Needless to say, we believe this is an important and essential part of financial planning. The old adage of not having all your eggs in one basket always holds true. However, offshore investing is a multi-faceted exercise. Here are some of the most frequently asked questions we receive from clients.
How much money can I take out of South Africa?
Put simply, a South African tax payer can transfer into foreign currency up to R10 million per annum by way of the “foreign currency investment allowance”. In order to do this, an individual’s tax affairs need to be up to date as SARS approval is first required. If they are not then approval will not be granted. In addition an individual can transfer up to R1 million per annum via what is known as the “discretionary allowance”. This includes overseas travel and casual gifts etc. So you need to be careful to leave enough for the latter.
Should I wait for the exchange rate to improve?
This is an impossible question to answer really. Nobody can know precisely what exchange rates are likely to be in the future. We do know, however, that the Rand has depreciated significantly against major currencies for many years now and it stands to reason that it will continue to do so in the future. There will, however, be periods of strength and we can only hope that economic and political stability will predominate more permanently at some stage in the future.
It is impossible to get the timing right all the time so phasing in the transfer of your money abroad is worth considering.
Where do I invest?
There is a fairly vast range of options available – ranging from ordinary current and savings bank accounts, to unit trust funds, to quoted shares, to property investment. All these global investments are available in the major currencies – USD, EUR and GBP for example.
You need to seek professional advice to ascertain what your requirements are and how best they may be served. It is important, though, that your investments are with solid, reputable and accessible institutions.
What are the tax implications of investing offshore?
South African residents are required to declare all income from whatever source. Foreign interest and dividends form part of your taxable income in South Africa with an allowance for any tax paid at source provided there is a double taxation treaty between this country and the country where the investment is held. Depending on amounts, Capital Gains Tax is payable in SA on the disposal of any offshore asset.
Taxes may be limited by wrapping certain investments in endowments, which fall under SA tax laws for such products, or investing in “roll up” unit trusts where there are no declared dividends or interest.
Offshore assets form part of your South African estate.
Should I have an offshore Will if I invest abroad?
Generally speaking foreign bank accounts and unit trust investments can be held in joint names – eg husband and wife. In some cases multiple ownership is permitted which allows children to be included as part owners. In these cases the death of a part owner results in the remaining owners being able to continue the investment – thus avoiding any overseas estate process.
Having an offshore Will, which doesn’t conflict with a local SA one can be essential. Certainly in the case of property ownership, other illiquid assets, or where joint ownership is not permitted, having a separate Will is important.
A South African Will can cover offshore assets but it may be more costly from an administration aspect as local executors have to appoint overseas agents to deal with assets abroad. It is important to check this particular issue with your executors before deciding whether or not you need an offshore Will.
Offshore assets can also be held in trusts. However, there are significant costs involved in forming trusts overseas and therefore it is probably only wise to contemplate this when large amounts are involved.