Direct Offshore Investments

A direct offshore component to your investment in, for instance, a Dollar denominated currency is never a bad option. Available cash flow and risk appetite will determine the amount you invest offshore. Obviously, some investors are cash flush and can stomach quite a bit of volatility over a long period of time and are able to invest much more of their savings directly offshore (one should always spread risk by never investing 100% into one fund!). With the inflation differences between SA and the US, as mentioned in one of my previous blogs, the Rand devalues and any Dollar denominated offshore component will grow in value. Remember you can also access offshore funds on a local platform, but keep in mind, there are less funds to choose from when comparing this with a Direct Offshore Investment. It is here where an IFA (Independent Financial Advisor) proves valuable, due to having access to the latest ratings of funds available to clients.
We will use Allan Gray as an example in this blog for ease of reference.
The offshore platform Investment is very flexible, but there are some minimum requirements. The minimum amount one can invest starts at $10,000 with Allan Gray. Each company has their own minimum amounts so one has to enquire about this before deciding to invest. The investor has access to a much larger choice of international funds. South Africa makes up only about 1% of the world’s stock market and only investing locally gives the investor very limited exposure.
The process to invest offshore takes a little more planning than investing locally and a few requirements must be met, but would look something like this:
1. Please note the process might vary slightly from company to company, but this gives you a good indication of what to expect. The client completes an application with a local investment company with the help of an advisor.
2. If the client’s investment amount exceeds his allowable single discretionary amount of R1million a year, the client has to apply for a tax clearance certificate in respect of foreign investment at SARS for the amount he would like to invest offshore. Only once the tax clearance certificate has been received can the process continue. Again important to note, the R1million single discretionary allowance includes all international transactions such as overseas holiday spending, online purchasing on your SA credit card such as E-Bay purchases, flight tickets bought overseas, offshore investments etc. So keep an eye on your overseas travel/holiday expenses so that these amounts added to your investment does not exceed the R1million, otherwise you will need tax clearance.
3. The advisor will also use a Foreign Exchange Intermediary to assist in transferring the funds offshore – South Africa’s strict exchange control rules may leave an investor frustrated and with a lot of paperwork to work through. This way the process is smooth and handled by professionals who complete offshore transactions on a daily basis. These Intermediary companies are also very transparent and governed by the FSB and the South African Reserve Bank.
4. The client has to ensure he has a valid ID and proof of address, not older than 3 months, which has to be certified by a valid Commissioner of Oath. He will also have to supply bank statements and verify the source of the funds he wishes to invest to comply with SARS and Anti-Money Laundering requirements.
5. An account is opened with, for example, Investec Bank where the ZAR amount will be transferred to. Here the funds can receive interest while the transaction is being completed.
6. Once ready to be transferred offshore, it will be priced at that moment’s exchange rate as agreed to with the client.
7. The nominated Foreign Exchange Intermediary will then transfer the funds offshore once the trade price has been booked.
8. The client receives confirmation that the investment has taken place and receives an Investment Schedule from the Investment house.
9. The client has access to an online account to track his investment with the Investment house.
10. The advisor and the investor will meet annually to review all investments.
11. Please note, should the funds be held in trust and invested on behalf of the trust, extra requirements must be met. A list of these requirements can be obtained from the Advisor.
So as you can see, it takes a little more effort, but well worth it, in my opinion.
It should be noted that the Foreign Exchange Intermediary companies we use are well worth their salt, they handle the entire tax clearance application process as well as other exchange control related matters on the client’s behalf. They offer a spread of between 0.45% and 0.75% (depending on the company we use) of the interbank rate compared to banks who can charge between 3%-4% on the interbank rate, they don’t charge banking fees on the transfer, whereas banks do and they receive a much better exchange rate for clients due to bulk buying. The Advisor will assist all parties wherever possible to ensure the Investment is handled efficiently and speedily.
Please feel free to enquire about your Offshore investment today!
Yours in Finance,
Lize Webb
Independent Financial Advisor

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