There are several motives that influence investors outlooks for sending money offshore, which include diversification, currency risk (rand depreciation), and foreign currency spending power. Most investors still perceive investing offshore as a daunting task, and have little knowledge on which strategy is most suitable.
The most appropriate strategy varies across personal situations, risk profile, tax circumstances, and long-term investment objectives. It is for these reasons that the suggest investors consult with a professional financial advisor who can help identify investment solutions that address their specific requirements.
Investors’ portfolios can have offshore exposure namely in two different approaches, firstly they can invest in a rand-denominated unit trust fund/portfolio or invest in a foreign-domiciled international unit trust/portfolio.
Investing in an FSCA-approved rand-denominated international unit trust fund/portfolio (e.g., RWM Worldwide Feeder Portfolio)
By doing so, investors do not make use of their individual offshore allowance. Rather, they invest in Rands and when they disinvest, the proceeds are paid in Rands. While investors benefit from being invested in funds that only hold offshore assets, they remain exposed to South African political and currency risk. Many South Africans have favored rand-denominated international funds because of the perceived complexity of applying for tax and Reserve Bank clearance to invest offshore directly. This approach is a suitable option for entities who are looking at gaining offshore exposure, as they are not granted an offshore allowance by SARB.
Investing in a foreign-domiciled international unit trust fund/portfolio that is registered in South Africa (e.g., RWM Global Balanced Portfolio)
By doing so, investors invest directly into an FSCA-approved offshore fund/portfolio in its dealing currency e.g., dollars, pounds or euros. Having completed the application form, investors effectively instruct their bank (local or international) to make payment to the fund’s bank account – at Resolute Wealth this process can also be facilitated for you, due to Resolute Wealth being an institution we are granted preferential pricing, meaning the rates are more competitive than individual investors acting in their own capacity going through their bank. When disinvesting, investors will then also receive the proceeds in the fund’s dealing currency.
Now that investors can invest up to R1 million annually in an international fund without the need for any prior approvals, they can access foreign domiciled international funds with relative ease and thereby diversify away South African political risk. In addition to the annual discretionary allowance of up to R1 million, investors also have a foreign capital allowance of up to R10 million per calendar year (a total sum of R11 million). Investors need to obtain foreign tax clearance from the South African Revenue Service when they wish to utilize their annual foreign allowance of R10 million. Reserve Bank approval is only required when investors wish to transfer funds offshore in excess of the maximum total sum of R11 million per calendar year.
The following table provides a summary of the means by which a South African investor can obtain offshore exposure.
*Certain pieces were taken from Ninety One, How to invest offshore. We believe it has interesting perspectives for our clients.