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Three things you need to know about investing offshore

It may be easier than you think, but you still need to know what you’re doing.

Over the last few years it has become far simpler for South Africans to invest offshore. Not only have exchange controls been loosened, but the options available to local residents have increased significantly.

Many local financial firms now have offshore offerings, and a number of companies even specialise in investing money for clients outside of South Africa.

There are four common ways of investing offshore. They are:

  • Set up an international brokerage account which is either managed personally or by a professional portfolio manager;

  • Invest in a foreign currency unit trust, usually through a local platform;

  • Invest in shares or funds through an insurance wrapper, such as the Glacier Global Life Plan;

  • Set up an offshore trust to which you lend money to make investments.

Read: How to invest offshore

Whichever route you chose to follow, however, there are three things you must keep in mind:

1. You don’t need an offshore bank account

It has become very hard for South Africans to open transactional bank accounts offshore. If you haven’t lived and worked overseas, having a personal account outside of the country is quite rare.

“Trying to open an offshore account for an individual is quite tricky, and maintaining an offshore account is even harder because you will be hit with bank charges on a monthly basis,” says Nick Jeffrey, a relationship manager at Sanlam Private Wealth.

Fortunately, it is not necessary to have an offshore account in order to invest outside of the country. It is possible to transfer the money directly from a South African bank account.

“Opening an international brokerage account is pretty much the same process as you would follow for a local account,” says David Nathanson, a portfolio manager at Bellwood Capital. “You sign a mandate, brokerage application form, complete your Fica documents, and transfer the funds.”

When you will need an offshore account, however, is if you want to withdraw your money but don’t want to bring it back to South Africa. Then you will have to address this challenge.

2. You don’t need millions

Taking money offshore used to be reserved for the very wealthy. However, the range of options now available to South African investors have made investing internationally far more accessible.

Most tellingly, EasyEquities allows investors to access a selection of US-listed shares and exchange-traded funds with no minimum investment amount through its USD accounts. What investors do need to be aware of, however, is that there is a cost involved in moving money offshore if you do it through a bank. With charges coming to around R200 per transaction, you need to have a a decent amount of money to make it worthwhile. It doesn’t make sense to invest R500 if 40% of that will be lost to bank charges.

Other online brokers do have minimum amounts, but these are not necessarily that onerous. PSG, for example, accepts minimum initial investments of £5 000 (R84 000). Interactive Brokers requires a minimum amount of $10 000 (R126 000).

Investec offers structured products held offshore that generally require minimum investments of R50 000. Most foreign currency unit trusts registered in South Africa and accessible through local platforms tend to require minimums of $10 000 (R126 000) and up.

If you want someone to manage a bespoke portfolio for you, however, that may need bigger amounts.

“If you are looking for a managed account, we take clients with amounts of $100 000 (R1.26 million) or more,” says Nathanson.

3. You do need good advice

Investing offshore may have become a lot easier, but that doesn’t mean it’s less complex. Given the options available to South African investors, it’s important to understand all of the advantages and disadvantages.

“The most important thing you can do is get proper advice,” says Jeffrey. “Go to your wealth manager and if they don’t know the offshore space, ask them to recommend someone who does. If you are trying to do it yourself or with an advisor who isn’t that up to speed, chances are that you might end up in something that you would pay more tax on or cost you more than you would expect.”

Taxes are a particularly big issue in this respect. You need to know where and how you will be paying tax, especially when it comes to capital gains and what your estate may be liable for on your death.

Read: The tax implications of investing offshore

The US and UK both tax situs assets on the death of the investor. Situs refers to where the assets are based, rather than who owns them.

In the UK, the threshold for paying duties is £325 000 per person. The US threshold is $60 000 per person, but it works on a sliding scale starting at 18%. Investors do however get a credit in South Africa for estate duty paid overseas, so you don’t get taxed twice.

“In practice, we’ve found the impact of situs to be minimal for most of our investors, and many of the structures people use to avoid it end up costing them more than the tax would,” Nathanson says. “Obviously this needs to be assessed on a case-by-case basis.”

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We open offshore accounts with foreign banks almost on a daily basis, in the comfort of my office. Try speaking to Afrasia Bank from Mauritius who have an office in Sandton. So too Mauritius Commercial Bank.

Nice advert you’ve got there…

Advert indeed. And if your motivation is to diversify country risk why go to Mauritius? Too close to home.

OK so its an advert, but I don’t mind that.

I avoid cheap people on sound principle. Virgin, nogal.

No probs opening an offshore bank account. Just maintain a small monthly balance and no charges either. Cheaper to run than an SA bank account.

Recommendations?

we use Standard Bank offshore for all our clients. Easy to get setup, pretty efficient and can hold multi-currency.

Doesn’t that Offshore Standard bank account cost like $25-$30 to do a transaction though?

If you’re living overseas it’s no issue, that’s how I got mine. Do you have a way to do it while living here?

Regulated & independent offshore asset managers such as Brooks Macdonald International offer true offshore investment portfolios from $25k / £25k or E25k. A good independent financial advisor should be able to provide information and guidance.

Easy Equities. Very simple. Very cheap.

US brokerages are cheaper – $5-$10 fixed per trade, as opposed to a percentage scale that EE uses.

I have EasyEquities account and its expensive. My USD deposit incurred charges by Citibank of $45. THe trading charges are a ripooff too.Takes alot before you get into Profit territory. I see TD Ameritrade only charges $6 flat fee for trades and thats it! Anyone got comments on TDAmeritrade? NICE THING ABOUT US STOCKS THOUGH IS YOU GET DIVIDEND PAYMENTS EVERY 3MONTHS/QUARTER.WHAT IS UP WITH COMPANIES ON THE JSE? ANYONE EXPLAIN THAT TO ME? I HELD SASOL FOR YEARS AND NEVER GOT DIVIES EVERY 3MONTHS FROM THEM.

If a share is worth R100 and there is a 3% dividend yield meaning you get R3 whether that R3 comes in once a year or 4 times a year in R0.75 chucks makes little difference (T’s and C’s apply), so look at yield rather than the frequency of payouts, also ETF’s tend to have quarterly payouts since they receive frequent dividends from the shares they compose of.

TD Ameritrade are great for trades, had very little issues with them. Can do a direct wire transfer to their account, just the flat $ fee for a trade. You’ll pay local bank costs in order to get your money there as per any brokerage.

The life insurance wrapper is a compelling route. Situs sorted and if you are paying above 30% marginal its tax-advantaged as well. The advice in this article (point 3) is that you need advice. The point of people reading stuff like this is surely to ensure that they are empowered to act without advice. Or at least be able to think critically about advice that you receive. So another advert embedded in this article/ thread, in this case by Sanlam Glacier who do not allow you to invest in their offshore wrapper unless it is via an advisor who of course will add another layer of fees. I am not against fee-based advice but not everyone needs an advisor (or a project manager for their building site for that matter).
So my advice: Consider using a life wrapper but not one that compels you to pay ongoing advice fees every year until you die

Good one. whatever you do, don’t pay for “advice.” It’s not advice, it’s commission.

There are a number of world class funds on the offshore platforms offered by AGFM,Investec Discovery Invest, Glacier etc where people can invest into a daily liquidity USD fund that requires a low minimum investment amount. IMHO this is a better option than the feeder funds which forces investors back into the ZAR and local bank account when they redeem

Patrick can you please compare the advantages and disadvantages of an offshore investment trust (or company) to the Life Wrapper product for offshore investments? Does the choice depend on the size of the investment?

Best to buy gold coins and take them out in your socks!!! It’s the only way to ensure that your asset is where you last left it, no death duties, no annual charges, no algorithms and the only mining you’re supporting are jobs and resources in South Africa. No brainer!

Where do you keep them when it is overseas? Try to smuggle out your yearly allowance in gold. People are regularly caught with undeclared currencies, gold shows up on the xray at the airport.

Pertaining to the option of local unit trust platforms, offering direct Offshore investment funds, many of them have a minimum investment amount of around the US$/Eu/GBP 20,000 to 25,000 mark.

For those looking at lower barriers to entry, it’s good to know NEDGROUP Investment’s offers their foreign funds from a relatively low US$4,000 minimum investment.

In the past, these type of direct offshore funds were aimed mostly at the wealthy “private client” NHWI type customers. At least its getting now more accessible for others.

Core Shares & Easy Equities, yes, is an alternate brokerage option, offering index-tracking funds among their offerings. Then there’s also SAXO Bank (amongst others) offering similar offshore options….ask “Sensei” (one of our MB commentators), as he’s a guru on that!

And don’t forget, it’s not ‘unpatriotic’ to invest offshore, direct or rand-hedge 😉

Thank you Michael. You have also done a lot of work in this regard. There are good opportunities locally. I feel more comfortable with the counterparty risk with local platforms because of our relatively sound banking system. The counterparty risk with my offshore trading is always a concern. In the US funds up to $350 000 in a bank account are guaranteed by the Fed. Any cash over and above that amount may be seen as a loan to the bank in case of a bank failure. I experienced the 2008 financial crisis, so I may be a bit too skeptical about international banks. As they say – a pessimist is an optimist with experience….

The advantages of using an offshore trading account compared to a local platform is the lower brokerage costs as well as the lower interest rates. The trader who uses gearing can borrow at 3.5% on some offshore platforms, compared to the 10% locally. The brokerage can be as much as 10 times lower than local rates. For active traders there are much more opportunities on offshore platforms. For passive traders the JSE offers very competitive opportunities. The best-performing international index – the Nasdaq 100 – is listed as an ETF by SATRIX locally. It offers the dollar movement of the Nasdaq, so it offers a growth and rand hedge combination. What more do you want?

By the way, I do not advise anybody but market professionals to trade on gearing. Whether it is locally or internationally. A market professional is a person who have lost more than R 1 million in his trading career. If you trade for long enough, you will eventually become a professional. 🙂

Saxo not very forthcoming when you correspond with them – still waiting on them to respond to me – about 2 weeks now

I have always received excellent service from Saxo Bank. The Interactive Brokers platform will also be available for local CFD’s soon. Service and security is important. Use the platform that offers the service you expect and the safety you need.

you can just use Absa or FNB stockbroking service, they both have global accounts, very easy to set up and you trade on pretty much any stock market around the world. Fee’s are always a rip off because you’re not a local of that country, so on the NYSE as an example its $20 per trade, rather try purchase around R20k per stock so your fees are 1%, which is acceptable, the less you put in the more your stock has to grow before you see a profit. Also take into account the clearance charges of changing ZAR to any other foreign currency, another rip off.

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