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Investing offshore doesn’t have to be as complicated as it sounds. If you’re a South African, you’re over the age of 18 and you’re in good standing with the tax authority, you’re entitled to move R11 million offshore every year. R1 million of this allowance – also known as the Single Discretionary Allowance – can be used for any legal purpose including offshore investments. Utilising your Single Discretionary Allowance does not require prior approval from the South African Revenue Service (SARS) but the balance of your foreign investment allowance (FIA), which is R10 million, does require SARS approval. Confused already? Don’t be. Here’s what you need to know about investing offshore from South Africa.

Investing Offshore

Pragmatically speaking, offshore investing should form a dynamic part of your long-term investment  plan, but the idea can be scary for many. Here’s why investing offshore is a good idea, even during tough times.

  1. You can diversify risk: benefit from a wider range of industries, companies, geographies, currencies, and investment opportunities.
  2. You can broaden your horizons: Right now, South Africa forms only 1% of the global financial markets. This means you’re missing out on 99% of the global market opportunity if you keep your investments local-only. 
  3. You can invest in various developed markets: South Africa is an emerging market country. By investing offshore in developed  economies, your investment portfolio can achieve more stable growth with a choice of different currencies and different asset classes.
  4. You can combat the volatility of the Rand: Our currency tends to respond somewhat dramatically to economic, political, and social conditions. Investing offshore can offer relief for individuals and investors who fear the depreciation of the Rand.

What do you need to know before investing offshore from South Africa?

As with everything in life, success in offshore investment depends on knowledge, preparation and foresight. Here are the major considerations for you to think about when investigating offshore investment opportunities.

  1. Your investment terms: It’s prudent to have a long-term investment objective. This should not be less than five years, to give the portfolio time to rebalance from short-term  market volatility. 
  2. Your risk appetite: Offshore investments can be influenced by market and currency fluctuations, which can make them quite risky – be sure that your appetite for risk matches.
  3. Your goals and objectives: Funding your international liabilities can be easier with offshore investments. It could be easier to make your future plans of emigration, travel or international universities a reality with offshore investing.
  4. The choice in currency: The currency you invest in will depend on what you want to achieve, but offshore investing allows you to benefit from the strengthening  of different currencies such as the US dollar, the euro, the pound and many more.
  5. The exchange control restrictions that apply to you: As a South African resident, there are limits on the amount of funds you can move offshore per calendar year, these limits are:
  • R1 million single discretionary allowance: You can invest up to R1 million offshore annually without having to apply for tax clearance.
  • R10 million foreign capital allowance: You can move a further R10 million a year, but you will be required to apply for tax clearance.

How to invest offshore from South Africa

Step 1: You will need to complete a ‘Tax Clearance Certificate – Foreign Investment Allowance’ with the assistance of your tax practitioner. This can be done in person at a SARS branch, or online using the website.

  • If your tax affairs are up to date, the standard tax clearance turnaround time is around 21 days.
  • The application form requires you to supply a range of information to confirm your compliance status, as well as the amount of money to be invested offshore, the source of these funds and proof of the stated source of funds.
  • On approval, SARS will issue you a tax clearance certificate and PIN letter, which must then be presented to an authorised foreign exchange dealer.
  • Currently, this certificate includes your tax number and unique certificate number, but this system is on its way out. SARS tax clearance pin letters will soon replace tax certificates.
  • Your tax clearance certificate/pin code is valid for 12 months. This means that you can take your time shifting your money as the Rand strengthens.

Step 2: When moving money offshore using the foreign investment allowance it must be transferred to an offshore bank account in your name or into an investment held in your name.

  • This means it cannot be moved into your spouse’s account. If you do not have an offshore bank account, one can be opened for you through certain South African banks or through an offshore bank. A good financial advisor will be able to guide you through the process.

Step 3: Choose the intermediary that will send your money offshore. Certain banks and financial institutions have been empowered by the Reserve Bank of South Africa to act on their behalf as authorised foreign exchange dealers. Your appointed dealer is only authorised to send money offshore on your behalf if they hold your tax clearance certificate.

  • It’s worthwhile getting financial advice on which currencies to convert your Rands into.
  • Generally, investors choose the currency of their intended long-term  investment. For example, if your investment is in a British company, it makes sense to opt for British pounds.

Step 4: Choose what to invest in once your assets are out of the country. With markets and currency as uncertain as they are at present, consider shifting your money in your chosen investment in stages, to average your entry point . As South Africans, our exchange control regulations restrict the types of offshore investments we have access to.

There are two major offshore investment options open to South Africans: Investing offshore from South Africa through Rand-denominated foreign funds.

1. Invest your money in Rands and get paid out in the same when you ultimately disinvest.

2. The Association of Savings and Investments South Africa (Asisa) classifies these as either:

  • Global funds (which can be invested over many countries), or
  • Regional funds (invest in a specific country or region).
    • These funds are then further classified according to whether they invest in interest bearing assets, property, equities or across different types of assets.          

This is a smart route for people who want to invest their money from South Africa in offshore markets, but want to cash out in South African currency.

Foreign-currency denominated foreign funds

  • To qualify for this offshore investment option you need to be older than 18 and in good standing with SARS. 
  • SARS will also need to provide approval for the offshore transfer by means of your annual exchange control allowances (currently R1 000 000 Single Discretionary Allowance and R10 000 000 Foreign Investment Allowance).
  • Should you wish to invest in excess of these allowances (some offshore opportunities have hefty minimum investment amounts) you will need to apply for special permission from SARB.

This is the smart route if you do not need to convert your investment proceeds back into Rands when you disinvest. This is ideal if you intend to immigrate, for example.

FinGlobal: a trusted South African forex provider

If you’re looking to invest offshore and transfer funds abroad, we offer free consultations and take care of all SARS and SARB requirements for safe and secure foreign currency transactions. Our in-house financial planning expertise and our partnership with Bidvest Financial Services ensure that we’re able to offer you highly competitive exchange rates, low fees, streamlined processes and unrivalled personal service.

To find out more about our forex services, leave us your contact details and we’ll be in touch.