Wealthy South-Africans are often advised to invest offshore. Offshore investments that are done with the assistance of experienced and reliable financial advisors and asset managers may have certain advantages.
To ensure a successful and problem-free investment, an important aspect to consider is the tax implications. There are several ways in which an offshore investment can be done. Each option has different tax implications and it is important to understand these and plan accordingly.
To date, many South Africans have been able to get away with making offshore investments without declaring their income, dividends and capital gains arising from such investments in their South African tax returns. The annual loss from unearned tax by the state is estimated at R10 billion. The tax authorities are aware of this loss and it is unlikely that it will be allowed to continue for long.
It is in the interest of every South-African taxpayer with offshore investments to ensure that the taxable income and capital gains earned on such offshore investments are correctly and fully declared in their tax returns. One way to invest offshore is for the investor to make the offshore investments in their own name. All income, dividends and capital gains are then required to be translated to rand every year and declared in the taxpayer’s tax return. The value of the investments and any growth thereon will always form part of the investor’s taxable estate which will be liable for estate duty upon death. If investments are made with offshore asset managers that have no representation in South Africa, it may be necessary for the individual to draw up a separate foreign will in that country which will also appoint a foreign executor in terms of that will.
Another way to invest offshore is to use a long term policy from a South African insurer issued by a foreign branch of the insurer. As the insurer is based in South Africa, the policy can be dealt with in the investor’s South African will.
A third way, which is only available to the wealthier investor as a result of the cost and complexity involved, is to hold the offshore investments in an inter vivos trust set up in a foreign jurisdiction with a low or zero tax rate. There is however a long list of complex tax and other regulations requiring proper planning and strict compliance. Should an investor consider the option of setting up a foreign trust, it is of the utmost importance to seek expert advice.
Tenk (FH) Loubser is a director of TLA Wealth and Advisory Services. view profile>
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