This article discusses the complexities South Africans face when investing offshore, particularly for currency diversification or hedging against currency volatility. Key issues include:
- Jurisdictional Differences: Offshore assets are subject to the laws and financial regulations of the host country, which can impact taxation, access, and recourse in case of disputes. Investors should question their rights as non-residents in foreign jurisdictions.
- Double Taxation and Withholding Taxes: Offshore investments may be taxed in the country of investment, sometimes at higher rates than in South Africa. South African investors cannot claim tax credits for these differences, potentially resulting in higher tax burdens.
- Ownership Structures: Foreign countries may have different legal structures for asset ownership (e.g., joint bank accounts), which can create unintended consequences, primarily if not fully understood.
- Succession Laws: Wills valid in South Africa may not be recognised abroad, potentially causing conflicts in asset distribution. This could also lead to hefty inheritance taxes, depending on the country. For example, the UK and US have up to 40% inheritance taxes, and Spain can levy up to 82% in some instances.
- Estate Complications: Without careful planning, offshore assets may be tied up in lengthy legal processes, mainly if foreign taxes and probate issues aren’t addressed.
- Importance of Professional Guidance: The article recommends avoiding a DIY approach. Trusts, international pension schemes, and other financial vehicles may help mitigate legal and tax issues, but it’s essential to consult local and international experts.
- Regulation and Protection: South African investors are urged to use foreign financial products regulated under South African laws, ensuring better protection under the Financial Advisory and Intermediary Services (FAIS) Act and the Financial Services Conduct Act (FSCA).In summary, offshore investment offers growth and diversification opportunities but requires careful planning to navigate foreign tax laws, estate management, and ownership complexities.
Read the full article by Rex Cowley, director and co-founder of the specialist international pensions and fiduciary business, Overseas Trust and Pension, in Cover magazine, September 2024 edition here: https://magazine.cover.co.za/september-2024-edition/invest-offshore-with-your-eyes-wide-open/
