How can a South African trust invest money offshore?

Feel free to reach out to PSG Wealth Adviser Adri Hörstmann  directly.

Individuals can invest directly in an offshore investment. A South African trust and individuals can also invest money offshore by means of an asset-exchange investment or feeder unit trust fund.

What is an asset-exchange investment?

An asset-exchange investment is a rand-dominated investment that is exchanged for foreign currency and invested offshore. Investors can gain access to an asset-exchange investment through a feeder unit trust fund that feeds directly into an offshore fund.

Asset-exchange investments are ideal for investors who do not want to invest their assets directly offshore, but still want to enjoy the benefit of exposure to foreign markets. Investors can invest in offshore markets and assets by using South African rand, yet without using their personal offshore investment allowance.

The benefits of an asset-exchange investment

Exchange-control benefit

• South African individuals can invest R1 million rand as a single discretionary allowance (without having to obtain clearance from the Reserve Bank) and R10 million in an offshore investment allowance (with Reserve Bank approval) offshore every year. These limits do not apply to an asset-exchange investment.
• South African individuals who have used their offshore allowance of R11 million already can therefore get additional offshore exposure without having to get tax clearance from the Reserve Bank.
• No tax clearance need be obtained because the offshore allowance of the investment platform and not the offshore allowance of the trust or individual is being used. The offshore allowance of the investment platform has already been approved by the Reserve Bank.
• South African trusts cannot invest directly offshore, but with an asset-exchange transaction they can still get offshore exposure.

Benefit of rand depreciation

• Investors share in the proceeds the fund managers generate and receive the benefit when the rand depreciates against foreign currencies.

May invest smaller amounts

• The minimum lump sum amount of R100 000 or repetitive monthly amounts of R1 000 that may be invested are considerably lower than those required by most platforms for direct offshore investment. Investors can make monthly contributions and gain offshore exposure in this way.

Other entities

• Companies, institutional investors and South African trusts can invest money offshore without obtaining tax clearance from the Reserve Bank.
• Minors, who may not invest directly offshore because of exchange control regulations, may invest money offshore through asset-exchange investments.

Diversification

• Allows investors to diversify their investment portfolios across international markets and currencies and to reduce their exposure to the local South African market.

How does an investor gain access to an asset-exchange fund?

All the major asset managers in South Africa have asset-exchange feeder unit trust funds available on their platforms. Local fund managers invest in offshore assets in accordance with the mandate of the feeder unit trust fund. Every investor can consider an asset-exchange investment that is in line with the investor’s financial objectives and risk appetite.

Prospective investors must also keep in mind that investments can be made directly offshore, introducing additional rules and tax consequences, such as situs tax and testamentary considerations. For more information on how to invest offshore, please contact Adri Hörstmann to assist you.