You may be a SA citizen, but are you still Black?

Publication November 10, 2016

For the purpose of broad-based black economic empowerment, it is generally understood that an individual needs to be African, Coloured or Indian and also a South African citizen.  BEE allows for an individual to be a South African citizen through birth, descent or naturalisation.  However, citizenship through naturalisation only applies under limited circumstances.  With an increasing number of people immigrating into South Africa and acquiring citizenship, the requirement that an individual is a South African citizen has come under increasing scrutiny.  The change has resulted in people who previously qualified as Black no longer qualifying as Black.

The circumstances in which citizenship by naturalisation results in qualification as a Black person were recently amended when the Codes of Good Practice on Broad-Based Black Economic Empowerment were amended in 2015. 

In terms of the revised BEE Codes, citizenship through naturalisation must have occurred (a) before 27 April 1994 (being the date of the commencement of the Constitution of the Republic of South Africa Act of 1993) or (b) on or after 27 April 1994 for anyone who would have been entitled to acquire citizenship by naturalisation prior to that date.  The test for whether an individual meets the naturalisation criteria is therefore a factual, objective test. 

By comparison, under the original BEE Codes, citizenship through naturalisation must have occurred (a) before the commencement date of the Constitution or (b) after the commencement date of the Constitution, but who, without the Apartheid policy would have qualified for naturalisation before then.  The wording “but who, without the Apartheid policy would have qualified for naturalisation before then” was broad enough to allow for a variety of circumstances to be accepted as reasons for an individual not being naturalised before the specified date.  The original BEE Act defined a Black person even more widely than the original BEE Codes – a Black person was defined as Africans, Coloureds and Indians without any link to South African citizenship.  The BEE Act has similarly been amended to reflect the same definition as in the revised BEE Codes.

As a result, where an individual is a South African citizen through naturalisation, they may have qualified as Black for BEE purposes under the original BEE Act or BEE Codes but may no longer qualify as Black under the revised BEE Act and BEE Codes. This also has implications for entities in which that person holds shares because that entity will, due to the operation of law and amendment of the definition of Black person, no longer have the same Black ownership that they had prior to the amendments.

To the extent that the individual has given warranties that they qualify (or the entity through which they hold shares qualifies) as Black, that individual may be in breach of those warranties. In addition, a company which has provided warranties to third parties regarding its Black ownership may be in breach of their warranties as a result of their shareholding no longer qualifying as Black.

In order to manage this risk, individuals and companies who have previously relied on individuals qualifying as Black through naturalisation should undergo an analysis and take the necessary steps to manage this risk on past and future transactions.

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