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The mechanics of getting money offshore

23 September 2021

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by Darryl Hannington, Head of Portfolio Management

Anchor Head of Portfolio Management Darryl Hannington talked through the mechanics of transferring funds offshore. He highlighted the different types of transfers available to South Africans, as well as the importance of safe custody.

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 three ways available to local investors for achieving their goal of global diversification:

  1. Single discretionary allowance (SDA): 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.
  2. Foreign investment allowance (FIA) tax clearance certificate: Provided that an individual’s tax affairs are in order, an SA citizen over 18 years of age can apply to the SA Revenue Service (SARS) for tax clearance approval to transfer up to R10mn every 12 months 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. It can take 4 to 6 weeks 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. An individual can also apply to the SARB for approval in any given calendar year to transfer more than R10mn abroad (FIAs in excess of R10mn). 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.
  3. Asset swap (AS): An SDA and/or FIA are not available to SA trusts and almost all SA corporates but an asset swap is and is also available for individuals to use. A client transfers rand onto the approved (by SARB) asset swap provider’s balance sheet and they swap rand for hard currency for further deployment offshore. The asset swap provider is required to report a breakdown of all asset swap assets by asset class to the SARB on a quarterly basis. The annual cost of an asset swap ranges between 0.2% and 0.5%. The major differentiator between AS and an SDA or FIA is that even though an AS investment is made into offshore assets, it remains a South African asset in the eyes of the SARB and SARS. Another major differentiator is the way that capital gains are treated by SARS.

Once an investor decides which of the abovementioned four options will be used, the next step is to settle on which institution to use to make the transfer offshore. We would encourage investors to closely scrutinise the costs when making this decision. Forex is a commoditised product which means that the best price wins. Anchor has a fully-fledged forex offering available and the rates we offer to our clients are amongst the most competitive in the market. We would suggest contacting your financial advisor before making any decision.

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