Taking your money offshore: what to consider now
Sable International specialises in cross-border financial and immigration advice and solutions
The climate of economic and political uncertainty has wealthier South Africans moving significant amounts of money out of SA, either through offshore investments or through physical migration. However, there are a host of things to think about before you move a cent.
Tim Powell, Sable International forex director, looks at the key considerations.
Depending on why you are taking money offshore, you may have to review the following before you go ahead:
- How much money can you transfer?
- Do you need to open a foreign bank account?
- Where will the money be invested?
- What is the time frame for tax clearances to ensure that you obtain them in good time?
- Must you financially emigrate and what are the implications in terms of SA exchange controls?
- Can you leave your SA bank account open?
- If you emigrate, what do you do with any assets left behind such as rental property, shares, retirement annuities?
- Will you potentially inherit from an SA estate one day and what are the tax and banking implications?
In terms of the SA Reserve Bank exchange control, SA residents are entitled to two annual allowances:
- R1m discretionary allowance (DA) — can be used for travel, gifts, study, alimony and foreign investment without having to apply for tax clearance
- R10m foreign investment allowance (FIA) — requires tax clearance for foreign investment
“It’s important to note that the R1m DA and R10m FIA allowances run from January 1 to December 31,” says Powell.
“Tax clearance applications for foreign investment have been taking longer than normal with Covid, so it’s advisable to get applications in as soon as possible. Also, from mid-December the SA Revenue Service (Sars) tends to go on skeleton staff and the probability of getting approval gets less the later one leaves their application.”
“Even if you have used your 2020 allowances, it’s a great time to get tax clearance and make sure that as early as the first week of January 2021 you can start using your 2021 allowances,” says Powell.
Powell says that there are generally three types of circumstances in which South Africans will be taking money offshore:
“First, there are those investing offshore to diversify investments. South Africans living in the country are allowed to have offshore bank accounts and invest offshore. I’m still amazed at how many clients still think this isn’t legal,” says Powell.
“Establishing an offshore bank account is a relatively straightforward process. We can easily open offshore accounts in the Channel Islands that can be pound, dollar or euro denominated. We can also open some onshore EU accounts.”
“Many people wanting to invest offshore may have waited this year to see if there has been any recovery in the rand after the volatile year we have had, and now urgently need to put in their applications to make this year’s allowance cut-off.”
For those investing offshore, people often choose to use their bank to move the money, where it may be more cost effective to use a forex broker. “People are often unaware of all the fees involved. Using a reliable forex broker, who will either charge commission or carry a standard swift fee, can ensure you avoid any hidden costs,” says Powell.
Using a forex broker rather than the bank is a quick and easy process:
- contact your broker to register for an account;
- submit your Fica compliance documents; and
- complete, sign and mail back the forms you’ve received from your broker.
“Once your broker receives your forms, they’ll register you and open an account for you — you’ll likely be able to transact the next day. Your broker of choice should offer the best possible exchange rates, low fees and personalised customer service with every transfer,” says Powell.
Second, there are those emigrating who are inevitably selling their homes and liquidating assets. Those planning to emigrate and move their investments should obtain a professional assessment of their personal circumstances, specifically considering:
- investment allowances;
- Sars tax clearance applications for foreign investment;
- emigrating and the cross-border tax implications; and
- maintaining bank accounts in SA.
“If you leave SA as a family unit (such as husband and wife), you would have a R22m allowance in the year of departure that you could transfer, plus further annual allowances for your children depending on their ages,” says Powell.
Some may need to consider financial emigration if they wish to access their retirement annuity savings.
“It can be a confusing time with all the exchange control rules and the banks are quick to suggest that you financially emigrate. This would require you to complete a form called an MP336 and to close your bank accounts in SA, transferring everything into a blocked rand account,” says Powell.
“However, financial emigration is only required in specific circumstances, and you should obtain professional advice from migration specialists like Sable International, before taking any drastic steps.
“Others may need to consider tax emigration — it’s complex and each situation needs to be individually assessed. Sable can assist with a complete solution with regard to transferring funds, financial emigration where required, and tax emigration.”
Investing in plan B
Third, there are those investors staying in SA, but looking for a plan B, effectively looking at “investment migration”. “These are generally high-net-worth individuals who have ability to invest in countries that have programmes that enable residence or citizenship, such as Portugal, US EB5, Malta or Montenegro,” says Powell.
This article was paid for by Sable International.
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