Offshore Investing Simplified – Basics of Investing Abroad

First and foremost, I’m a patriot of our beautiful country and all it has to offer. I was born, raised, and live in South Africa. My goal has always been to support my own country in any way that I can and do. On the other hand, I support investing outside the country where you’re going to be given the wider range of investment opportunities, also delivering great returns.

Many families and investors want to remain living in beautiful South Africa, but they are concerned about the political and economic situation and worry about their savings, inflation, and the weakening rand. This article serves as a beginner guide and resource for you to understand your options as you look for new ways to grow and safeguard your wealth.

Discover Why Offshore Investing May Make Sense For You

Offshore investing, also known as international or foreign investing, refers to legally placing your money in assets in a location other than your home country. It follows the same core principles as local investing, but with more options and opportunities. For example, if an investor notices a business investment opportunity outside South Africa or their home country and wishes to capitalise on it, offshore investing is a legal means of seeing it through.

This popular investing option has experienced a significant rise in recent years, and this is especially true for South African investors and families looking to grow and protect their financial future. This rise is arguably due to the poor performance and stagnation of our economy, along with widespread corruption and inflation.

When one considers that the South African stock market represents less than 1% of the world economy, investing overseas makes a lot of sense.

Offshore Investment vs Traditional Investment?

If you have a pension fund that you’ve been contributing towards, you most likely have offshore investments already. Or if you’re an expat, you most likely have an offshore bank account.

Offshore investing follows the same pattern. Rather than just letting your money sit in your bank account, you invest it overseas, whether it be in property, a business, or stocks.

It’s important to note that every SA citizen has a single annual (Jan – December) discretionary allowance (SDA) of up to R1m, which can be used for offshore investing. No tax clearance certificate is necessary when externalising funds via your SDA. It is as simple as instructing your bank to send the allocated funds overseas. Once the funds have been sent abroad, they can be used for investment or travel purposes.

Annual foreign investments between R1mil – R10 mil require a tax clearance certificate, which is a simple online application that you or your accountant can obtain on your behalf.

Any foreign investment of more than R10mil requires a special tax clearance certificate, which could take a few months to be issued.

Offshore Investment Advantages

Depending on your risk appetite, international investing can offer many more advantages over local investments.

Tax Advantages

Favourable tax rates in many countries are designed to promote a healthy investment environment, which helps in attracting outside investment. A warning, you need to ensure that you are using legal SARS approved ways of being tax efficient. The alternative is “tax evasion” and this is illegal.

Diversification

Wider options are available in offshore investment providing wider diversification opportunities to investors. Diversification aims to reduce the risk of your investment while ensuring that financial returns are maximised. For best results, it’s recommended to optimize your diversification efforts by mixing in different asset classes among different geographies.

Asset Protection

Protection against the devaluation of our currency because of political and low domestic (internal) economic growth. Individuals who are also at high risk of lawsuits or indebted with high-value assets can also benefit from offshore investing when transferring assets to a legal entity outside South Africa, such as a trust, or foundation.

Confidentiality

Legal offshore investments, made correctly, are used to protect a client’s assets from creditors and ensure inter-generational wealth preservation. Investment trusts have been given bad press in South Africa, for several reasons. However, if used correctly they can offer their beneficiaries substantial privacy benefits.

What Offshore Investing Options Are Available To Me As A South African?

Offshore Mutual Funds

Mutual funds are seen as one of the safest ways of investing because it provides the lowest risk. Mutual funds companies are popular because they get investments from multiple people, resulting in lowered risk among all the investors.

Real Estate Investments

With the right research into emerging markets and areas, international real estate property can turn out to be an excellent investment and are another safe way for investors to make smart offshore investments. Some investors also look to leverage foreign real estate for permanent residency or even second citizenship options in the country where they decide to buy.

Precious Metals

Investing in precious metals is undoubtedly the most popular asset protection option for many investors. Examples include silver, gold, platinum, and diamonds. The value associated with these precious metals fluctuates over time, but their real value lies in holding them for decades or even generations. Investments in precious metals are usually passed down from parents to children. For example, one hundred years ago, an ounce of gold was US$20. Today, it is US$1,841.

Another reason why precious metals are popular is due to the trading price as they fluctuate in nature which creates an opportunity for the investors to earn a high return for their invested amount.

Venture Capital

Venture Capital investments carry the highest amount of risk but have the potential to also make the highest return on investment. For example, by investing in a startup overseas an investor can hold the profit share in the company or can take fixed returns on his original investment amount.

Foreign Currencies

Many investors choose to diversify away from the volatile rand and hold a large portion of their financial assets in non-rand denominations. When choosing to do this, it’s also easier to make direct investments in your foreign currency of choice, in, say, government or corporate bonds, equities, funds, etc.

Offshore investments are not just limited to real estate or placing funds in an offshore bank. There are plenty of other offshore investment opportunities which I haven’t covered, such as:

• Private equity funds
• Commodities
• Forex Trading
• Derivatives
• Hedging

Offshore Investment FAQs

When I disinvest from an offshore unit trust must the funds get paid into a local South African bank account or can it be paid offshore?

It’s up to you. If you bring it back into your SA bank account, be sure to do this within 30 days as per regulations. Otherwise, you are also free to transfer into an offshore bank account in your name.

What will happen to my offshore investments when I die?

The same process applies to any investment. It will be included as part of your estate. There are however some legal means to reduce your estate duty. This is called estate planning and you’d need the help of an expert to assist with getting this right.

Besides the tax incentives, why else do people invest overseas?

• Many people want to retire abroad and have their income in another currency
• Parents who want their kids to study abroad
• To be able to travel regularly abroad and not be hit hard with currency devaluation and inflation
• If you plan to work abroad in the future and you want to be better financially prepared when you move over

Depending on where you live and where you decide to invest, you might be “double taxed” that’s why it’s important to always check the rules where you want to invest.

Offshore investments are taxed in the same way as other income tax on your dividends from foreign shares, and capital gains on any growth. However, there may be rules in place where you’re based to avoid double taxation. Always check the rules in the country or region where you live and speak to a financial advisor experienced with tax planning.

Disclaimer

As with any investment, offshore investing can lead to an increase or decrease in the value of funds being invested, and there are no guarantees. Being clear about what your investment horizon is, is critical in choosing a suitable investment strategy.

I’m Giles Maynard. I provide individual investment and wealth management services for private clients and companies. I have been trusted by clients, large and small to manage, protect, and preserve their wealth. How can I help you with yours?