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Investing in offshore markets is an important consideration for South Africans looking to secure their financial future. Investing Offshore to hedge against the impact of the exchange rate on your investment is a good idea. Here we unpack the practical side of investing offshore.
Option 1: Direct Offshore Investment
How It Works
This option involves physically moving your savings or cash offshore by going through exchange control processes and sending your rand overseas in the currency of your choice.
South Africans are allowed to take a maximum of R10 million a year offshore if they have been granted a SARS tax clearance certificate to move money abroad. Without this tax clearance certificate, you can only send a maximum of R1 million out of South Africa into your foreign bank account each year.
When considering opening a bank account offshore, it is very important to consult with a foreign exchange expert. There are several factors to take into consideration when opening a bank account offshore including minimum deposits, tax requirements (both in South Africa and offshore), which countries to consider and, of course, the fee structures that these accounts may incur. A foreign exchange expert will be able to assist you in navigating through the options.
If you are a South African working overseas then this would be an ideal starting point for you, especially if you are being paid in a foreign currency. Just keep in mind that foreign earnings above R1 million will no longer be tax-exempt for South African tax residents from March 2020.
How To Invest
Direct investors invest directly into international funds that are priced (usually) in US dollars, UK pounds or in euros. These investments are typically housed offshore through offices in countries such as Mauritius, Guernsey or Bermuda.
With these investments, the investment is made in a foreign currency and the investment is housed offshore, which means that there may be exchange controls to consider should the investor want to bring the money back to South Africa. These investments typically have larger minimum lump sums in dollars and are not very flexible when it comes to ongoing contributions unless the investor can meet a high enough monthly deposit amount.
Who Should Invest
In practice, this option is ideal for investors who have a large lump sum that they wish to move offshore, or another option is to save a monthly amount locally then take it offshore when it meets the minimum requirements.
Option 2: Indirect Offshore Investment
How It Works
Another option is to invest in a local fund that invests in international assets. There are several savings, investments and asset managers in South Africa that offer offshore unit trust funds. These funds are priced in rands, however, the capital is invested offshore – this provides global diversification and foreign currency exposure.
There are no stipulated limits on how much you can invest offshore if you invest in a fund priced in rands. This means you aren’t obliged to obtain a SARS tax clearance certificate to invest in these funds as your investment is made in rand and paid out in rand on disinvestment.
How To Invest
This is as straight forward as investing in a fund, minimum investments contribution from as little as R 500pm or a lump sum of R 5 000.
Who Should Invest
Your Investment Strategy
Making the decision to invest outside of the country could be daunting due to the sheer volume of international investments available, and navigating this landscape may be challenging – but it can be done, and the benefits truly warrant that investors take the leap.
Consult an Independent Financial Adviser for advice on how you can invest offshore. It is important to take a holistic view of how your offshore investments will fit into your total investment portfolio. You should also consider which asset classes will be most appropriate for your investment goals.
Our Independent Financial Advisers specialise in matching your needs with the right investments. They have access to a wide range of international asset managers, investment administrators and forex services.
Reach out and start diversifying your investment portfolio with our specialists.
Phone: +27 21 914 7480
Cell: +27 82 893 2795
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