Guide to Offshore Investments
Investing is a Tug of War between Fear and Greed.
With the local economy weak, local political uncertainty and the Rand going above R 15 to the Dollar everyone is looking to offshore investments for the answer.
It is important to take emotions out of Investments. That is why you should have a long term plan with what you want to achieve with your money and then stick to the plan.
Exactly the same with Offshore Investments. To give our clients more clarity on the topic, we give the following guidelines on offshore Investments.
Should I have investments with offshore exposure?
The Top 40 biggest shares on the JSE receive more than half of their earnings from outside of the country. So even if you just invest in the JSE you are already exposed to other countries and currencies. With that said, the JSE is below 2% of the Global Stock market. There are a greater pool of opportunities to invest in offshore. Over the long term the exposure to offshore assets will reduce volatility and minimize the risk of capital loss in your portfolio.
How much should I Invest offshore?
Each Investor’s circumstances are unique. The weighting of offshore investments will be unique and different for each investor.
Factors that influence the weighting:
- Where do I plan to live? You need to match your assets with future liabilities.
- Do you/or your children plan to emigrate or do you have children that already live overseas?
- What is the time horizon for the money that you are investing etc.
How do I invest offshore?
There are 2 ways to invest in offshore assets.
1 – Indirect offshore Investment
You invest in offshore assets without the money physically leaving South Africa. No tax clearance is required and the investment values are reported in Rand.
Pension funds and Retirement annuities can have up to 30% offshore assets, with most asset managers using the bulk off it. In other investments like flexible investments, living annuities and Tax free savings you can have up to 100% exposure to offshore assets.
Most clients don’t realize that they already have healthy offshore exposure.
2 – Invest directly offshore
The main difference with regards to point 1 is that you get to take the money directly offshore.
The main benefits for this is that you derisk yourself from local political Risk and that the taxes get calculated on capital gains made in foreign currency rather than in Rand. You can take up to R 10 million a year out or the country with a tax clearance and reserve bank permission. There is also a further R 1 million offshore allowance that you can use for travel and other purposes that you don’t need a tax clearance for.
If you are South African resident for tax purposes, it is important to note the tax administration and estate planning implications of these investments.
It is important that your local and offshore investments be managed together and that it fits in your overall financial plan.
Let us know if you have any further questions.
PJ Botha CA(SA)
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