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By Aidan Freswick*

 A rather pleasant surprise to see the rand touch on its best levels since pre-lockdown circumstances and even further back as 6 years ago. Offshore investors are considering moving more money to other countries for investment purposes or private emigration. If some commentators are to be believed, they can take their time as the commodity cycle remains positive and strong and foreign buying of SA bonds continues, which will support the rand in the short to medium term.

The question ask yourself is, “what is a good exchange rate”? A year ago, one would believe that any value below R18/$ would be a good rate to buy USD. Offshore investing is about much more than the exchange rate and the chance to buy more foreign currency at a more favourable price. However, offshore investing is about seeking superior returns and opportunities compared to what the local market has to offer. Although the recent changes in the exchange rate made many excited, it is the one economic indicator most people are aware of and watch closely. There are many factors to look at when considering investing in the local market versus international markets.

A good start to an offshore investment journey should start with a comprehensive discussion between you and your advisor. For many years investors have seen the benefits of diversification when allocating a portion of their wealth to international markets. Not only does this enhance the investors’ chance of achieving their financial goals, but also, the investor has access to a world of opportunities other than what is available in local markets.

Wealth advisors are legislatively bound to conduct a full financial needs analysis for clients before making suitable recommendations. Offshore investing is volatile by nature, even after factoring in the fluctuations between local and foreign currencies. Should the advice to invest offshore be suitable, the investor would need to do a currency conversion from ZAR to the elected foreign currency-based portfolio. The investor would also need to familiarise themselves with the details of externalising capital abroad.

Exchange Control Regulations:

South Africa has exchange control regulations, which are enforced by the government and national treasury to enforce limitations on buying and selling currencies. The aim is to ensure stabilisation of the economy and to ensure that not too much capital flows out of the country, among other aims of these regulations.

South African Banking Resident:

A South African banking resident is an individual who has not formally emigrated through the reserve bank process and who is in possession of a valid barcoded South African Identity book or smart card. This means that when buying foreign currency for offshore investing, the investor will need to produce a valid ID for reserve bank reporting purposes. A South African banking resident is also permitted the following annual allowances:

Single discretionary allowance:

The single discretionary allowance runs per calendar year (1 January – 31 December), by which the investor can transfer R1m offshore without making formal permission applications to both SARS and the SARB.

Foreign investment Allowance

The foreign investment allowance allows an investor to invest values over R1 million but less than or equal to R10m. This allowance however requires the investor to obtain a tax clearance pin from SARS, and the proof of source of funds (such as proceeds of selling a property) would need to support this application to SARS. The investor can only apply to SARS for the value of capital that they possess. Upon SARS approval, the investor can buy foreign currency to be sent to their offshore investment account as advised by their wealth advisor.

Any value above R10m would require a formal application directly with the reserve bank and SARS.

How is the cost derived when doing a currency conversion?

It is advisable to use an intermediary forex service. A benefit of using an intermediary is that the authorised dealer (the bank) can negotiate favourable margins to an organisation like a wealth advisory company*, as large volumes of transactions are processed each year. This saving would then be passed on to the investor to enjoy a more preferential exchange rate than if the investor went directly to the bank. The exchange rate that an investor receives would be based on the live interbank rate.

 The interbank rate is the rate at which banks can access the foreign currency at. Then, the authorised dealer would add a margin onto the interbank rate, which is available to a forex intermediary and then quoted to an investor, on a live basis. Generally, a forex intermediary would be able to offer an investor a more ‘private client’ preferential rate rather than a normal ‘retail’ type rate, which is typically a better rate. It is important to note that exchange rates are live and constantly change in a matter of seconds.

All aspects of a sound financial plan, including investing offshore, are best approached with the guidance of a financial advisor together with a forex expert. Research by global company Vanguard has found that using professional advice has proved to be beneficial over time.