If you want to physically take your rands offshore in a foreign-denominated currency investment, you first have to decide if you want to invest directly in shares or exchange-traded funds (ETFs), or if you want to invest in foreign unit trusts, says Magnus de Wet, director of Vista Wealth Management.
“When directly investing in shares or ETFs on a foreign stock exchange, the investor would be required to pick the share/ETFs themselves or make use of a stockbroker,” he explains.
“By investing in unit trusts, the investor leaves the hard decisions like foreign country weightings and asset allocation to the foreign unit trust manager.
“By investing directly in foreign shares, the investor, however, saves the asset manager fee, which could be substantial,” De Wet says.
“But be aware: unlike our local stock market, there are scores of shares and ETFs to pick from when you go international.”
You can also consider an offshore endowment policy, where you pay tax within the product at a flat rate of 30%, says Sonia du Plessis, investment planner at Brenthurst Wealth.
These endowment structures, also known as “offshore life wrappers”, are issued by local life insurance companies.
The life company is responsible for the calculation, collection and administration of any tax due, and this frees the investor of additional personal tax liability or administration.
However, Du Plessis stresses that this is only for investors in the highest tax brackets: “This is only for individuals who are being taxed at a rate higher than 30%. Otherwise it will increase your tax liability.”
The offshore endowment will protect your estate against foreign inheritance tax, which can be as high as 40% and doesn’t require the creation of an offshore estate, an offshore will and is not subject to executor fees.
“You can nominate beneficiaries, and upon death the money will be paid out to the beneficiaries,” says Du Plessis. “It doesn’t go through the estate.”
The potential savings on executor’s fees can be almost 4% of the investment value in SA. De Wet adds: “Offshore investment not in an endowment structure could even attract two sets of executors’ fees, in both the foreign and local country.”
He adds that, in the case of an offshore estate, difficulties often arise after the investor dies.
“These problems occur because many overseas jurisdictions do not recognise your South African will,” he says.
“With an offshore endowment structure, these problems and the need for an offshore executor are removed as the proceeds of the offshore endowment policy will be paid out to the beneficiaries you name in the policy or into your local estate.”