Below, Anchor Head of Portfolio Management Darryl Hannington discusses the mechanics of transferring funds offshore. He highlights the different types of transfers available to South Africans and the importance of safe custody.
Investing offshore for the first time can be a daunting task. Not only is there a wide variety of investment products available, but there is also 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 to achieve their goal of global diversification:
- 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. So, your total SDA and travel expenses for 2024, for example, are limited to R1mn. These allowances reset on 1 January 2025, and any unused portion for the current year (2024) cannot be carried forward.
- 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 offshore every 12 months for investment purposes. The application process has been made significantly less demanding 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 must provide SARS with evidence that they have the rand amount available in liquid investments (to invest) before 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 must provide SARS with evidence that they will have the rand amount available (to that value) in liquid investments once approval is obtained.
- Asset swap (AS): An SDA and/or FIA are not available to SA trusts and almost all SA corporates, but an asset swap 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 offshore deployment. The asset swap provider must report a breakdown of all asset swap assets by asset class to the SARB quarterly. The annual cost of an asset swap ranges between 0.2% and 0.5%. The major difference between an 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 SARS treats capital gains.
Once an investor decides which of the abovementioned 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 scrutinise the costs closely 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 suggest contacting your financial advisor before making any decision.
