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Changing rands to other currencies: What you need to know

Transferring money out of South Africa is a little more complex than individuals may think.

‘Forex’ is a financial industry term, short for ‘foreign exchange’, which simply means exchanging one currency for another.

Forex transacting always involves selling one currency in order to buy another. For this reason, they are quoted in pairs that show which currency is being bought and which is being sold. For example, GBP/ZAR is a currency pair: in this pair you are buying British pounds by selling South African rands.

Even though exchange control regulations have been relaxed by the South African Reserve Bank, transferring money out of South Africa is a little more complex than individuals may think, as we are one of the few countries in the world who still have exchange control regulations. This is why compliance with exchange control regulation is key.

When contemplating a forex transaction while using your annual allowance, all transfers out of the country need to be taken into consideration, including your travel allowance, as this forms part of your total permissible allowance in terms of exchange control regulations.

There are four types of allowances:

  • Single discretionary allowances for those 18 and older (up to R1 million): which only require a barcoded RSA ID, tax number and foreign exchange declaration (which is usually supplied by the company that is doing the trade on your behalf).
  • Foreign capital allowances for those 18 and older (anything over R1 million and no more than R10 million): which require a tax clearance certificate (an application to Sars is required where it will confirm that this tax payer is in good standing with Sars), a barcoded RSA ID, tax number and foreign exchange declaration (which is usually supplied by the company that is doing the trade on your behalf).
  • Anything over the R10 million-mark would need a special Reserve Bank clearance, as well as a tax compliance letter. This is also only offered to individuals over the age of 18.
  • Individuals under the age of 18 qualify for a travel allowance of R200 000 per annum.

When gathering foreign exchange rate quotations, or comparing rates from different forex providers, always keep in mind:

  • Some providers do not confirm the exact cost for trading your funds. They will give you a rate which does not include their fees, that is not calculated into the quoted rate. We advise asking for an inclusive rate.

Below is an example for a transaction of R100 000 being converted into US dollars as at 13/02/2019:

 

Provider 1

Provider 2

Provider 3

Amount to be traded

R100 000

R100 000

R100 000

Swift fee

R750 to R1050

R800 to R1250

R450

Rate

R14.26

R14.29

R14.09

Amount in USD

7012.62

6997.90

7097.23

The above table refers to the rate at the time of confirming the transaction. One should always take into consideration that forex rates change continuously, however the difference in rates can be seen. The final amounts that reach the offshore recipient differ significantly.  Provider 1 and Provider 2’s swift fees are dependent on the amounts that are being traded while with Provider 3, the swift fee is never dependent on the size of the forex transaction. Provider 1 and Provider 2’s fees also change according a wide variety of different reasons, so they can fluctuate according to client or transaction size.

We need to also add that there is a difference between forex trading for profit – which is where an individual or organisation speculates by trading one currency for another in the hope of generating a profit due to the change in foreign currency rates – and foreign currency transacting, which is what is referred to in this article. Foreign exchange transactions are simply where an individual or organisation wishes to exchange a currency for another, for travel, commerce or to place an investment in an offshore jurisdiction.

In Global & Local’s view, speculative forex trading is very risky and not fitting with an investment portfolio with a long-term investment horizon.

ADVISOR PROFILE

Michael Haldane

Global & Local Investment Advisors

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