South Africans investing offshore before the 2020 deadline – what you need to know

South Africans have very specific yearly allowance limits for transferring money overseas. Tim Powell, director of Forex at Sable International, explains the limitations and how you can get the most out using your annual allowances.

Limits to how much South Africans can invest offshore

Due to South Africa’s exchange control rules, South African residents are permitted to transfer up to R1 million abroad without prior approval from the South African Reserve bank as part of an annual single discretionary allowance (SDA).

However, it is possible to transfer an additional R10 million by making use of your foreign investment allowance (FIA). This allowance has certain requirements:

  • You need to obtain a foreign investment tax clearance certificate from the South African Revenue Service (SARS).
  • You need to be a taxpayer in good standing over 18 years of age.
  • You need to determine the exact amount you wish to transfer and that needs to be reflected on your tax clearance certificate (which is only valid for 12 months).
  • The content of the tax clearance certificate cannot be deviated from.
  • A tax compliance status letter will be issued that contains your tax number and PIN. An Authorised Dealer will use these details to verify your status via eFiling before making your transfer.
  • The funds transferred offshore may not be used to acquire interest in an offshore entity.
  • Funds transferred abroad may also not be re-introduced into South Africa as a loan to a Common Monetary Area resident.
  • You may not enter into any transactions where capital is directly or indirectly exported from South Africa.

When applying for the FIA, expert knowledge and understanding can ensure that all relevant documentation is in order, your application is processed efficiently, and funds are transferred on time and at better rates than through your commercial bank.

Use your allowances before the end of 2020

Your allowances renew every year, so if you transfer funds internationally before 29 December 2020, you’ll be able to transfer an additional R11m as soon as 2021 rolls around.

If you have a partner, you can together transfer up to R2 million (R22 million in total), and if you have children over 18 years old, you can transfer an additional million per child.

SARS processing times can stagnate towards the end of the year, resulting in delays that could prevent you from making the most of your current allowance.

Why invest offshore?

No matter where you are in the world, investing outside of your domestic market is always a good idea to reduce portfolio risk.

However, this strategy is particularly prudent for South Africans. Concerns around economic and political stability aside, the South African stock market represents less than 1% of the world economy.

That means that South Africans investing locally are exposed to just a fraction of the global equity market and will, as a result, always see limited returns.

Care needs to be taken on opening investment accounts as you need to consider residency issues, as well as potential situs tax and probate issues. It’s best to use dual-licensed, cross-border financial planners to help you invest offshore.

How to safely transfer your money out of South Africa

When looking to transfer money out of South Africa and considering which service provider to consult, there are some important factors to keep in mind:

  • Regulation is of the utmost importance. Money transfer companies need to stay up to date with all the relevant regulations, requirements and laws, as well as ensure they are fully licensed and registered with the correct regulatory institutions. Do thorough research and ensure that they have the relevant accreditations.
  • The security of your funds should be paramount. You want to have peace of mind when transferring large sums of money offshore. To ensure your funds are as safe and secure as possible, make sure to check website safety and overall security measures used by your broker of choice.
  • Ensure you use a good, independent forex specialist, so the rate you receive is locked in at the time of the transfer. This way, you won’t get any nasty surprises afterwards.
  • Choose a company that has a long-standing track record an personalised customer service. Check for testimonials and reviews. If a company has happy clients, there should be plenty of evidence that’s easy to track down.

Read: SARS warns of refund scam in South Africa as tax deadline looms

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South Africans investing offshore before the 2020 deadline – what you need to know