Offshore Investment in South Africa

Offshore Investments – Everything You Need to Know

The South African market represents less than 1% of the world’s economy, which means you may be missing out on a lot of opportunities to grow your money abroad.

If you want to take advantage of the growth and stability of markets in the international scene, one method you can do is to start an offshore investment.

What is An Offshore Investment?

An offshore investment enables you to buy global assets outside the local market. 

Offshore investments are popular because they can be used to protect your portfolio from the bearish local market. This option is attractive to investors who want to have a well-balanced portfolio. However, like in any other market, there’s no guarantee that you’ll be more profitable with offshore investments.

There are 2 ways available to start investing offshore: direct and indirect investments.

  • Direct investment

This method involves creating an offshore bank account in another country and going through exchange control processes.  

You can put up to R1 million on offshore investments without any tax clearance certificate and only minimal paperwork. However, you can increase your investment up to R10 million per year if you have a SARS tax clearance certificate. 

Offshore transactions must be registered with the Reserve Bank and be made through authorised South African banks. Once the money is deposited into your offshore account, you can do whatever you want with it.

  • Indirect investment

With this method, you can invest in foreign markets without the need to create an offshore account. All your transactions will be rand-denominated even if your investment exposure is foreign. What happens is you put your money in SA unit trust funds that invest in the global market to get involved with offshore assets.  

In this setup, you don’t need to have a SARS tax clearance certificate to proceed with your transactions because everything is paid in rands. One of the advantages of this is you have more freedom to move your money around because of the lower fees.

The most convenient way to start with your offshore investment through indirect investment is to put money in local exchange-traded funds (ETFs). This saves you from the hassle of transferring funds to an account abroad.

Offshore Investing Pros and Cons

Pros and Cons of Offshore Investing

Before you start investing offshore, it’s best to know its advantages and disadvantages first.

  • Advantages

–       Exposure to international markets that can outperform the local bourse. 

–       An additional method to diversify portfolios and possibly provide a buffer against falling markets.

–       Chance to ride high-flyers like tech stocks that aren’t available in the local market.

  • Disadvantages

–       No guarantee that offshore investments will outperform the South African market.

–       Associated costs and starting capital can be higher than putting money in the local market.

Steps For Starting An Offshore Investment

In case you choose the direct offshore investment route, here are the steps to follow to make sure you comply with SA regulations.

1) Apply for a tax clearance certificate

You or your tax advisor can apply for a Tax Clearance Certificate – Foreign Investment Allowance. You can do this through any SARS office or by completing the provided online form. You can also check out this article to learn how to apply for a tax clearance certificate in South Africa.

Supply all necessary information, including the amount you want to put into your offshore investment. SARS will ask for further documentation in case they need more information on your financial affairs.

If your tax affairs are updated, you can get your results within 21 days. In some cases, though, it can take as long as 4 months to get approved.

After you receive your clearance certificate, you can present it to your foreign exchange dealer so they can use it for offshore transactions. 

2) Open an offshore account

You can only deposit money to an offshore account that’s under your name. South African banks can help in this process, although many of them accept only South African residents.

3) Deposit money into your account

Your chosen bank can only send your money offshore and change it into other currencies when they have your SARS Clearance Certificate.

Oftentimes, there are administrative fees involved in every transaction done on your behalf. Make sure you read the fine print to avoid getting duped with exorbitant charges. 

In choosing which currency to convert your money into, think about your long-term investment plans. If you want to focus on British stocks, exchange your money for British pounds to start buying assets. 

4) Choose the asset to invest in

The Financial Sector Conduct Authority (FSCA) recommends that you put your money in registered funds only. If you want to invest in unregistered assets, make sure you do your homework thoroughly to avoid unnecessary risks.

The money in your offshore account can now be used to buy individual shares of globally popular stocks like Amazon, Apple, Tesla, Facebook, and Google.


Read Also: SARS eFiling: The Ultimate Guide


Tips On Offshore Investments

Here are some tips to remember when doing offshore investments.

  • Tax-free savings accounts can’t save you from paying dividends taxes. You still must deal with offshore taxes, although you may be eligible for relief in case double taxation happens.
  • If you’re already contributing to a retirement annuity, you most likely have exposure to offshore investments. Regulations on the Pension Fund Act states that you can invest up to 25% of your money in foreign assets.
  • Make sure you have a plan on where to put your money once you open an offshore account. Many South Africans open offshore accounts, but they just let their money sit there which is a losing strategy. The deposited money earns little interest that can’t beat the inflation rate.

Final Thoughts 

Investing in international markets can be daunting because of the myriad of options available to you. It can be confusing to navigate various markets and select the place where to best invest in.

When in doubt, you can either study more about offshore investments in South Africa or seek guidance from a financial advisor on this matter. 

One of the advantages of having a fund manager is how they provide the appropriate tax information you need in filing tax returns. With a direct offshore investment account, you must do everything by yourself and this can be very challenging because you must consider rand depreciation in the computation. For this reason, it’s strongly advised to get help from a professional accountant before you choose the direct investment option.

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