SA investors are looking offshore for various reasons, whether it be to emigrate, diversify their investments in hard currency, consolidation or for legacy planning.
Currently, an individual can take up to R11 million per taxpayer per year offshore. This is split between the annual single discretionary allowance (SDA) of R1 million, and the foreign investment allowance (FIA) of R10 million. It’s important to note that these allowances are only active for a calendar year: they expire on 31December, and any remaining amounts cannot be carried over to the new year.
Allowances are used by South African residents, or South African citizens living abroad who have not yet financially emigrated, to move funds offshore. Typically, these individuals will be accumulating funds through salaries, bonuses or dividends, and many hold funds offshore in hard currency which is helpful to enable their financial mobility, says Leah Mannie, a business development manager at Sovereign Trust.
Amounts above R1 million will require a tax clearance certificate and once cleared, these allowances can then be utilized for various offshore investments, such as property, portfolios, ETFs and other equities.
“With the current levels of uncertainty in South Africa, building wealth within our borders can become restrictive. Financial planning is integral when making decisions and having offshore exposure as well as structures in place, can help plan for the present and for the future; whether your ultimate decision is to leave South Africa or not,” says Mannie.
“Using your allowances wisely, can dramatically increase the opportunities available for your investments, as 100% of these funds can be diversified in global funds and listed shares, with the required levels of asset protection, growth and consolidation that you get from going offshore.”
Should an individual decide to financially emigrate at some point, ensuring that their offshore financial affairs are properly structured, will be helpful when planning and taking their next step. Whereas to initiate the process to access your South African retirement and pension arrangements, you will need to prove that you are no longer a tax resident for three consecutive years, and the funds will be locked in until the application is approved.
Once you’ve decided to invest offshore, you should be obtaining investment advice from a financial advisor who has the necessary expertise regarding offshore investments for South Africans, says Mannie.
It is imperative to seek well-regulated offshore jurisdictions when thinking about investments. The public can view the website of the Financial Action Task Force to identify the jurisdictions with suitable reputations that take AML and compliance seriously, in order to combat money laundering and corruption through being extremely compliant and thorough.
“Creating offshore exposure is different for every person, as there will always be a variation in appetite and goals. But what is key, is that offshore investment creates diversification to mitigate overall risk, as it offers exponentially more options in legacy planning and choice of investment vehicles,” she said.