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How to take your investment money offshore

The pros and cons of the two routes available to South Africans.

Once you have decided to invest offshore, what choices do you have?

Option one

There are no stipulated limits on how much you can invest offshore if you invest in a fund priced in rands. Lists of rand denominated funds are available on a number of websites and in the printed media. Foreign rand-denominated unit trust funds are classified by the Association for Savings and Investment South Africa (Asisa) as either ‘global portfolios’ or ‘worldwide portfolios’. Global portfolios are required to invest at least 80% of their assets outside South Africa. There is no restriction on the assets invested in a specific country (for example, the United States) or geographical region (for example, Africa). Worldwide portfolios are permitted to invest across South African markets and foreign markets with no limits imposed for either domestic or foreign assets.

Option two

Direct investors invest directly into international funds that are priced (usually) in US dollars, UK pounds or in euros. The amount of money invested directly offshore is capped by Sars at R11 million per annum. You can increase diversification options by choosing to invest in different currencies.

Investors can follow either or both routes.

 

Direct

Indirect/ Rand-denominated

Amount of money invested

R11 million per annum

No limits, except for ‘practical considerations’ below.

Process / permissions

South African residents who are over-18 are permitted to invest R1 million a year to pay for foreign travel/gifts/ investments or other expenses without permission from the South African Revenue Service (Sars) or the South African Reserve Bank (Sarb).

Residents in good standing with Sars may invest an additional R10 million offshore annually after receiving a tax clearance certificate from Sars.

This route is closed if investing on behalf of a trust, close corporation or company.

No permission from either Sars or the Sarb is required to invest in rand-denominated funds. Under-18s are free to invest in these funds. Investments in rand-denominated funds do not count as part of your offshore allowance.

Trusts, close corporations and companies can use these funds to get offshore exposure.

Underlying product choices

South Africans may buy any foreign-denominated offshore fund that they wish. However no foreign fund that is not registered with the Financial Sector Conduct Authority (FSCA) may be marketed in South Africa. A list of these funds is available from the author of this article.

Offshore unit trust funds are usually structured as feeder-funds, which are administered in SA and invested offshore. Worldwide funds are able to invest in both South Africa and offshore, depending on where value is to be found, and global funds must invest 80% of their assets offshore.

Practical considerations

There are two practical main considerations to consider when investing offshore.

The first is that offshore investments tend to have higher minimum investment amounts; some start in the region of R100 000.00.

Secondly, in general we recommend that if you have offshore assets that you have a will for each jurisdiction in which you hold assets. This is because some countries require that only duly-registered executors are permitted to administer wills.

 

 

Institutional investors are permitted a ‘foreign portfolio investment allowance’. According to the South African Reserve Bank, this allowance is calculated as a percentage of the institution’s total managed retail assets and may not exceed 30% of retail assets in the case of retirement funds or 40% of retail assets in the case of investment managers/ long term insurers.   An additional 10% of total retail assets may be invested when investing in Africa.

The upshot of this is that from time to time, asset managers close their foreign and worldwide funds to new investments as they have reached internal capacity.

Currency fluctuations

The investment value is not subject to ZAR currency fluctuation.

The investment value is subject to ZAR currency fluctuation.

Tax considerations

 

At the time of your initial investments

Investors must be over 18 and in good standing with Sars.

Under-18s may invest and investments can be made regardless of tax-payer standing with Sars.

During the course of the investment / income tax payable

Any income earned from a foreign investment is taxable. Unlike dividends earned from investments in South Africa, which are tax exempt, dividends from foreign investments are taxable as income.

According to National Treasury, most foreign dividends received by individuals from foreign companies are taxable at a maximum effective rate of 20%. No deductions are allowed for expenditure to produce foreign dividends.

Capital Gains Tax calculation when investments are sold.

CGT is calculated by multiplying the gain or loss of the investment by the rand exchange rate on the date of divesting.

 

CGT is payable on all gains of the original rand investment, regardless of whether returns were generated from investment returns or currency depreciation.

Estate duty payable

Estate duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million, and at a rate of 25% above R30 million, irrespective of where the assets are invested.

 

ADVISOR PROFILE

Trevor Lee

Rosebank Wealth Group (Pty) Ltd

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