How to Buy Offshore Shares From South Africa

Diversifying investments globally offers South African residents opportunities to access international markets and potentially mitigate risks associated with focusing solely on local economic conditions. Investing offshore allows individuals to gain exposure to a wider range of industries and companies across different regions. This approach can also provide a hedge against potential depreciation of the local currency.

Understanding South African Exchange Control Regulations

South Africa implements a regulatory framework known as exchange controls, overseen by the South African Reserve Bank (SARB) through its Financial Surveillance Department. These regulations govern the movement of funds into and out of the country, aiming to manage foreign currency reserves and maintain economic stability. South African residents are subject to these controls when transferring funds abroad for investment purposes.

Individuals aged 18 and older who are tax residents in South Africa are eligible for specific annual allowances to transfer funds offshore. The Single Discretionary Allowance (SDA) permits transfers of up to R1 million per calendar year for various legal purposes, including offshore investments. This allowance resets on January 1st each year and does not require specific tax clearance.

The Foreign Investment Allowance (FIA) allows for an additional R10 million per calendar year for offshore investments. Utilizing the FIA necessitates obtaining a Tax Compliance Status (TCS) PIN from SARS, which confirms the taxpayer’s good standing.

To access these allowances, individuals must process transfers through an Authorized Dealer, usually a commercial bank. The Authorized Dealer will require documentation, including the SARS TCS PIN for transfers exceeding the SDA limit. SARS may request supporting documents for a TCS PIN application.

Methods for Offshore Investment

South African residents have several avenues for investing offshore, each with distinct characteristics regarding access and management. One common approach involves using local South African stockbrokers or wealth managers that provide offshore investment capabilities. These firms often partner with international institutions or have their own platforms to facilitate global market access.

When utilizing a local broker, funds remain within the South African financial system but are invested in rand-denominated feeder funds or through an asset swap mechanism. This allows investors to gain foreign currency exposure without directly transferring currency abroad, though capital gains tax may apply on rand gains. Local wealth managers offer guidance on fund selection and portfolio management.

Alternatively, investors can opt for international online brokerage platforms, which offer direct access to global stock exchanges. These platforms allow investors to hold foreign currency directly and invest in a wide universe of shares and other assets. Examples of such platforms include Interactive Brokers, XTB, and IG, many of which cater to South African clients.

Opening an account with either a local or international platform involves standard identity verification and regulatory compliance, known as FICA requirements. This includes providing proof of identity and residential address. A tax number is also required.

The Offshore Investment Process

Once an investor selects an investment method and understands the regulatory framework, the practical steps for offshore investment begin. The initial phase involves opening an investment account with the chosen brokerage platform, which entails completing application forms and submitting all required documentation.

Necessary documents include those for FICA compliance. For transfers utilizing the Foreign Investment Allowance, the SARS TCS PIN is a mandatory requirement. Submitting these documents to the chosen platform enables account activation.

After account establishment, the next step is transferring funds from a South African bank account to the offshore investment platform. This process is facilitated through an Authorized Dealer. The investor must instruct their bank to execute the foreign exchange transfer. For FIA transfers, the SARS TCS PIN must be provided to the bank.

With funds transferred into the investment account, the investor can place orders to buy offshore shares. This involves navigating the chosen platform, searching for specific companies or exchange-traded funds, and selecting the desired order type.

Taxation of Offshore Investments

South African residents are subject to taxation on their worldwide income, which includes earnings from offshore investments. Income generated or gains realized from offshore shares must be declared to SARS in annual tax returns.

Capital Gains Tax (CGT) applies to the disposal of offshore shares. For individuals, 40% of the net capital gain is included in taxable income and taxed at the individual’s marginal income tax rate. An annual exclusion of R40,000 is available, meaning gains below this threshold are exempt from CGT.

Foreign dividends from offshore investments are also subject to South African income tax. If an individual holds less than 10% of the equity and voting rights in the foreign company, the dividend is taxed at an effective rate of up to 20% due to a partial exemption. If the individual holds 10% or more of the shares and voting rights, the foreign dividend is fully exempt from tax in South Africa. South Africa provides a credit for foreign taxes paid on these dividends to prevent double taxation.

Beyond income and capital gains, offshore assets also have implications for estate duty in South Africa. Residents are subject to estate duty on their worldwide assets, levied at a rate of 20% on the dutiable value up to R30 million, and 25% on value exceeding R30 million. Some foreign jurisdictions may also impose their own estate or inheritance taxes, though South Africa has double taxation agreements with certain countries like the United States and the United Kingdom to mitigate potential double taxation.