‘You have to get some exposure offshore, bru.’
When your mate at the braai who dabbles in finance brings this up, he’s not talking about that nudist beach on the KwaZulu-Natal south coast.
It’s easy to become a little overwhelmed by all the terms out there – ETFs, endowments, sinking funds, asset swaps, cryptocurrencies, and more – but understanding the two main offshore allowances South Africans can make use of is a touch simpler.
That’s not to say you shouldn’t seek out the help of experts with experience in offshore investing, but let’s get the basics sorted before we go down that route.
We’ll break those down, with the help of IOL. First up is the single discretionary allowance (SDA):
Every South African resident over the age of 18 years is entitled to a single discretionary allowance (SDA) of up to R1 million per calendar year.
This allowance can be used for any legitimate purpose at your own discretion, including gifts to friends or family living abroad, making online purchases of goods denominated or sold in a foreign currency, or investing in offshore investments.
By the way, a ‘South African resident’ refers to a resident for exchange control purposes, which is different from SARS’ definition of a tax resident.
This means any person or entity that has taken up permanent residence, or is registered in South Africa.
Then there’s your foreign investment allowance (FIA), which is in addition to your SDA:
…every South African resident over the age of 18 years is also entitled to a foreign investment allowance (FIA) of up to R10 million per calendar year.
This can be used to purchase property in foreign countries, invest amounts exceeding R1 million, and for transfers for other purposes where you may have already exceeded you R1 million SDA.
The big difference here, other than the R1 million per year versus R10 million per year, is that with your FIA, that amount cannot end up in the hands of another South African resident.
Your FIA does come with other restrictions, such as obtaining a tax clearance certificate PIN verifying your tax compliance status.
With both of the above allowances, funds will need to be reported through the balance of payments (BoP) reporting system by an authorised dealer, or foreign exchange provider.
In order to exceed the R11 million annual allowance provided by the two options above, you will need to apply to the SA Reserve Bank for permission.
For those who prefer to hand their financial wealth over to the pros, Consequence Private Wealth does provide extensive advice and service on offshore bank accounts, money transfers, trusts, and investments.
Either way, it helps to be clued up about what your options are, especially whilst South Africans with the means to do so are increasingly looking to make use of business and investment opportunities offshore
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