How to Invest in US Dollars From South Africa

South African residents investing in US dollars navigate a financial landscape shaped by specific regulations and various investment vehicles. This often stems from a desire for portfolio diversification, access to global markets, and a hedge against local currency fluctuations. Understanding the mechanisms for acquiring and holding foreign currency assets is a primary step to broaden investment horizons.

South African Exchange Control Framework

South Africa maintains a system of exchange controls, overseen by the South African Reserve Bank (SARB), which regulates the flow of capital into and out of the country. This framework aims to manage the nation’s balance of payments and economic stability.

Each South African resident adult, aged 18 and older, is granted annual foreign currency allowances. The Single Discretionary Allowance (SDA) permits the transfer of up to R1 million per calendar year for various legal purposes abroad, including investments, without requiring prior approval from the South African Revenue Service (SARS). The Foreign Capital Allowance (FCA) allows for an additional R10 million per calendar year specifically for offshore investments. Utilizing the FCA necessitates obtaining an Approval for International Transfer (AIT) from SARS.

These allowances are accessed through Authorised Dealers, commercial banks in South Africa appointed by the SARB. Beyond individual allowances, institutional investors, such as local asset managers, can access offshore markets through “asset swap” facilities. This mechanism allows them to invest in foreign assets on a rand-denominated basis, providing indirect exposure to global markets without utilizing personal foreign investment allowances.

Investment Avenues for US Dollars

South African residents have several pathways to gain exposure to US dollars and dollar-denominated assets. One direct method involves opening an offshore bank account, which allows individuals to hold foreign currency outside South Africa’s borders. While this offers direct control over foreign currency, any income generated in these accounts remains subject to South African taxation.

Another popular avenue is investing in foreign currency unit trusts or funds. These investment vehicles pool money from multiple investors to invest in a diversified portfolio of global assets, often denominated in US dollars. Some unit trusts are rand-denominated but invest offshore via asset swap facilities, while others are foreign currency-denominated, requiring investors to use their personal offshore allowances.

Direct offshore share and Exchange Traded Fund (ETF) investments provide a way to directly purchase US-listed companies or broad market ETFs through international brokerage platforms. Additionally, some South African financial products, including certain local unit trusts, provide USD exposure by leveraging their asset swap capacity to invest in offshore markets.

Moving Funds for Dollar Investments

Transferring South African Rand (ZAR) into US dollars for investment purposes involves specific procedural steps, primarily through an Authorised Dealer bank. For individuals utilizing their Single Discretionary Allowance (SDA) of R1 million, the process is generally straightforward. It typically requires presenting a valid South African identity document to the bank, as no SARS tax clearance (AIT) is necessary for this allowance.

When intending to transfer amounts exceeding the SDA, up to the R10 million Foreign Capital Allowance (FCA), an Approval for International Transfer (AIT) from SARS is mandatory. This AIT verifies tax compliance and is obtained through the individual’s SARS eFiling profile, usually valid for 12 months. Once the AIT is granted, the Authorised Dealer will require this approval, along with FICA (Financial Intelligence Centre Act) documentation, such as proof of identity and residence, to facilitate the transfer.

Individuals can also access offshore investments through local financial institutions that use their asset swap capacity. This process involves instructing the local institution to invest in an asset swap-enabled product. For funding international investment accounts, once the ZAR has been converted to USD via an Authorised Dealer using the appropriate allowance, the US dollars can then be transferred to the chosen offshore brokerage or investment platform. This typically involves providing the platform’s banking details to the South African bank for the final leg of the transfer.

Taxation of Dollar Investments

South African tax residents are subject to tax on their worldwide income, meaning income and gains from dollar investments must be declared to SARS, regardless of where the funds are held. Capital Gains Tax (CGT) applies to the disposal of offshore assets, including those denominated in US dollars. The capital gain or loss is calculated in Rand by converting the acquisition cost and disposal proceeds using the exchange rates on the respective dates. Individuals benefit from an annual capital gains exclusion, currently R40,000, and only 40% of the net capital gain is included in taxable income, resulting in a maximum effective CGT rate of 18% for individuals.

Income derived from dollar investments, such as interest and dividends, is also subject to taxation in South Africa. Foreign interest income is fully taxable and does not qualify for the local interest exemption. Foreign dividends received by individuals from foreign companies, particularly where the shareholding is less than 10%, are generally taxable in South Africa at a maximum effective rate of 20%. SARS applies a partial exemption, meaning a portion of the dividend, approximately 44.4%, is included in taxable income.

To prevent being taxed twice on the same income or gains, South Africa has Double Taxation Agreements (DTAs) with various countries, including the United States. These agreements determine which country has the primary right to tax different types of income and provide mechanisms for relief, such as foreign tax credits. If foreign tax has already been paid on the income or gain in the source country, a credit for that tax may be claimed against the South African tax liability, mitigating the impact of double taxation.