OFFSHORE INVESTING & BANK ACCOUNTS

At Vista Wealth we recommend a client’s offshore exposure to be at least 50% of their total investment portfolio. In order to accomplish this we’ve smoothed the offshore investment process. We can now get our client’s ZAR converted and into a foreign denominated currency bank account within one week. We can then invest the foreign currency in an offshore JP Morgan trading account OR an offshore structure in Bermuda, Guernsey or Jersey through Allan Gray, Glacier, Ninety One, Stanlib or Momentum. The process end-to-end can take as little as two weeks.

Offshore investing tips:

Investors are reminded that the South African Reserve Bank (SARB) still applies a policy called exchange controls when it comes to offshore investing. This policy limits the amount of Rands that South African individuals and companies can convert and take out of the country for investment purposes. As a reminder the policy states that if you are a SA resident over the age of 18 years, holding a South African ID and have a SARS income tax number, you can utilise your annual individual offshore allowances of up to R11 million (R10m foreign capital allowance and a R1m single discretionary allowance) per calendar year (1 January to 31 December) by investing in a foreign-denominated currency investment. For the R1m single discretionary allowance (SDA) per calendar year, no SARS foreign tax clearance or other permissions are required. For investments utilising the R10m foreign capital allowance, the investor needs to apply for a foreign tax clearance from SARS. Lastly and very importantly, companies, trusts and partnerships are not allowed to invest directly offshore.

With an asset swap the above exchange control rules does however not apply. This is because you are utilising another financial institution’s (bank or asset manager) allowable capacity to expatriate Rands. It is important to note that the financial institution is not borrowing the investor the money to invest offshore, the investor must still transfer the investment amount to the financial institution to facilitate the asset swap. Your Rands is then physically invested abroad, in your chosen currency, but it must be repatriated when you want the funds.

The asset swap can also facilitate back-to-back transactions where for example directors of a company can be remunerated from the asset swap facility in a foreign denominated currency without the directors having to repatriate the funds to SA first. It is important to note this back-to-back transaction would still need to comply with the SARB exchange control rules applicable to the director’s allowance.

The financial institution facilitating the asset swap is however going to charge the investor for this asset swap service. Surprisingly it is not very expensive and can be as little as 0.3% (30 basis points) per annum on a R1m investment. To put this into absolute terms and at current levels, the Rand only needs to weaken from R18.00 to R18.06 to the US dollar to cover your annual asset swap costs of 0.3%.

In conclusion, an asset swap facility allows SA individuals, companies, trusts and partnerships to invest offshore without the limitations of exchange controls. Below a summary of positives and negatives associated with an asset swap.

Positives of an asset swap:

• Lock in the exchange rate – Quick to market as you do not need to wait for SARS tax clearance
• By utilising an asset swap, an SA individual, company, trust, or partnership can invest offshore – An offshore investment account can allow for investing in foreign denominated unit trusts, shares, ETFs and capital protected investment opportunities as listed in the next section of this newsletter
• Back-to-back transactions are allowed without having to repatriate the funds to SA
• There are no estate planning implications associated with asset swap as there is no foreign legislation considerations

Negatives of an asset swap

• Minimum investment amount of R1m is required
• There is an annual asset swap fee raised by the financial institution facilitating the asset swap. These fees are usually on a sliding scale with larger asset swap amounts attracting lower fees and vice versa. As indicated above, the fees are however less than what you would expect

Below a high level list of offshore investment services we provide at Vista Wealth:

1. Foreign denominated currency bank accounts with transparent and low conversion rates
   1. Click here to read more about our professional Forex service
2. Offshore share portfolios – Foreign currency denominated
   1. Shares – Invest directly in shares like Google, Boeing and Visa
   2. Exchange Traded Funds (ETFs) – Invest directly in international ETFs like S&P500, Vanguard and Semiconductors
   3. Investment Trusts – Low cost actively managed funds like Monks, Bankers and other themed trusts
3. Offshore unit trust investment – Foreign currency denominated
   1. Invest in FSCA approved offshore unit trusts
   2. Invest in some of the best international unit trusts like Dodge & Cox, Schroder and Orbis to name a few
4. Offshore single stock futures (IDX) – Rand denominated
   1. Investors can take leveraged positions on international shares. Traded and cleared on the Johannesburg Stock Exchange (JSE)
5. Local share portfolios – Rand denominated
   1. Invest directly in shares in dual listed companies listed on the JSE
   2. Invest directly in ETFs based on foreign indices and themes listed on the JSE
6. Offshore tax wrappers where investors are taxed at a maximum of 30% as oppose to the potential 45% tax rate for higher income earners – Foreign currency and Rand denominated
7. Capital and return guaranteed foreign underlying products – Rand denominated example below
   1. Investec Emerging Markets Digital Plus – Product pays 22% if the index is flat/positive + 100% of the upside beyond 22%. 100% Capital Protection measured at maturity should the index not fall by more than 30%.