Published Date: 2020-10-16 | Source: INCE|Community | Author: Viv Govender | Rand Swiss | Wealth Manager
It has never been more crucial for South Africans to diversify their portfolios globally.
Unfortunately, many investors don't act because they're unsure exactly how South Africa's exchange control regulations apply to them.
Today, I'll simply outline the rules which apply to taking money out of SA. I'll also walk you through some of the costs involved.
The easiest way to break down the rules is to understand that the amount you want to move will determine the regulations that you face.
Up to R1-million
If you are 18 years or older and hold a SA ID document, you're allowed a R1 million discretionary allowance every calendar year. Before I proceed, I must mention this is a common point of confusion, as many people assume the allowance is for the tax year. It is not. The tax year runs from the 1st of March to the 28th of February. The calendar year is from 1st of January to the 31st of December.
The discretionary allowance, as its name suggests, is for any use. You can use it for any reason, including travel expenses or cash gifts or investments. So, if you took an overseas trip and spent R100,000 then you'll only have R900,000 left for the year.
In order to take advantage of this R1-million allowance, often all you need to do is sign a single self-certification form.
You have less than 3 months left to use this year's hassle-free allowance. If you haven't used the allowance before the 31st of December 2020, it will reset in 2021 but instead of managing to take R2 million out over the next few months, you'll be limited to only R1 million.
R1-million to R11-million
You're also allowed a R10-million foreign capital allowance per calendar year. There are certain conditions attached to this allowance. Most importantly, you can't use these funds to buy CMA assets or loan money to CMA residents. CMA means: The Common Monetary Area. This includes South Africa, Lesotho, Namibia and Eswatini (the country formerly known as Swaziland).
To utilise this allowance there are three main requirements:
Firstly, you will need a Foreign Tax Clearance Certificate (FTCC) from SARS. This could take you a few weeks, and it's pretty simple to do this via eFiling. If you've handed over your tax affairs to an external accountant, they'll usually take care of it free of charge. If you handle your own tax via eFiling you can do this with a few clients of a button. If you're working with Rand Swiss, we'll guide you through this process, every step of the way.
Secondly, you must show you have the funds available for the transfer. This is also a common mistake many people make. They apply for their full R10-million allowance, but don't have the supporting documents to back up their application.
You need to be able to prove you have liquid assets to the value of the amount you wish to transfer. Saying you will sell a business or a property for R5-million will not be accepted. You'll need a firm offer to purchase as "proof of funds".
Even better is having the funds waiting for transfer in a current account or liquid investment products like a Personal Share Portfolio which has an extremely short 3-day settlement period on the sale of shares.
Not having the correct supporting documentation will usually result in your request being denied. Again, working with Rand Swiss, we'll make sure your application pack is correct before we submit your documents.
It's also important to note, when proving your source of funds, they cannot come from local loans (or foreign loans) where you use local assets as collateral.
Finally, you'll need to submit a document showing three years' worth of assets and liabilities. Again, this doesn't have to be overly complex and most accountants or treasury agents will be able to assist you in putting together the list.
Transfers over R11-million
Using the allowances already discussed, you can move R11-million per year as an individual and R22-million per year for a married couple. This is usually sufficient for the vast majority of investors.
However, there are some for whom even these limits are too small.
If you wish to move more than R11-million, then special SARB approval is required. This process takes a little longer (usually at least a month) but with the correct assistance and motivation these applications are usually approved.
There are situations in which you cannot move your funds offshore directly and there are a variety of reasons why this may be the case. The funds may be held in a local trust or other wrapper, which will often limit your ability to move them out directly. In such cases, you may need to use an "asset swap".
An "asset swap" allows you to get offshore exposure for a fee. There is no limit to the size, but all funds must eventually be brought back to South Africa. Costs can vary greatly, but as with most things in life, the larger the transaction the cheaper the price.
Understanding the offshore transfer process
When it comes to processing the actual transfer, there are two main avenues available to most investors: Banks and Treasury Services. Generally, for any amount above R100,000, a Treasury Services will offer a better deal than a bank. The spread the big banks charge when they buy and sell currency can be significant.
They're often less transparent than Treasury Services, which are usually mandated to disclose their entire fee. That means I'd suggest using a Treasury Agent rather than just sending money from the local current account.
Given the allowances above, the volatility of the currency, and the nature of investing, it's often important to put together a decent exit plan. You can often take advantage of the allowances over multiple periods to slowly externalise your funds at better rates.
At Rand Swiss, if you commit to a total transaction value, we're happy to break up your trading over a longer period of time. You'll benefit from the lower rates on a large transaction, even if you're planning on doing multiple transfers over a number of years.
Right now, we have less than three months to go before the new year. If you're ready to diversify your portfolio overseas and want to take advantage of the low-hassle amount left on your 2020 allowance, you can register your interest via the following link.
We'll take you step-by-step through the transfer process. And don't worry if you don't have a foreign bank account.
We specialise in setting up offshore nest eggs for clients. We have a total end-to-end service and after a single discussion, you'll be able to move funds seamlessly via a normal local EFT into just about any global justification with confidence.