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The present political and economic climate in South Africa has resulted in a rise of local investors seeking to invest offshore. The desire for greater returns, asset stability and protection are significant drivers for offshore investments. When planning to move investments abroad, it is important to keep certain factors in mind. This includes considering possible income tax implications and currency fluctuations.

Direct or indirect investing?

Investors often invest money offshore for financial growth while utilising their South African investments to satisfy ongoing needs. Where offshore investments are concerned, the investor needs to ascertain whether to invest directly or via an indirect vehicle.

Converting Rands to a foreign currency for investing abroad is known as direct investing. Investors who have chosen this method maintain an offshore bank account and utilise money transfers to their investment vehicle of choice. This is primarily done to have money available in certain jurisdictions and as safety against local political instability.

Indirect investments require mechanisms for transferring funds abroad, formally known as asset swaps. In essence, this is classified as the offshore allowance of an investment manager.

Don’t forget possible tax implications

Investors frequently overlook a variety of tax issues when moving their assets offshore. For example, in the United States, the United Kingdom and other nations, non-residents must pay inheritance tax on assets. These investments also clamp down on estate duty taxes. These tax complications can be reduced through the use of an investment manager. Managers place offshore investments on a platform that legally entrusts them to handle all relevant tax affairs on your behalf.

Foreign currency fluctuations

Local investors are often preoccupied with short-term fluctuations in the Rand and the planned conversion rate. As a result, they forget to consider that as the Rand strengthens, so do the global markets. The Rand seldom strengthens while global markets are down, which is why investors should not wait for massive Rand improvements before investing. Instead, a better action plan is to phase in investments over a specific time frame to account for currency fluctuations.

Deciding where to invest

While the South African investment climate is somewhat restricted, offshore investing can become challenging due to the many investment choices. To determine which assets to invest abroad, investment managers must first conduct an investor risk and needs analysis.

Investors should remember that money invested overseas is best viewed on a medium to long-term basis, and it frequently comprises part of their discretionary portfolios. There is also the complexity of geographical exposure to equity markets. As a result, it is advised that investments be reviewed to structure a discretionary portfolio according to the relevant risk profile.

The experts at MMS Group offer professional income tax consulting services to ensure the income tax implications of your offshore investments meet the requirements of SARS and the Income Tax Act. For more information, contact our team.

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