Investing offshore is no longer the preserve of the rich. It has become easier, more transparent and accessible for most middle-class individuals and households to move money out of the country and diversify their investments.
“It is a myth that offshore investing is reserved for multimillionaires,” says Michael Summerton, head of proposition and marketing at the INN8 investment platform.
“It is now accessible for most people and available to the average middle-class working person.”
He adds that ‘offshore investing’ can range from putting a few thousand rand a month into a local foreign feeder fund to making direct investments in foreign currencies.
Administration costs may however influence such investment decisions, especially when it comes to direct offshore investments.
Simple – and without mystery
Summerton says moving money offshore was once a complicated and mysterious process, but has become transparent and very easy.
“Individuals don’t need permission or clearance from the authorities to move up to R1 million per annum out of South Africa.”
For amounts of more than R1 million but less than R10 million a tax clearance certificate from the South African Revenue Service is required. This is relatively easy to obtain if the individual’s tax affairs are in order. The process may be more laborious for amounts exceeding R10 million, as this requires approval from the South African Reserve Bank.
Ways to invest
South Africans have many options for investing offshore – from moving rand into foreign currencies to investing in foreign-based collective investment schemes or rand-denominated local feeder funds.
There are many factors to consider, including the amount available to invest and administrative costs.
“Depending on a person’s outlook and future expectations, the difference between moving money offshore and investing offshore through a local fund can be insignificant, or very important,” Summerton says.
Costs and strategy when investing in foreign currency
Summerton says an important factor in determining whether to invest offshore in foreign currencies is the administration cost.
“Investing a small lump sum or depositing small amounts means the investor will be paying relatively high fees as a percentage of their investment.”
He uses the costs associated with the INN8 platform as an example. “The INN8 platform charges a sliding scale percentage-based fee, with a minimum monthly fee of $10 [currently around R140] to maintain an offshore account.
“While not high, this fee could hurt a small investment.”
The annual fee for a R10 000 lump sum investment would amount to around R1 700 at the current exchange rate. In this case, the cost to maintain an account will swallow a massive 17% of the investment.
Keeping R50 000 or R100 000 invested for a year would cost 8.5% and 1.7%, respectively.
“Prior to remitting funds offshore, accumulating an initial lump sum of R50 000 to R100 000 would be a good place to start,” says Summerton, reiterating that the higher the investment amount, the lower the effective cost.
“An investment amount of $24 000 or roughly R360 000 would attract the minimum effective fee of 0.5%.”
The costs associated with investing in rand-denominated feeder funds are much lower and are suitable for relatively small investments of a few thousand rand a month. Such funds can also serve as an excellent way to build up an appropriate lump sum to convert to foreign currencies.
Once an investor has a sizeable amount offshore to ensure that the administration costs are reasonable, they can make additional contributions of smaller amounts to build their portfolio.
The Reserve Bank currently limits fund managers to investing a maximum of 35% of their assets offshore. At the same time, Regulation 28 of the Pension Fund Act applies a similar limit on pension funds and retirement annuities.
These regulations may change in the future, and this could affect local investments.
With offshore investments, however, there is a much lower exposure to South African regulatory risk.
“This is because any changes to South African legislation or regulations would not affect the money investors have moved offshore legally,” says Summerton.
“When money is moved offshore legally, no one can tell you to bring it back.”
INN8’s easy process
Anyone who wants to invest offshore can do so via the INN8 platform.
Their financial advisor simply needs to register them on the platform and then advise them, take care of all the administration, and make investments on their behalf.
The INN8 platform offers a range of offshore investments approved by the Financial Sector Conduct Authority (FSCA).
“Once funds have been moved offshore, investors can choose to invest almost anywhere in the world. Investment options range from global funds investing across many regions to funds investing in specific territories,” Summerton says.
Advisors can also transfer money to any fund manager available on the platform through INN8’s jurisdiction in Jersey.
“At the end of the investment period, the withdrawals will be available anywhere in the world,” says Summerton.
“You can do what you want with the money. It is legally out of SA. You can pay it into a bank account in your name anywhere in the world.”
However, he cautions investors that, as is the case with any investments made by South African tax residents, there may be tax liabilities to consider such as capital gains tax.
Liberty Group Limited is a Registered Long-Term Insurer and an authorised Financial Services Provider (“FSP”) with FSP number 4209 and registered office residing at 1 AmeshoffStreet, Braamfontein, Johannesburg, 2001; INN8 is a registered trademark of STANLIB Wealth Management (Pty) Limited, an authorised FSP with licence number 590 and registered office residing at 17 Melrose Boulevard, Melrose Arch, Johannesburg, 2196, South Africa; and a registered business name of STANLIB Fund Managers Jersey Limited, regulated by the Jersey Financial Services Commission with registration number 30487 and registered office residing at Standard Bank House, 47-49 La Motte Street, St Helier, Jersey JE2 4SZ. © 2019 INN8.
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