Don’t take your money offshore before considering the implications when it comes to the laws of overseas jurisdictions in terms of tax, ownership, and inheritance, among others.
Rex Cowley, the director and co-founder of the specialist international pensions and fiduciary business Overseas Trust and Pension, says you need to be aware of the complexity and expense you may inadvertently be creating for yourself and your family by holding assets in another country.
Cowley says there are many reasons why South Africans would want to invest money offshore. Widening differences in exchange rates and the cost of living between South Africa and developed countries can present problems, for example, for the parents of children who end up living overseas.
“How would this impact your life as a parent, especially if grandchildren arrive? Now you’ve got an overseas journey to make regularly,” he says.
Other reasons would include planning for possible future emigration; investing while you’re working offshore, with a view to repatriating the money when you return or simply investing in some of the world’s most successful companies.
Investing offshore in the context of this article refers to taking your money out of the country and investing it in an offshore financial vehicle such as a trust or investment fund, where it would be accessible to you overseas. It does not refer to rand-denominated funds operated locally that invest globally. In these funds you don’t actually take money out of the country.
Cowley says that for the past decade or so, exchange controls have been relaxed to the extent that South Africans can move large portions of their wealth offshore (R11 million per year per individual, made up of a R1 million single discretionary allowance and R10 million foreign capital allowance).
However, he warns that there are many pitfalls, and it is wise to get expert advice before taking action. “If you’re taking your money overseas, the questions include where are you putting it, what are you putting it in, and what are the things you need to be conscious of?”
Some of the considerations are:
- Different jurisdictions, different laws. “When placing assets offshore, many people overlook the reality that those assets are now in a different jurisdiction with its own laws and financial services regulations, which govern those investments, as well as how they should be taxed and how they can be accessed,” Cowley says. While South Africa has a well-regulated financial sector, other jurisdictions may not offer the same protections. “What happens in a worst-case scenario? Can you get your money back? How do you complain? What rights do you have as a non-resident?” he points out.
- Taxes on investments. Depending on the nature of the investments, income or gains may be taxed at source, which may not be reclaimable. Property investments can be particularly complicated, because property income generally requires that a foreigner registers as a taxpayer (not a tax resident) in that country and files tax returns.
- Ownership of assets. The way people own assets in other countries can differ from South Africa. For example, in South Africa, citizens can only have bank accounts in one person’s name, with the option for someone else to have signing powers. Some countries, however, offer joint accounts with equal ownership. This means that all parties to that account have equal rights, and any one of them can withdraw money. This can also apply to investment accounts, share portfolios and, in some instances, insurance policies.
- Wills and inheritance. Many South Africans’ wills cover their worldwide assets, but although the will may be valid in South Africa, it does not necessarily mean it is valid in another country, and there may be a conflict in the laws of succession. Employing a lawyer to get probate (the process of proving that a will is valid and confirming who has authority) to wind up an estate can be extremely costly and time-consuming. Also, inheritance tax may apply. For example, inheritance tax in the UK is a flat 40%.
Cowley says certain jurisdictions are better geared for global investing than others, and a professional adviser should be able to guide you in choosing a location for your offshore assets as well as an appropriate product in which to house them. “The issues flagged here are not a reason not to invest offshore, but are factors that need to be carefully considered before doing so,” he says.
PERSONAL FINANCE