Structuring your offshore investments to suit your needs

Sufficient offshore exposure is important for any South African's investment portfolio.

Whether you know it or not, you probably already have a percentage of offshore exposure through your local investments or retirement annuity. This is because a handful of large SA-based companies like SAB Miller or Naspers earn much of their income in other countries, so by investing on the Johannesburg Stock Exchange (JSE), your portfolio benefits from that diversification.

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You can also gain offshore exposure through a process known as 'asset swap', where you place your money in a local unit trust that then invests offshore. The performance and value of your investment is reported in rand value.

This kind of offshore exposure lets you invest in rands and receive returns in rands, and it generally suits investors who want to increase their offshore exposure but start with smaller amounts; those who have no intention of leaving South Africa; or those who just want to increase their portfolio's diversification without converting any currency. However, you may not gain the full benefits of investing globally with this approach.

Building a truly diversified portfolio

For a portfolio that is globally diversified and insulated from rand weakness, you'll need to explore your offshore investment options.

All South Africans are allowed to take R1 million a year abroad without requiring any tax clearance. This would include converting your rands to other currencies to cover expenses like overseas travel.

If you get tax clearance and permission from the Reserve Bank, you can take a further R10 million a year out of the country in hard currency. This money can be transferred, for example, from a South African bank account to a forex bank account that lets you invest in options and products around the world.

Taking your money out the country

Moving your money outside the country's borders (physically, or by converting currency and sending your money to an International Finance Centre) lets you use it abroad more freely. However, a minimum capital investment amount often applies when investing directly abroad and the process is lengthier and more complex.

That said, it's often worthwhile for investors seeking the added security and stability of investing in hard currency; those who foresee regular offshore expenses like overseas business trips or periods of living, travelling or studying abroad; and those who have larger amounts of capital they wish to externalise in order to build it, protect it from undue tax or preserve it for future generations.

Often it boils down to considering your potential expenses in the medium- to long-term future. If you aim to spend money in another country, it makes sense to start saving for those expenses in a more widely used currency than the rand or the currency of that destination country.

Make sure your investments are optimally structured

Just remember, as long as you're a South African resident, all your offshore investments are taxable in South Africa, but an experienced financial professional can advise you on how to best structure your investments for taxation.

The correct structure is key to ensuring that your wealth isn't bound up in a property, for example, when you need it to be liquid, or that your assets don't get caught in another country's bureaucracy if you pass away (complicating your beneficiaries' access to it).

Getting these considerations right can make all the difference, as 'mistakes' are especially costly in foreign currency and especially stressful from a distance! Many investors opt for an investment structure like a global endowment, which simplifies the process and has tax advantages. Learn how an endowment structure can help you increase your portfolio's offshore exposure.

This article is not financial advice. Please consult with a financial adviser for financial advice.

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