10 Steps for offshore investing

Published on 9th December, 2020 at 03:34 pm

There are many reasons to invest offshore, and it has never been easier to do so. But before you make an investment transaction involving foreign exchange, you may need to bear a few things in mind. Colin Archibald, regional manager at Glacier International, lists some steps for anyone considering investing in foreign markets.

Offshore investing step #1: Speak to an expert

Speak to a trusted and experienced financial planner. Do your homework and ensure that the financial planner you appoint is registered with the Financial Sector Conduct Authority (FCSA) and is both qualified and experienced in investments. To book a meeting with an expert financial planner, click here.

Offshore investing step #2: Reflect on your reasons

Consider your reasons for investing offshore. As with all matters of consequence in life, start with your purpose by establishing which of these statements relate to you personally:
• I want to create a diversified portfolio (a good idea in these uncertain times).
• My goal is to hedge against a weakening currency.
• I need to mitigate emerging market risk.
• I really want to participate in markets with higher growth prospects.
Whether one or all of these statements are relevant to you, your financial planner will construct your offshore portfolio accordingly.

Offshore investing step #3: Remember it’s a process

Consider the complexity of the process. Many investors, and financial planners to some extent, may find setting up an offshore investment to be cumbersome and daunting. The process, though complex on the back end, can be relatively seamless for the investor if they involve an experienced financial planner.

With market uncertainty, there comes a window of opportunity. Find out how to take advantage of it here.

Offshore investing step #4: Use your annual foreign exchange allowance

As a South African taxpayer, you can use either your annual Single Discretionary Allowance (SDA) of up to R1 million, or annual Foreign Investment Allowance (FIA) of up to R10 million, or both. When using your FIA, you must first obtain a tax clearance certificate from SARS.

A financial planner is perfectly positioned to help you make smart offshore investment decisions. Book a meeting with one today.

Offshore investing step #5: Exchange your money

Before the investment can be set up, you need to exchange your capital to the foreign currency of the investment. This can either be done via your bank or by a forex service provider. Most financial planners prefer to use a forex service provider for their clients, as they provide a seamless process, competitive exchange rates, and offer a SARS tax clearance service, where applicable.

Read this to explore some of your offshore investment options.

Offshore investing step #6: Consider your investment objectives

Determine the appropriate offshore product to meet your investment objectives. There are numerous advantages of using an investment administration platform where a range of offshore investment solutions are available. Your financial planner is well-placed to determine the best solutions based on your tax and estate-planning requirements.

Offshore wrappers (policies) are more tax-efficient if you are a higher tax-paying investor. Offshore wrappers avoid foreign estate taxes, probate and executor costs, and they can be passed on to your nominated beneficiaries in the event of your death. They offer a wide range of investment choices.

Linked investment service providers (LISPs) provide a simplified approach where an investor can access a range of international fund managers and portfolios in one investment plan.

Offshore investing step #7: Understand your platform

Research and transparency are critical to offshore investing. Research capability should be one of the pillars that underpin your platform of choice. This ensures that detailed analyses are readily available to assist your financial planner in selecting funds and asset managers that are aligned with your risk and return objectives.

How much should you invest offshore? This read could help you decide.

Offshore investing step #8: What’s your investment time horizon?

It is important to understand that most offshore investment portfolios are designed with a long-term objective of at least five years. While most solutions offer some liquidity during that period, expect to be invested for the long term.

Offshore investing step #9: Be tax-smart

Direct offshore funds can be more tax-efficient than SA feeder funds. Investors with direct offshore investments are only liable for calculating the tax in the foreign currency. This means that gains generated from local currency weakness are not included.

Tick these 5 tax boxes before February each year to save cash.

Offshore investing step #10: Pay attention to the paperwork

SARS requires you to declare your worldwide income, including your offshore investments, on your SA tax return. This does not apply to offshore wrappers issued by South African insurers, as the tax is paid annually to SARS by the insurer.

Income that accrues, and capital gains on the investments administered by LISPs, are taxed in the investor’s hands. The investment platform company will provide annual tax certificates, for you to report on your annual tax return.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers. 

Glacier International is a division of Sanlam Life Insurance Limited, a Licensed Financial Services Provider in South Africa.