With the rand on a downward spiral, many South Africans are looking for ways to invest their money offshore and local banks and investment companies are increasingly offering products that allow ordinary South Africans to realise investment growth in other markets. However, offshore investing still remains a confusing area for many, so we spoke to two experts to explain the different types of investments and what they can do for you.
Stuart Kantor, the CEO of Kanan Wealth, explains that investors can benefit from offshore growth in one of two ways:
- Using FSB-registered local service providers to open an offshore investment account and being able to withdraw funds from these investment accounts into foreign bank accounts in the event of immigration or if you need to access funds in a foreign country.
- Through a so-called asset swap, which means that you buy into a local fund that then purchases overseas assets, but with the critical caveat that while you may benefit from the returns of foreign assets, your funds may only be redeemed in local currency.
One of the considerations in taking money offshore is understanding exchange controls. Greg Barclay, the head of international personal banking at the Standard Bank Group, explains that for local investments with exposure to international assets (asset swaps), there is no need for a tax clearance, as the investment is carried out domestically in local currency. The finance house will manage exposure to offshore assets within the regulatory allowances for that type of investment.
On the other hand, if you are opening your own offshore account, you will need to get permission from SARS. The requirements differ depending on the amount that you are investing:
- Up to R1 million a year (known as your discretionary allowance): Customers would be required to complete the necessary documentation with their local bank.
- An additional R10 million a year (your foreign investment allowance): Can be taken offshore once SARS has issued a tax clearance certificate.
- Additional amounts over R10 million: These will be requested and considered on a case-by-case basis with SARS.
It’s important to understand that offshore destinations aren’t tax havens. The onus is on the investor to declare income and returns in line with South African tax regulations. Offshoring is a way of diversifying your savings and investments – not of avoiding or evading paying taxes.
Money invested offshore through an asset swap gives the investor exposure to potential growth in global markets, rather than just local markets – which protects them against the falling rand.
Money invested in a foreign account provides a rand-hedge, but also an opportunity to invest in international equities or funds to potentially earn greater foreign currency returns. Offshore accounts have the additional benefit that once the money is liquidated into an offshore transactional account, it can be used for making international payments, for example if the account holder emigrates or needs to pay university fees for children studying internationally.
While investing offshore was once considered the domain of the extremely wealthy, South African banks have been working to make it more accessible to ordinary South Africans. For example, the Standard Bank offshore account can be opened with as little as $3 000 (R46 934 at the time of writing). While this is obviously not spare change, it’s still a relatively small investment and worth considering for the benefits we’ve mentioned.
Kantor points out, however, that if you have an existing portfolio of funds or shares, chances are that your investment manager would have already put a portion of these investments offshore. He currently advises a 40:60 offshore:local split for most investors and stresses the importance of considering your overall investment portfolio before putting money offshore.
In the current investment climate, it would be remiss not to diversify your savings and investments with a portion of your investment portfolio in offshore products. To make your mind up about how, it’s important to understand all the options, the tax implications, the risk and the returns. Just like any other investment, offshoring is about balancing the risk you are willing to take against the returns you hope to gain.