Let’s face it: saving money in South Africa can be challenging. Inflation can eat away at your hard-earned cash; sometimes, it feels like your money isn’t working as hard as it could be. That’s why more and more people are looking at offshore investing. But with so many things to consider – taxes, regulations, and where to start – it can be overwhelming. Don’t worry; we’re here to break it down for you!

The best way to invest money in South Africa

Effective investment strategies in South Africa demand a deep understanding of your unique financial position as an investor. This means carefully weighing key factors such as risk tolerance, investment horizon, and financial goals to build a solid foundation for a sound investment plan that helps safeguard your position in South Africa.

Taking a holistic view of your financial position is essential. Advisors must consider investment returns, liabilities, tax implications, estate planning, and short-, medium-, and long-term objectives when advising on investments in South Africa.

Offshore investment from South Africa – paying attention to diversification

Global diversification is more appropriate for long-term investors. While South Africa offers a range of investment options, playing the field in international markets can help offset local risks. However, it’s important to note that quantity alone does not achieve diversification. True diversification involves selecting investments with minimal correlation to each other.

Why is global diversification important when investing offshore from South Africa? Here’s a simple analogy: imagine putting all your money into one basket. If that basket drops, so does your money. That’s why diversifying your investments is so important. Global diversification means spreading your investments across different countries and markets. Instead of investing your money in South African companies, you invest in businesses worldwide.

What does this do?

• Reduces risk: If one country’s economy isn’t doing well, your investments in other countries might be acceptable.
• Access to global growth: You can tap into the development of economies worldwide.
• Currency diversification: Investing in different currencies can protect you from the ups and downs of the Rand.

For example, let’s say you invest in South African mining companies. If the price of gold drops, your investments will take a hit. But if you also have investments in tech companies in the US, you might still make money even if gold prices are down.

Offshore investing from South Africa – strategic considerations

Investing offshore depends on various factors, including retirement plans, education costs for children, and the overall makeup of a client’s wealth. While Regulation 28 has relaxed restrictions on offshore investments for institutional investors, individual investors should still carefully consider their specific circumstances.

Balancing risk and return when investing offshore from South Africa

The pragmatic adage of “age in bonds” provides a basic framework for asset allocation. However, this principle should be adapted based on your individual risk tolerance and investment goals, and creating a customised portfolio is essential to meeting your specific investor needs.

The role of financial advisors in offshore investing

Investing your money overseas can take time and effort. There’s a lot to think about, and getting lost in all the options is easy. That’s where a financial advisor can be a real lifesaver. They’re like your personal investment guide. They know the ins and outs of different investments and can help you determine the best way to invest money offshore from South Africa and build a plan that fits your goals. Plus, they can help you spread your money to different places, which is essential to manage your risk.

Tax on offshore investments in South Africa

South African residents are taxed on their worldwide income, including any income or gains derived from offshore investments. However, the specific tax implications can vary depending on the type of investment and country of the investment.

Key considerations when it comes to tax on offshore investments from South Africa:

• Dividends: Dividends from foreign companies are generally subject to a maximum effective tax rate of 20%.
• Interest: Interest earned on foreign investments is fully taxable.
• Capital gains: Profits from the sale of offshore assets are subject to capital gains tax.
• Exchange control: While South Africa has relaxed exchange control regulations, certain limitations and reporting requirements still apply.

What can you do to mitigate tax when investing offshore from South Africa?

• Offshore endowment: These provide a tax-efficient way to invest offshore with a flat tax rate of 30% on income and 12% on capital gains.
• Double Taxation Agreements: South Africa has double taxation agreements with many countries, which can help reduce your overall tax burden.

Consult with a tax professional to understand the specific tax implications of your offshore investments and to explore potential tax-saving strategies.

South African exchange control rules for offshore investments

Want to invest your money overseas? There are some rules you need to know. South Africa limits how much money you can move offshore each year.

• Small investor: If you’re 18 or older and have a South African ID, you can send up to R1 million offshore without any extra paperwork using your Single Discretionary Allowance.
• Bigger investor: If you want to send more than R1 million but less than R10 million, you’ll need a tax clearance certificate (from SARS using eFiling) to use your Foreign Investment Allowance.
• Mega investor: To send more than R10 million, you’ll need special permission from the South African Reserve Bank’s FinSurv department and a SARS TCS verification.

It’s important to remember that you can also use money you already have in a foreign bank account to invest offshore from South Africa.

Investing offshore when you’re thinking of emigrating from South Africa

Planning to move overseas? Your investment strategy might need a makeover. Where you settle will make a big difference, as your current investment setup might not work in your new home. It’s essential to ensure your money is in the right place, especially in a particular investment structure. No matter where you live, a globally spread-out investment portfolio is a good idea. But you can tweak things based on where you’re moving. One thing to consider is whether your current financial advisor can help you once you’ve moved. If not, you’ll need to find a new one.

Bottom line: If you’re considering emigrating, chat with your financial advisor about how it could impact your investments.

Don’t sweat the Rand; focus on the long-term.

Many people wait for the perfect time to invest overseas from South Africa, hoping the rand is weak. But experts say it’s better to think long-term.

Over the years, the Rand has generally lost value. The Rand has never gotten stronger when you look at investments over 20 years. Other factors like global markets can help your investments grow even when the Rand is weak. But this doesn’t mean you should try to time the market.

Instead, focus on building a diverse investment portfolio. You can invest directly overseas or use South African funds to invest globally. This helps spread your risk and gives you better chances of long-term growth. It’s essential to remember that investing is a marathon, not a sprint. So, you should remain patient and focused on your financial goals.

Investing for retirement, your offshore options

You might think that you should avoid investing offshore from South Africa as you get closer to retirement. But it may be a good idea. Diversifying your investments is critical to protecting your money by moving it where the underlying currency is more stable. An offshore investment can be a big part of that. As you get closer to retirement, you’ll probably want to focus on investments that generate income, but having a mix of different investments is still important to manage risk.

Some funds invest in various assets, which can be a good choice for retirees. These funds can help spread your risk and provide a steady income, so don’t be afraid to consider offshore investments as you plan for your golden years. It could be a smart move.

Estate planning and offshore investments

If you have money invested overseas, thinking about what will happen when you pass away is essential. Some countries, like the US and UK, have high taxes on inherited money, which could mean your loved ones get less than you expected.

It’s a good idea to talk to an expert about planning for this, as they can help you understand the tax implications and ensure your wishes are followed. If you have assets in another country, you might also need a separate will and estate plan for that country to make things easier for your family when the time comes.

Consider the fees and regulations.

When you invest your money offshore from South Africa, it’s vital to understand the costs involved. Different investment options have different fees, so you must know precisely what you’re paying. Look out for lock-in periods and penalties if you want to take your money out early.

It’s also essential to choose reputable companies to manage your money. Ensure they are regulated and follow the rules in South Africa and the country where your money is invested. By understanding the fees and ensuring your investments are safe, you can make better decisions about moving your money offshore from South Africa.

FinGlobal: cross-border financial specialists for South Africans

If you’re looking to invest offshore to move money out of South Africa, FinGlobal offers free consultations and expert advice. We handle all SARS and SARB paperwork and compliance requirements for safe and secure foreign currency transactions. This allows us to offer highly competitive exchange rates, low fees, hassle-free processes and next-level personal service.

To learn more about our forex services, leave your contact details below, and we’ll contact you to discuss how to move your money out of South Africa.