Top considerations when moving your money offshore

From the beginning of January to end-February, there has been increased uptake of solutions that facilitate externalising of funds by South African clients. With increased challenges around load shedding and broader opportunities, more people may be thinking about moving money offshore to mitigate risk

Since the onset of Covid-19, ultra-high-net-worth clients have shifted more funds offshore. Conversely, those who were vulnerable to the impacts of the pandemic, typically the self-employed or entrepreneurs, started to redeem funds back to make ends meet. This meant breaking some of their investments, which is often only allowed in the face of exceptional circumstances.

Whether you are wanting to move funds offshore, or bring them back to South Africa, there are certain practicalities to be aware of.

Different ways of moving money out of South Africa

It is much easier nowadays to move money offshore. There are two options for South Africans to get international exposure. Route one is to invest into offshore assets through feeder funds. This option allows you to invest into international funds, however, you will not have invested it directly offshore, but rather via your investment manager.  These are essentially South African unit trusts or similar investments that feed into a direct offshore fund. The investment is made in ZAR, which the investment company then converts into foreign currency under their own allowances rather than yours – also known as an asset swap. Your investment will always be in ZAR if you redeem it and you cannot leave it in the foreign currency, nor have access to the hard currency.

Route two is taking your money offshore directly using the discretionary or foreign investment allowance. The single discretionary allowance (SDA) allows for individuals to move up to R1 million offshore, between the first of January and end of December of any given year. Funds can be moved electronically, either via your Online Banking platform or Mobile banking app, for example to a Standard Bank Isle of Man Bank account or investment. Please note there are restrictions from an Exchange control perspective relevant to the R1m SDA. For example, the applicant may use it for investment purposes, travel, loan or gift it to a non-resident individual, or a resident temporarily abroad not on business or travel, but may NOT dispose of it or place the proceeds at the disposal of other South African exchange control residents abroad .We recommend that you discuss your personal circumstances with an appropriate exchange control advisor .

There is also a foreign investment allowance, set at R10 million per individual per annum. It’s important to note that South Africans must first obtain a tax clearance from the SA Revenue Service (SARS) before they can use this allowance.

The foreign investment allowance cannot be transferred electronically. Should you wish to use the R10 million foreign investment allowance, you can visit any bank branch with a Bureau de Change, or forex desk, fill out a balance of payments form, and agree to a rate that you are comfortable with. The money can take up to five days to reach the account of choice.

In both the discretionary and foreign investment allowance routes, clients that opt not to open a bank account can send the money directly to some investment institutions. However, it is strongly advisable for those taking this route to set up a bank account offshore just in case you want or need to redeem funds at any point.

South African resident individuals may also apply to externalize in excess of R 10 million per annum, but is subject to a SARS tax clearance, as well as an approval from the South African Reserve Bank (SARB). A formal application needs to be lodged to SARB with your bank. Should it be granted, certain restriction would apply, for example, you would not be able to transfer (gift or loan) to a foreign trust and also not to place the proceeds at the disposal of other South African residents abroad.

When is the right time to move money offshore?

When considering moving funds offshore, it is very difficult to predict where foreign exchange rates are moving to. You should seek financial advice if required prior to deciding on the currency you wish to invest into and when to move your funds offshore.

Those who are rate sensitive might want to consider drip-feeding funds into hard currency. For example, if you plan to send R10 million out, send it out in tranches and, possibly benefit from pound or dollar cost averaging. This means that if you send your funds over in three or four tranches throughout the year, it is likely that you would have received the best possible rate, on average, without spending hours trying to monitor the forex rates. Please note these are general comments and professional, independent advice relevant to your personal circumstances should be obtained

In this case, it is important to be aware that there will be some fees charged on top of the currency spread such as swift and commission fees.

Tax implications to consider when externalising funds

The tax implications of externalising funds would depend on the specific facts and circumstances of the taxpayer and may also be impacted by the tax legislation in the country of investment, the legislation relevant to the investor’s country of tax residence and double tax treaties to name a few.  

 Since South Africa operates on a residence-based tax system, as a South African tax resident, you are taxed on your worldwide income. Thus, regardless of where funds and investments are held, interest, dividend or capital gains arising from such fund and investments are likely to be subject to tax in South Africa. In addition to income tax and capital gains tax, other relevant taxes that may apply may include withholding taxes, estate/inheritance taxes and donations tax.

As investor’s circumstances are unique, tax advice relevant to your personal circumstances and the proposed transaction should be obtained.

Offshore joint accounts

The main difference between local and offshore banking is that locally, you cannot have a joint account with your partner or child over 18 whereas it is accepted practice in the offshore jurisdictions. Where a married couple have an offshore account together, and one spouse is survived by the other, the account will remain fully functional and available to the surviving spouse and will not form part of the deceased’s spouse’s estate which is to be administered under the deceased’s spouse Will. This is as a result of the survivorship principle that is applied in offshore markets. It is important to consider the advantages and disadvantages of joint account from a tax, estate planning, exchange control, marital regime perspective, as the joint accounts may be beneficial in some cases, and problematic in others.

However, many individuals often misunderstand that their portion of the money that sits offshore will still form part of their estate calculation for South African estate duty. And to complicate matters further, there are other international laws to be cognisant of such as situs/inheritance tax that may apply in the UK, US and or other jurisdictions. Independent legal advice in the jurisdiction of any offshore assets is always recommended.

At Standard Bank, we do not provide tax advice and encourage our clients to research the matter with a licensed practitioner to prevent any tax surprises. If a client is engaging us to set up a company or structure for them in an international jurisdiction, we would require a copy of the tax advice rendered.

Important information

The Standard Bank of South Africa Limited (‘’Standard Bank’’), an authorised Financial Services Provider (FSP number 11287) and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06)

Standard Bank Isle of Man Limited is licensed by the Isle of Man Financial Services Authority. Standard Bank House, One Circular Road, Douglas, Isle of Man, IM1 1SB. Registered in the Isle of Man No. 4713C.