A beginner's guide to offshore investing
21 August 2023Last Updated:10 August 2023
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Offshore investing may sound like something only jet-setting millionaires can do, but the truth is that it’s far more accessible than it seems. In fact, the opportunities and potential rewards far outweigh any fears you may have about sending your rands out into the big, wide world. Here’s what you need to know if you’re just starting out with offshore investments.

Why would I invest offshore?

There’s a whole world of wealth creation out there. Not investing offshore limits you to the South African market, which makes up barely 1% of the global market. In other words, you’re missing out on 99% of the opportunities to grow your money!

When you include offshore strategies in your savings and investment plans, you spread your risk and protect yourself against local market and exchange rate volatility. This balanced, diversified portfolio will also offer access to better interest rates, stronger economies and different industries. That’s why foreigners invest in South Africa and why South Africans should invest overseas.

What are the red flags?

Investing offshore is still investing, so you need to have some idea of what you’re doing. For example, investing in developed market economies may come with lower risks, but you might not find the growth or returns you’re hoping for. The opposite is true for developing market economies: they promise better growth but with higher risk.

Then there’s the element of the unknown: each offshore market comes with its own set of intricacies and complications, so – as with any investment – it pays to do your homework and to speak to a qualified financial advisor who can fill in the blanks.

How does investing offshore work?

South Africans have two options when it comes to offshore investments: direct or indirect.

Direct investing is when you take your money overseas. That usually means going through exchange controls, opening a bank account in a foreign country, and sending your rands over there to become anything from dollars and pounds to yen and euros. If you’re a Shyft user, you can quickly and easily send money to an offshore bank account right from the app, and in your choice of currency.

If you have a special SARS tax clearance, you’re legally allowed to send up to R11 million a year to your offshore bank account. Without that tax clearance, you’re limited to a single discretionary allowance (SDA) of R1 million a year. This includes all your “offshore activities” – so your overseas bank account and those US equities you’re holding, right down to the rands you convert to AUD when you go visit family in Melbourne.

Indirect investing means that even though you have foreign currency exposure, you invest in rands, your returns are in rands, and your money never actually leaves South Africa. The paperwork is easier, as you don’t need a tax clearance certificate, and you don’t need to convert your rands to another currency first. And since you’re not physically moving your rands offshore, there is no limit to how much you are able to invest indirectly.

What are my options?

You literally have a whole world of opportunities when you go the offshore route. Shyft makes direct investment super easy, allowing you to buy forex at the cheapest rates to invest offshore. You can also buy (and sell) shares in global companies like Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and more. As long as you stay within that SDA limit of R1 million per year, you’re good to buy as much as you like.

Then there are offshore unit trust funds, which are priced in rands, but the capital is invested offshore, giving you foreign currency exposure and global diversification.

Exchange traded funds (ETFs) are another option, great for if you prefer to buy shares in a bit of everything. ETFs track stock exchange indices like the NASDAQ 100 or the S&P 500, providing good balance and diversification. If it’s a foreign rand-denominated fund, you’ll invest in rands and be paid out in rands, but you’ll get the same exposure as if you’d sent your money overseas.  

What about my retirement fund?

If you contribute to a retirement annuity, it’s likely that you already have offshore exposure in your underlying investment choice. But if you’re thinking about moving all of your retirement savings into offshore investments, think again. Regulation 28 of the Pension Funds Act places a limit on the exposure of various asset classes in your retirement fund. In terms of Reg 28 (as financial folks like to call it), your retirement fund is only allowed to invest a maximum of 75% in equities, 25% in listed properties, 10% in hedge funds and – here’s the important part – 35% in offshore assets.

How does the tax work?

SARS has a far reach, so even if you’ve sent your money overseas, you’ll still have to pay tax on it. South African tax residents are required to pay tax in South Africa on their worldwide income. That means you’ll pay tax on interest and dividends earned from offshore investments, on interest earned on interest-bearing offshore investments or offshore bank deposits, and, of course, you’ll face capital gains tax if you sell or withdraw part of your foreign currency-based investment.

There are some exceptions and exemptions, but the bottom line is that you need to factor taxes (and, of course, investment management fees) into your calculations when you consider sending money overseas.

Where do I start?

Investing offshore may sound extravagant (and even a bit intimidating), but it’s easier now than it’s ever been. You could start by speaking to a financial advisor or to your bank about your options. If you’re a global citizen who likes to be in control of your own destiny, a platform like Shyft makes it very easy to convert rands into foreign currency, get into the forex market, and invest in offshore ETFs and internationally listed companies.

Ready to take on the world? Invest offshore through Shyft. 
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