DIRECT VERSUS INDIRECT OFFSHORE INVESTING

Article by: Roodepoort Advisor: Reneè Roe

With all the troubles South Africa has faced as a country, and continues to face, investing offshore has become a hot topic. South Africa has grappled with mismanagement, the bailing out of inefficient SOEs, and a stagnant economy, amongst other issues.

While the recent elections have shown voters’ displeasure at the current government, the question still remains: where do we invest our hard-earned money, if not in South Africa?

This article offers a brief look at, and the main methods of investing offshore.

Why invest offshore?

A well-diversified investment portfolio should have an offshore component. This allows for access to different companies, economies, and jurisdictions. While retirement funds are capped at a 45% offshore allocation, products such as TFSAs, investment portfolios, endowments, direct offshore products, and living annuities on some of the available platforms, offer ample opportunity for offshore exposure.

There are two methods mainly used to invest offshore:

• Direct offshore investing involves investors externalizing their Rands by converting to a different currency – mainly USD, GBP or EUR – and investing in a product in your name, in a jurisdiction other than South Africa. This means your money physically leaves South Africa. Each individual has an annual Single Discretionary Allowance (SDA) of R1mill and a Foreign Investment Allowance (FIA) of R10mill. Tax clearance is not required in respect of the R1mill SDA, but a tax clearance certificate is required for the R10mill FIA. Direct offshore investing is the more involved of the two methods and may be more costly, due to conversion costs. Minimum investment amounts may be applicable. There are tax consequences, and while it offers greater diversification, there are still risks attached to investing offshore – the outbreak of Covid19 in 2020, Russia invading Ukraine in 2022, and a variety of conflicts in the Middle East are examples of risks that global economies have had to face, or are still facing today.


• Indirect/rand-based offshore investing is the simpler of the two methods and more accessible for the majority of investors. By using a local LISP platform mandated to invest in foreign assets, the platform’s foreign exchange capacity can be used to send your money offshore, without converting it into another currency. Generally, this is done through investment into a local asset manager’s “feeder fund”, using an asset swap facility. Your money doesn’t physically leave South Africa, but you still reap the benefits of offshore investing. It is more cost effective, there are generally no minimums and monthly contributions can be made, depending on which investment products are used. There may be tax consequences, again depending on which investment products are used.

Investing offshore should be carefully considered, as rash decisions may lead to mistakes. Externalize appropriately, with a properly drafted and thought-out financial plan, to make the most of this investment strategy.

For more suitable offshore strategies give Reneè a call on 072 998-6889 or email her at reneer@growthhouse.co.za