Financial services 16 Sep 2024

Thinking about investing offshore?

Between June 2023 and June 2024, the number of offshore accounts opened at Standard Bank increased by 121%. This is perhaps unsurprising, given the generally uncertain mood that preceded South Africa's national elections.

What’s been driving interest in Standard Bank’s offshore investing services?

Diversification

Diversification remains the primary motivator for sending funds offshore. Why? Three reasons: exposure to international markets; hedging against fluctuations in local currency; and safeguarding against geopolitical risk. Diversifying in this way makes your investment portfolio more resilient.

Added to this, amendments to Regulation 28 of the Pension Funds Act now allow retirement funds to invest 45% of their members’ money outside South Africa (up from 30% previously). It’s possible that this amendment sparked an awareness of the benefit of opening offshore bank accounts.

Travel

With international travel back to pre-pandemic levels, it makes sense that more people would want to save in other currencies to spend that cash when they travel. This allows you to make your travel plans without worrying about a fluctuating exchange rate – which could put a serious dent in your daily budget.

Retiring abroad

Anyone with ambitions to retire abroad needs to start saving early in the currency of their retirement destination. Again, this helps avoid the headache of a potentially weakening rand that could hamper or even delay your move.

Children studying abroad

As the world becomes more of a global village, the opportunity to study abroad has become a reality for more families. Again, this requires robust planning, including building up funds in the currency of the country in which your child will be studying. This avoids exposure to local currency fluctuations or being shortchanged when sending funds at disadvantaged exchange rates.

What to consider before you open an offshore account

Just because you have access to an offshore account, doesn’t mean you’ll be able to send all your money overseas. South Africa, like most countries, has exchange control regulations that govern how much we can invest offshore every year.

There are two allowances to consider:

The Single Discretionary Allowance (SDA). This allows you to send R1 million abroad every calendar year without obtaining a tax clearance certificate. Remember, that total is made up of all your international spending in any calendar year, including savings, investments, travel and even shopping abroad.
Foreign Investment Allowance (FIA). This allows all of us to invest R10 million per calendar year offshore in addition to the SDA. However, you need a tax clearance certificate to do so.

What you need to know about offshore accounts and tax

“Get tax advice on any international holdings prior to executing them," Kruger recommends. "South Africa operates on a residency-based tax system. This means that if you are a tax resident in South Africa, you need to declare your worldwide income to the South African Revenue Service (SARS).”

Some jurisdictions, such as the Isle of Man, are tax neutral, meaning you do not pay any additional income or capital gains tax in that jurisdiction. However, if you have invested in such jurisdictions, you are still obligated to declare any income or growth earned abroad to SARS.

How to select the right offshore account

Speak to your Private banker, who will connect you with the right specialists to help you assess your goals and circumstances and recommend the best solution for you based on those factors.

"We evaluate our clients' needs before recommending the best course of action," says Kruger. "To accommodate our clients' longer-term investment strategies, we also provide a broad range of lending and investment solutions. It is very important to plan your international financial affairs with your short-, medium-, and long-term goals in mind and to find the correct products to match those needs."