital controls, and provisions specific to commercial banks and institutional investors.

Trade-Related Measures

Unlike for other categories, but continuing the trend observed in the last year, members reported notably more restrictive trade-related measures from January 2014 through July 2015. The total number of changes in exchange and trade controls on imports and exports amounted to 223—a significant increase from the last year—of which 83 were easing, 103 were tightening, and 37 were neutral.

Imports and import payments

Countries reported about the same number of tightening measures (59) and easing measures (54) related to import transactions and import payments, along with 28 neutral changes. The majority of the total 141 reported measures in this category are related to trade regulations, such as changes in quotas, tariffs, and licensing of imports of certain goods and services. Many of the tightening measures took the form of limits on imports of certain goods or imports from certain countries, likely aiming at supporting domestic industry policies or introduced for national security purposes. Some members enacted free trade agreements or bilateral partnership agreements and lowered various tariffs.

A few countries reported changes involving payments for imports, in particular, tightening of rules on advance payments. The measures that aimed at reducing capital flight through such payments include lowering or introducing a limit on the amount of advance payment for imports (Morocco, Ukraine, Zimbabwe) and a verification requirement by the central bank to make advance payments for import contracts (Ukraine). Morocco later reversed some of the limits on advance payments. Conditions for advance payments were liberalized in some countries. For example, Bangladesh raised the minimum for advance payments that require a repayment guarantee. South Africa eased a document verification requirement to monitor the use of foreign exchange purchased for certain advance payments for imports.

Exports and export proceeds

More than half of the 83 reported changes tighten regulations on export transactions or export proceeds (44 measures), while some countries reported easing changes (30) and measures that are considered neutral (9). Similar to import transactions, many reported changes include sanctions against specific countries or prohibition of exports of certain goods (such as defense-related products). Some countries liberalized exports of certain goods by increasing the export quota, reducing the export tax, or removing the export licensing requirement.

About a third of the reported measures in this category pertain to repatriation and surrender requirements on export proceeds, and more than half of them were changes toward tightening. In particular, surrender requirements were introduced or tightened in Angola, Belarus, Ghana, Madagascar, Ukraine, Uzbekistan, and Venezuela, although some of the measures were later eased or reversed (in Belarus, Ghana, and Ukraine). Surrender requirements are typically tightened during balance of payments difficulties, when the exchange rate comes under pressure because of imbalances in the foreign exchange market. As for repatriation requirements, tightening measures include shortening of the time period for repatriation in India and Madagascar and expansion of the scope of application in the Democratic Republic of the Congo.

There were a few measures toward liberalization. For example, Sudan eased the surrender requirement by allowing exporters to retain export proceeds for their import operations or to sell them to other importers. Similarly, Bangladesh and Malawi lowered the share of export proceeds subject to the surrender requirement. Repatriation requirements were eased by lengthening the time period for repatriation in Korea and Sudan and by expanding the exemptions in Morocco.

Current Invisible Transactions and Current Transfers

This section discusses nontrade payments and transfers that are included in the current account of the balance of payments. This category includes income from investment (for example, profits, dividends, interest); payments for travel, education, and medical expenses and subscription and membership fees; and unrequited transfers (for example, remittance of nonresidents’ salaries and wages).

The recent liberalization trend continues in this category. During the reporting period, there were 99 reported measures, of which 63 were easing, 34 were tightening, and 2 were neutral. Most of the measures pertain to regulations on payments (84); a limited number of reported measures concern proceeds from invisible transactions (15).

Payments for current invisibles and current transfers

The liberalization trend was driven by several members. In particular, Bangladesh, Cyprus, India, South Africa, and Sri Lanka moved forward with liberalization in this area with multiple easing measures. Quantitative limits on transfers abroad were raised in several countries, including the limits for business and personal travel allowances (Bangladesh, Morocco, Sri Lanka); personal remittances (Fiji); transfer of profits and dividends to nonresident shareholders by a company (Fiji); credit card payments by businesses (South Africa); and all permitted current or capital account transactions by individuals (India). Cyprus lifted the quantitative limits on external transfers by individuals and legal entities without supporting documents in several steps. Albania and Zambia eliminated the requirement to submit a tax clearance certificate for certain current transactions

More than 70 percent of the tightening measures were implemented in Ukraine in a bid to prevent further deterioration of macroeconomic stability in the face of strong and persistent foreign exchange outflows and complement other controls on capital transactions. The measures took various forms, including daily and monthly limits on individuals’ non-trade-related international transfers, daily limits on individuals’ foreign currency cash purchases, limits on withdrawals from foreign exchange accounts, tighter document verification by the central bank for external payments, a prohibition of transfers of dividend income and proceeds from the sale of securities, and proof of payment of tax obligation requirements before purchases or transfers of foreign exchange under import contracts.

Proceeds from current invisibles and current transfers

Of the limited number of reported changes (15), about half were implemented by Ukraine. Most of the measures were related to the repeated renewal of surrender and repatriation requirements. The remaining measures reported in this category by the other members were related mainly to easing of repatriation or surrender requirements, which are described in the previous section.

Account Transactions

The changes in regulations for resident and nonresident account transactions were predominantly in the direction of liberalization. Members reported 108 changes in total for resident and nonresident account transactions, of which 79 are easing measures, 25 are tightening measures, and 4 are neutral measures. If changes by Cyprus, which lifted many restrictions in several steps, are excluded, there were 35 easing, 25 tightening, and 4 neutral changes. Liberalization of transactions took place in many countries (20), while tightening measures were introduced in a handful of countries (5) in response to balance of payments difficulties or for national security reasons.

Many countries allowed their residents more access to foreign currency accounts or convertible domestic currency accounts. For example, Bangladesh allowed the shipping industry to open foreign currency accounts. Morocco enhanced the convertibility of domestic currency accounts for individuals for travel purposes. Serbia allowed residents to maintain foreign exchange in accounts abroad for settling tax and other liabilities to a foreign state. Vietnam allowed opening foreign currency accounts abroad by state agencies and political organizations or funds operating in Vietnam. It also permitted resident foreign individuals to have convertible domestic currency accounts. Venezuela allowed microfinance banks to open accounts in foreign currency. Zimbabwe, which has a multicurrency system, expanded the allowable set of foreign currencies for individuals’ and firms’ foreign exchange accounts.

Some countries reported easing of controls on the use of foreign currency accounts. In many cases, the liberalization applies to both resident and nonresident accounts. For example, the Democratic Republic of the Congo allowed overseas transfers from foreign exchange accounts with supporting documentation. India raised the yearly ceiling on transfers by individuals for permitted current or capital account transactions. Sierra Leone allowed over-the-counter foreign currency banknote withdrawals from foreign currency accounts up to a ceiling. Swaziland raised the limit on foreign currency deposits by individuals for investment purposes.

A handful of countries implemented numerous changes in their regulations for resident and nonresident account transactions. Most tightening changes were reported by these countries, except for blocking of certain nonresident individuals’ accounts, reported by Norway and the United States for security reasons.

Cyprus eliminated restrictions on the maintenance of resident and nonresident accounts, and all balances became freely transferable by April 2015. Restrictive measures were first introduced in March 2013 in response to the financial crisis and were subsequently gradually liberalized. In 2014–15, Cyprus reported 34 easing measures related to resident and nonresident accounts. In particular, in February 2014, restrictions on transfers from fixed-term deposits to sight and current accounts on maturity were removed. The limits on noncash payments or transfers of deposits and funds between accounts in credit institutions in Cyprus were increased in February and March 2014 and removed in May 2014. The authorities removed the ban on terminating fixed-term deposits before maturity, the daily limits on cash withdrawals from bank accounts, and the ban on cashing checks during March–May 2014. The ban on opening accounts for new customers was removed in June 2014, except in the case of accounts in foreign banks exempt from restrictive measures. This ban was removed in April 2015 as the last step in eliminating restrictions. Liberalization of limits on payments or transfers abroad started in December 2014, removing limits for normal business transactions on presentation of supporting documents in January 2015 and gradually raising and ultimately removing the ceilings on transfers by individuals and legal entities without supporting documents by April 2015.

With the purpose of curbing foreign exchange shortages and dollarization, Ghana imposed a requirement to create margin accounts for import bills and circumscribed the use of foreign exchange held in foreign currency accounts between February and August 2014. In February 2014, importers purchasing foreign exchange in advance for the settlement of import bills were required to place the foreign exchange in a margin account for up to 30 days; extension beyond 30 days is subject to bank approval with proper documentation. Cash withdrawals over the counter from foreign exchange accounts were banned, except for travel, and no checks or checkbooks could be issued for these accounts. External transfers from these accounts without documentation became subject to ceilings. Ghana reversed most of the new rules by August 2014, reporting 3 tightening and 5 easing changes in the end.

Ukraine is another country that tightened regulations for resident and nonresident account transactions in 2014 to curb deposit outflows, with 10 tightening and 5 easing changes reported for these categories. A daily limit was introduced for withdrawal from domestic currency accounts in March 2014 and from residents’ foreign exchange accounts in May 2014. The daily limit applicable to withdrawals from domestic currency accounts was raised in June 2015. External transfers by resident and nonresident individuals for non-trade-related purposes became subject to daily and monthly ceilings in May 2014, except for a brief period in August 2014. To ease pressure in the foreign exchange market, beginning in March 2015 foreign exchange account holders were required to use the foreign exchange in their accounts for payments and transfers abroad before purchasing additional foreign exchange from authorized dealers.

Capital Controls

IMF members continued to liberalize capital transactions amid uneven global recovery and volatile capital flows. After a strong first half of the year, capital flows to emerging market economies slowed in the second half of 2014. Softer inflows were driven by a number of factors, including shifts in market expectations of interest rate hikes in the United States, weaker growth in emerging markets, a stronger U.S. dollar, lower commodity prices (particularly oil), and geopolitical events. Emerging market economies’ responses have varied depending on their circumstances: favorable prospects and a resumption of inflows have led some to ease outflows; lower oil prices translated into lower inflation and have allowed some to ease monetary policy; and depreciation pressure has led some to intervene or impose controls on foreign exchange transactions.

Overall, the number of measures reported was greater than reported in the previous period. The trend of easing measures predominating both inflows and outflows continued. From January 2014 through July 2015, IMF members reported 289 measures compared with 251 during the previous period (January 2013 through July 2014).17 Of the total, 210 measures (about 72 percent) were directed toward easing capital flows, slightly higher than the previous reporting period (67 percent). Of the remaining measures, 57 (about 20 percent) were tightening measures, and the rest (about 8 percent) were considered neutral.

The measures included in this section are also considered to be capital flow management measures (CFMs) as defined by the IMF’s institutional view on the liberalization and management of capital flows.18 In addition to capital controls included in this section, prudential-type measures discussed in the next section may also be CFMs if they were designed to influence capital flows. However, the AREAER does not use this terminology because classifying a measure as a CFM requires substantial background information and considerable judgment, which is beyond the scope of the analysis conducted in building the AREAER database.

Repatriation and surrender requirements

A handful of countries adjusted repatriation and surrender requirements with respect to capital transactions. Two measures were directed at tightening outflows, while the remaining measures were directed at easing outflows. Ukraine took measures against the backdrop of a challenging geopolitical situation reflected in a volatile foreign exchange market. It doubled the surrender requirement on foreign direct investment, only to reverse it later by half the increase to 75 percent. It also removed the surrender requirement on foreign exchange transfers to resident individuals above a certain threshold after extending it in May 2014. Korea extended the repatriation requirement for proceeds from capital transactions in excess of a specified limit to three years from one and a half years. Malawi removed the requirement that 20 percent of receipts from nonresidents for capital transactions had to be converted to local currency. Vietnam eliminated the requirement that profits and earnings from portfolio investments had to be repatriated within a given time period.

Controls on capital and money market instruments

The total number of measures to adjust controls on capital and money market instruments dropped slightly (to 79) after more than doubling during the previous reporting period. Nevertheless, these were the most frequent measures reported, just as in the previous reporting period. Measures to ease (52) as opposed to tighten (21) controls on capital and money market instruments were aimed at easing outflows more than inflows, as during the previous period. This trend reflects the liberalization of emerging markets’ domestic financial and corporate sectors as both individuals and institutions were allowed to invest overseas under more liberalized conditions.

Measures to ease inflows included increased access to domestic securities markets and greater equity participation by foreigners. Brazil liberalized investments into the health care sector. China allowed renminbi funds raised abroad to be used for debt servicing and permitted certain investment funds to be marketed in Hong Kong SAR. Moldova and Qatar increased the limits on foreign ownership of investment firms and domestic listed companies, respectively. The Philippines expanded the scope of institutions that may provide custodial services to include nonbanks. South Africa permitted certain unlisted companies to list overseas or to raise foreign loans and capital. Sri Lanka took steps to attract inflows by easing conditions for foreign institutional investors to invest in corporate bonds in Sri Lanka, and reduced the minimum maturity of bonds issued to foreign investors by companies incorporated in Sri Lanka to one year from two years. In line with its commitments under the East African Community (EAC) Common Market Protocol, Tanzania took steps to liberalize capital flows from EAC countries, while keeping some limits to deter short-term flows and attract long-term flows. Accordingly, nonresidents from the EAC may hold government securities, subject to limits on the total amount and a minimum holding period. In addition, foreign investors were allowed to purchase securities, without limit, of a listed company or in a public offering. As net portfolio inflows slowed, Uruguay reduced the reserve requirement on nonresidents’ central bank securities (both peso and indexed units). Venezuela allowed nonresident individuals and legal entities to sell foreign exchange cash and securities in the domestic financial markets.

Only a handful of measures were undertaken to tighten inflows, including stricter reporting requirements and limits on acquiring sovereign bonds. Iraq strengthened documentary requirements for the transfer of funds abroad related to sales of securities or shares by nonresidents. Moldova tightened disclosure and reporting requirements—for example, when a public interest entity’s foreign shareholding reaches certain thresholds. Ukraine tightened conditions on investors seeking to acquire government bonds to prevent circumvention of capital outflow controls. Vietnam introduced requirements that inward portfolio investments be made through local currency accounts at a local bank.

The largest number of measures eased conditions for outflows as residents were given greater freedom to allocate portfolio investments abroad. Argentina permitted advance payment on premiums for financial debts using proceeds from issuances of bonds or other debt securities that are considered external issuances on the foreign exchange market. Belarus put in place detailed procedures that would permit nonresidents to issue securities in the domestic market. To facilitate the development of a broader range of investment alternatives in the local market Chile permitted certain foreign securities, including exchange-traded funds and shares, to be traded locally (in national currency). Cyprus gradually relaxed controls imposed on outward transfers (for example, the amount individuals and legal entities could transfer abroad without supporting documents and regardless of purpose was increased in increments) and ultimately removed all temporary controls. China took several measures to ease outflows as it sought to further internationalize the use of the renminbi. For instance, foreign nonfinancial enterprises were allowed to use renminbi raised through the issuance of renminbi-denominated debt instruments in the domestic market and abroad. Clearing banks abroad and nonresident participating banks were allowed to undertake repo business in the interbank bond market to fund offshore renminbi business. Limits on the composition of investment portfolios were eliminated for qualified domestic institutional investors’ overseas renminbi investments. Fiji delegated to authorized dealers approval of limited withdrawals of investment by nonresidents from sales of shares and assets, eliminating the need for central bank approval. Several countries relaxed the limit on domestic institutional investors’ investments in foreign or foreign-currency-denominated assets (China, Jamaica, Poland, Turkey). As part of its capital account liberalization strategy, Iceland removed the restriction on the payment of principal on bonds denominated in foreign currency issued by residents to nonresidents. Against the backdrop of improved growth prospects and strong investor confidence, which led to sizable capital inflows, India gradually raised the amount residents could remit abroad under the Liberalized Remittance Scheme and allowed alternative investment funds to invest in foreign venture capital enterprises, up to a limit. Other countries also relaxed restrictions on residents’ investments in foreign assets, either directly or through depository receipts (Moldova, Swaziland, Tanzania). Turkey eased regulations on investment services provided by foreign-based financial institutions to residents. Vietnam expanded the range of institutions that may undertake outward portfolio investment.

Tightening measures on outflows included measures to shore up reserves and ease pressure on the domestic exchange market. With the current account recording a deficit for the first time in 15 years owing to low oil prices and lower volume of hydrocarbon exports, Algeria tightened portfolio outflows: residents may not invest in debt and money market securities abroad, and purchases of shares must involve more than 10 percent of voting rights. Bolivia capped the amount insurance companies could invest abroad at 10 percent. Residents in Lao P.D.R. must have central bank approval in order to transfer funds or invest abroad. Lebanon introduced an approval requirement for the sale of a host of financial products by banks, financial institutions, financial intermediation companies, and collective investment plans. Turkey required approval of the prospectus or issue documents by the market regulator before the public offering or sale of foreign capital market instruments and depository receipts. In addition, it strengthened regulatory requirements for foreign mutual funds offered in Turkey. Vietnam introduced additional regulations on outward portfolio investments and transfer of original capital and profits from foreign portfolio investments. Ukraine took steps to tighten outflows to shore up a falling currency. It extended the ban on transferring proceeds from sales of securities to include securities traded on the stock exchange; introduced an approval requirement to transfer abroad funds related to debt securities sold on the stock exchange; prohibited the transfer of dividends and proceeds from securities not traded on the stock exchange; and prohibited the purchase of foreign exchange based on individual licenses.

Controls on derivatives and other instruments

There was a sharp increase in measures affecting such transactions (35 compared with 20 in the previous period). About half of the measures were undertaken by Cyprus and India, and most leaned toward easing of controls.

More than a third of the measures were to ease outflows: Cyprus accounted for half as it gradually removed all controls. India took several steps to ease inflows and outflows and deepen the foreign exchange market, including by expanding hedging opportunities and relaxing requirements for forwards and derivatives. For instance, India permitted all resident individuals, firms and companies, to book foreign exchange forward contracts up to a limit on the basis of a simple declaration without any further documentation. The requirement for a quarterly statutory auditor’s certificate in the derivatives market was relaxed, and only an annual certificate is now required. Importers may now hedge currency under the past performance route, the same way exporters can, up to 100 percent of the eligible limit. To provide flexibility to foreign portfolio investors who intend to keep their investment in Indian debt securities until maturity, they were permitted to hedge the coupon receipts falling due during the following 12 months. Investors were also allowed to take long and short positions (up to a limit, which was also increased) without an underlying position, and only positions above the limit require an underlying exposure. Croatia eliminated all restrictions on transactions in derivatives and other instruments on its entry into the European Union, and Israel eliminated the reserve requirement on nonresidents’ foreign currency swap and forward transactions introduced a few years ago in the face of large capital inflows. Other countries also eased regulations on various aspects of derivatives transactions. Jamaica increased collective investment schemes’ allowable proportion of foreign assets, and Tanzania eased restrictions on buying and selling such instruments issued in other EAC countries. Indonesia expanded the scope of acceptable underlying transactions that could support derivatives transactions and permitted settlement by netting under certain conditions. Colombia expanded the list of allowable currencies for such transactions. The Philippines authorized certain thrift banks to operate as dealers, brokers, and end-users of deliverable foreign exchange forwards, subject to certain conditions, and Turkey removed the requirement that derivatives traded abroad have the same underlying instruments as those traded in the local derivatives exchange. Morocco eliminated the requirement that swap contracts for foreign currencies and dirhams have a grant element of at least 25 percent. Brazil simplified the administrative procedures by removing the requirement for nonresident investors to register with two different authorities.

A few countries took steps to tighten inflows and outflows. Argentina limited forward positions to 10 percent of regulatory capital. Colombia eliminated the option of settling transactions in foreign currency in the foreign currency clearing and settlement system through deposit accounts at the central bank. Lebanon introduced an approval requirement for the marketing of financial derivatives. Paraguay introduced limits on the net forward position vis-à-vis nonresidents, including based on average daily turnover. Ukraine prohibited banks from derivatives transactions on the stock exchange as part of wide-ranging restrictions put in place to deal with the balance of payments crisis.

Controls on credit operations

Controls on cross-border lending were mostly eased, a pattern similar to that during the previous reporting period. The total number of measures was the same, but the easing trend was somewhat lower, with about 67 percent of measures aimed at relaxing conditions. Changes in controls on cross-border lending were the third most frequent measures, unlike during the previous reporting period, when they were the second most frequent measures reported. Easing measures tended more toward inflows than outflows, reflecting tighter external financing conditions for emerging market economies. The tightening measures were about evenly directed to both inflows and outflows.

India accounted for just over a third of measures to ease inflows, and all related to external borrowing in response to softer inflows and as part of its capital flow liberalization efforts. The measures included extension of the use of commercial borrowing by the aviation sector through March 31, 2015; permission for selected nonresident lenders to extend loans under the external commercial borrowing scheme in rupees; allowing external commercial loans to be placed in term deposits for up to six months until use; expanding the types of collateral assets that may be used for external commercial borrowing; and expanding the conditions for rescheduling and restructuring of such loans. Bangladesh did away with the approval requirement on collateral held by authorized dealers with respect to external borrowing by enterprises. Brazil and Ukraine rolled back controls on inflows that were introduced at a time of large capital inflow surges. Brazil reduced the tax to zero from 6 percent on external loans with maturity greater than 180 days (however, to prevent circumvention, external loans with an initial maturity greater than 180 days would still be subject to the 6 percent IOF rate if the loan is repaid within 180 days). Ukraine eliminated the reserve requirement on short-term deposits and loans from nonresidents to encourage inflows. Other easing measures affected the scope of borrowers, the types of loans, and the ceilings on borrowing. For example, Sri Lanka made it easier for importers to obtain credit by eliminating time restrictions on suppliers’ credit and by removing the 90- to 120-day borrowers’ settlement requirement for credit to finance exports. South Africa permitted certain unlisted companies to borrow from overseas with approval. For loans not guaranteed by the government, Vietnam expanded borrowing from abroad to include restructuring loans under certain conditions, and Zimbabwe increased the amount residents may borrow from abroad without approval.

Cyprus accounted for more than half of the measures to ease outflows as it removed the temporary restrictions it had imposed in 2013. Bangladesh allowed authorized dealers to issue bonds and guarantees in foreign currency in favor of projects financed by the government and removed the approval requirement for guarantees in foreign currency to service providers in Saudi Arabia related to pilgrimage. China relaxed restrictions on the purpose and maturities of lending abroad.

Tightening measures were about evenly divided across inflows and outflows, unlike last year. Lebanon capped the value of car and housing loans in foreign currency based on the value of the car or property. Ukraine banned the early repayment of loans to nonresidents (with some exceptions) and reduced the maturity of commercial loans that residents may extend to nonresidents to 90 days. Lebanon took measures to tighten inflows by limiting the amount of foreign borrowing banks and nonbanks may undertake against sovereign bonds and central bank certificates of deposit based on equity capital and the pledged portfolio. Vietnam tightened conditions on foreign borrowing—primarily through reporting requirements, including borrowing by majority-state-owned enterprises.

Controls on direct investment

The liberalization trend continued with about 77 percent of the measures directed at easing conditions compared with about 70 percent during the previous reporting period. In addition, there was a marked jump in the total number of measures (53 compared with 36). As a result, changes in this category have become the second most common measures reported following those on capital and money market instruments.

Inflow easing measures included those that raised automatic threshold levels, broadened the number of countries that could invest automatically at higher thresholds, and increased the level of equity participation in certain sectors. Australia, Canada, and New Zealand increased the threshold below which certain investments are automatically permitted. Australia also permitted investments from Chile, Japan, and Korea at a higher automatic threshold similar to that for investors from New Zealand and the United States. In addition, Japanese and Korean life insurers may now operate branches in Australia, and investors from Thailand and Singapore were given greater access to investment in rural land. India increased permitted equity participation under the automatic route (insurance and telecommunications sectors) and under the approval process (defense, asset reconstruction companies, credit information companies, broadcasting, and telecommunications). Argentina extended the window for submission of documents related to capital contributions. Brazil allowed foreign direct investment in the health care sector, including control in such companies. China allowed the conversion of foreign exchange capital to renminbi by foreign-owned enterprises. Fiji increased the amount of transfers of profits and dividends by authorized dealers permissible without central bank approval to reduce impediments to foreign direct investment. Sweden eliminated the requirement that a founding party of a limited liability (joint-stock) company with one or more founders must either reside in the European Economic Area (EEA) or be an EEA legal entity and that a partnership may be a founding party only if each member with unlimited liability resides in the EEA. South Africa permitted companies listed on the local stock exchange to establish a subsidiary in South Africa for African and offshore operations that are not subject to foreign exchange restrictions. To facilitate further foreign direct investment, South Africa also permitted certain unlisted companies to list overseas or to raise foreign capital and companies listed on the local exchange to have a secondary listing or list depository receipt programs on foreign exchanges.

About half of outflow easing measures are attributed to Cyprus as it gradually eased and then eliminated temporary controls on outflows. China replaced the approval requirement for outward direct investments (except in sensitive countries, regions, and industries) with a reporting system. It also allowed profit repatriation without verification under a limit; above the limit verification is required. To facilitate external operations of domestic enterprises, India increased the limit on outward direct investment to 400 percent from 100 percent of the net worth of a company under the automatic route (up to US$1 billion; higher amounts require approval) and expanded the scope of companies that may invest abroad by including limited liability partnership companies. South Africa eased some of the rules governing holding companies by permitting parent companies to transfer up to R 2 billion a year to a holding company; additional amounts require approval. In line with its other liberalization measures on capital transactions, Tanzania allowed foreign direct investment in any EAC country without approval. Thailand increased the overall limit on outward direct investment as part of its plans for financial account liberalization.

Only a handful of countries took measures to tighten outflows. Firms from Vietnam undertaking outward investment in the gas and petroleum sector faced additional requirements pertaining to bank accounts. Ukraine prohibited the purchase of foreign exchange based on individual licenses and imposed a 100 percent surrender requirement on foreign direct investment (which was later lowered). With respect to repatriation abroad of income and capital from foreign direct investment, Argentina permitted repatriation without approval under certain conditions. Ukraine first prohibited the transfer of dividends and proceeds on securities not traded on the stock exchange and later extended the ban to securities traded on the stock exchange.

Controls on real estate transactions

The number of measures on such transactions was greater than in the previous reporting period. Measures to ease restriction were slightly more than those that tightened conditions (excluding Cyprus). The easing measures were about equal for inflows and outflows.

Hong Kong SAR took measures to stem inflows to residential property markets in an attempt to reduce the pressure on real estate prices by imposing additional stamp duties. India imposed restrictions on citizens of Hong Kong SAR and Macao SAR on acquiring or transferring immovable property in India other than through a lease not exceeding five years, without prior approval. Latvia eliminated an exception that allowed non–EU residents to acquire land in protected areas where local governments planned construction. To limit outflows, Iceland permitted nonresidents to sell their real estate in Iceland to residents only through withdrawal from a króna-denominated account and if the proceeds are deposited in a króna-denominated account. Iraq introduced an approval requirement for the transfer of funds abroad related to the sale of property by nonresidents. Ukraine prohibited the purchase of foreign exchange based on individual licenses, including for purchasing real estate abroad.

In contrast, several countries eased inflows and outflows affecting real estate transactions. Restrictions on nonresidents’ purchases of agricultural land and forestland were removed in Latvia, Lithuania, and Romania following a transition period after joining the EU. The Slovak Republic allowed natural and legal persons from EU and EEA member countries and Switzerland to acquire property, except as restricted by special regulations. Australia increased the approval threshold for direct interest in developed nonresidential commercial real estate. China and Poland increased the limit on certain domestic institutional investors’ acquisition of foreign assets, including real estate abroad. India permitted resident individuals to remit money under the Liberalized Remittance Scheme for acquisition of property overseas and increased the limit. Swaziland raised the maximum individuals may invest in real estate abroad with central bank approval.

Controls on personal transactions

The number of measures taken was only marginally higher than in the previous reporting period. Measures to ease capital flows outnumbered those taken to tighten flows (even after excluding Cyprus). Cyprus, India, and Ukraine accounted for most of the measures in this category. While Cyprus and India eased conditions, Ukraine accounted for all the tightening measures as it faced pressure in the foreign exchange market. Measures included prohibition of early repayment of loans and limits on non-trade-related transfers and individual cash purchases of foreign exchange. Cyprus gradually reduced and finally eliminated all remaining restrictions on outflows introduced at the height of its financial crisis in 2013. India eased outflows by combining various limits on personal transactions into the Liberalized Remittance Scheme and further increasing the limits, also relaxing limits on gifts and donations abroad. Argentina eased access to the local foreign exchange market for purchases of assets abroad by eliminating the central bank approval requirement; however, these purchases are subject to Administration of Public Revenue Program approval. Bhutan reintroduced access to loans to finance personal imports of vehicles and construction material for housing; these loans were previously prohibited to manage Indian rupee shortages. Fiji allowed automatic access to an emigration allowance up to a limit and increased the limit on transfers related to gifts, maintenance, and wedding expenses. Swaziland eased outflows by increasing the amount individuals may transfer abroad and increased allowance limits for emigrants and for gifts by residents to nonresidents.

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