Investing offshore for the first time can be a daunting task. Not only is the variety of investment products available vast but there is a common misconception amongst investors that investing money into hard currency offshore is an onerous exercise. While this has been true in the past, it is no longer the case. Below we highlight several mechanisms available to local investors for achieving their goal of global diversification:
- Single discretionary allowance: A South African (SA) citizen over the age of 18 years is entitled to transfer up to R1mn per calendar year without prior SA Reserve Bank (SARB) approval. However, it is important to note that this amount covers not only investments but also travel expenses utilised in any calendar year.
- Foreign investment allowance (FIA): Provided an individual’s tax affairs are in order, a SA citizen over 18 years of age can apply to the SA Revenue Service (SARS) for tax clearance approval to transfer up to R10mn per calendar year offshore for investment purposes. The application process has been made significantly less onerous over the past few years and most often it can be done online. However, we highlight that an investor will need to provide SARS with evidence that they have the rand amount available in liquid investments (to make the investment), prior to submitting the application.
- FIAs in excess of R10mn: An individual can also apply to the SARB for approval in any given calendar year to transfer more than R10mn abroad. While this is a more involved process, it is nevertheless still very much achievable. Again, we note that the investor will need to provide SARS with evidence that they will have the rand amount available (to that value) in liquid investments once approval is obtained.
- Asset swap: An investor can also make use of approved financial institutions’ prudential investment limits. While this is particularly applicable to local companies and trusts that in most instances will not be able to get approval for direct foreign investments, it can also be utilised by individual SA residents. The process is simple – an investor will transfer rand to the approved financial institution, which will in turn swap the rand amount received for hard currency and then transfer these funds offshore.
Once an investor decides which of the abovementioned four options will be used, the next step is to settle on which institution to use in order to make the transfer offshore. We would encourage investors to closely scrutinise the costs when making this decision. Anchor has a fully-fledged forex offering available and the rates we offer to our clients are amongst the most competitive in the market.