Interest Rate Caps Scrapped: What the SARB Change Means for Cross-Border Loans
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Following the Minister of Finance’s announcement during the 2026 Budget Speech, the South African Reserve Bank (SARB) has moved to implement the removal of interest rate caps on inbound loans from foreign related parties. SARB has since issued Exchange Control Circular No. 3-2026 confirming that these caps will be scrapped and that such loans must now reflect market-related interest rates.
While this may appear to be a technical regulatory change, it has important implications for companies with cross-border financing arrangements and for the accountants advising them.
What Has Changed?
Previously, SARB imposed limits on the interest rates that could be charged on foreign loans from related parties.
For rand-denominated loans, interest was capped at the prime lending rate.
For foreign currency loans, the cap was linked to a foreign base rate.
These caps provided a level of regulatory certainty and were often used as a defence when assessing whether interest rates complied with transfer pricing principles.
However, following the policy shift announced in the national budget, these caps have now been removed, and the loans must instead be market-related and reported to SARB.
Greater Focus on the Arm’s Length Principle
With the caps removed, transfer pricing rules will now carry significantly greater weight.
Interest rates on cross-border related-party loans must comply with the arm’s length principle, meaning the rate should reflect what independent parties would agree to under similar conditions.
Previously, if the interest rate appeared lower than market rates, lenders could rely on the SARB cap as justification. That defence will no longer apply once the new framework takes effect.
As a result, companies with foreign funding arrangements must reassess whether their current interest rates meet arm’s length standards.
What Borrowers and Lenders Must Now Consider
Both the interest rate and the size of the loan must now withstand scrutiny. According to guidance linked to SARS Interpretation Note 127, several factors must be considered when determining whether the rate is arm’s length, including:
The credit rating of the borrower
The currency of the loan
The term and conditions of the financing
Comparable loans between unrelated parties.
Companies must therefore be able to demonstrate that their financing arrangements are consistent with what would be expected in the open market.
Implications for Businesses
The removal of the caps increases flexibility but also raises the level of scrutiny.
Companies with inbound foreign loans may need to:
Review existing financing structures
Benchmark interest rates against comparable market loans
Ensure transfer pricing documentation supports the rate applied
Confirm that the loan amount itself is not excessive.
Failure to do so could expose the company to transfer pricing adjustments or regulatory challenges.
What Business Accountants Should Do Now
For accountants advising companies with cross-border financing, this development highlights the importance of proactive review. Practitioners should consider:
Assessing whether current loan rates are defensible under transfer pricing rules
Ensuring proper documentation and benchmarking is in place
Reviewing whether both the interest rate and loan size remain appropriate.
With the SARB caps removed, the arm’s length test becomes the primary safeguard, making careful financial analysis and documentation more important than ever.
