Five tips to ensure tax efficiency through the appropriate solutions when investing offshore

Offshore investing has become a vital part of clients’ investment portfolios due to its diversification benefits. However, it is imperative that you use the appropriate investment vehicle, with the best tax outcomes, when investing offshore. Abigail Kitshoff, Business Development Manager at Glacier International, provides some tips on how to optimise offshore investing through tax efficiency.

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Tip #1: Understand how to access direct offshore assets.

A South African client can currently invest offshore in two ways:

1. Invest in rands through a local solution and access offshore assets using an asset swap; or
2. Invest in foreign currency through an offshore solution and by obtaining SARS tax clearance. A direct investment option offers the following benefits:

a.??? Tax is paid on foreign currency gains, not rand gains.

b.??? You have access to a much wider investment universe.

c.??? You can withdraw funds from an offshore bank account in your name (investments via asset swap will be required for the money to be returned to South Africa).

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Tip #2: Understand the tax benefits of investing directly offshore when using the appropriate investment vehicle.

When you opt for a local investment solution to access offshore funds, you make use of a feeder fund – i.e. a local fund that invests in, or feeds into, an offshore fund – and capital gains tax (CGT) will be applied on rand gains. You could end up paying CGT of up to 18% on gains made due to a depreciating rand, even if your investment has not grown. The reverse may, however, also apply. The comparison below illustrates the possible impact on investment returns.

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?Tip #3: Understand the different investment vehicles and solutions when investing directly offshore.

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Glacier International provides a wide range of investment solutions to build offshore investment portfolios. To choose the most appropriate solution you will need to ask yourself:

1.??? Am I investing as an individual or through a company or trust?

2.??? Where is my tax residency?

3.??? Does my income tax rate exceed 30%?

4.??? What is the amount I intend to invest?

5.??? What are my investment preferences?

Tip #4: Consider using the recurring option of the Glacier Offshore Investment Plan to invest directly offshore.

If you’re just starting out and want to build a direct offshore portfolio without having to follow the SARS clearance and currency conversion process, you may consider the Glacier Offshore Investment Plan with a recurring investment option. The minimum investment amount is R5 000 per month, which would form part of your R1 million single discretionary allowance (SDA).

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Tip #5: Appoint a professional.

Making any kind of investment decision – whether local or offshore – requires skill, knowledge and experience, especially considering all the technical aspects of the tax implications. Appoint an appropriately authorised financial planner to help you on your investment journey. They will help you navigate a sometimes tricky, daunting world and design a portfolio suited to your needs and investment objectives.

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?Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.

Sanlam Life Insurance Ltd is a licensed life insurer, authorised financial services provider and registered credit provider (NCRCP43)