With the relaxation of exchange control regulations, offshore investing has become increasingly accessible to South African investors in recent years, and more individuals are taking advantage of opportunities beyond local borders. Whether you’re seeking greater diversification, foreign currency exposure, or access to industries not represented on the JSE, offshore investing can form a vital part of your overall wealth creation strategy. However, investing abroad involves complexities that should be carefully navigated. Here’s what to know.
- While the South African stock market is both sophisticated and efficient, it represents less than 1% of global investable assets – although keep in mind that many JSE-listed companies generate a significant proportion of their earning offshore (currently around 65%), providing investors with some indirect offshore exposure. As such, investors should not pursue offshore investing solely as a Rand hedge, as many local portfolios already benefit from global revenue streams.
Key takeaway: Don’t underestimate the global exposure already built into your JSE investments when assessing your offshore needs.
- International markets offer South African investors access to industries and sectors that are largely underrepresented or absent locally, including biotechnology, semiconductor manufacturing, aerospace and defence, electric vehicle production, and cloud computing infrastructure – with these sectors often being at the forefront of innovation. These sectors are often at the forefront of innovation and offer significant growth potential. Investing offshore allows you to tap into these global trends while diversifying your portfolio across geographies, currencies, asset classes, and industries. This broader exposure is a key pillar of long-term risk management and wealth creation.
Key takeaway: Offshore investing opens the door to high-growth sectors that are not available through the JSE.
- When investing offshore, it is important to diversify between developed and emerging markets – largely because developed markets are typically more stable, liquid and efficient, while emerging markets can offer higher growth potential, albeit with greater volatility. As such, a balanced allocation between the two can help provide security and growth.
Key takeaway: A mix of developed and emerging markets is essential for balanced offshore diversification.
- While concerns about political instability and economic challenges often motivate South Africans to consider offshore investments, it’s important to recognise that such issues are not unique to South Africa. Globally, geopolitical tensions are escalating, with conflicts in regions like Ukraine, Gaza, and the Taiwan Strait contributing to economic uncertainty and market volatility. Further, trade disputes, such as recent tariff implementations by major economies, have disrupted global supply chains and trade relations. Note, therefore, that investing offshore should not be a hedge against local instability but rather a strategic move to mitigate global risks and to take advantage of international growth opportunities.
Key takeaway: Offshore investing is about global risk diversification, not simply hedging against local problems.
- South Africans have two primary mechanisms to invest offshore. The first is via a Rand-based offshore fund (also known as a feeder fund), where your investment is made in Rands, and the fund manager converts the money into foreign currency to invest in offshore markets. The second option is to directly invest in foreign-domiciled funds by moving money into an offshore bank or brokerage account and transacting in foreign currency.
Key takeaway: Choose between Rand-based and direct offshore investing based on your goals, currency preferences, and administrative comfort.
- South African tax residents may externalise up to R11 million per calendar year, comprising a R1 million Single Discretionary Allowance (SDA), which does not require tax clearance, and a R10 million Foreign Investment Allowance (FIA), which does require pre-approval and a tax clearance certificate from SARS.
Key takeaway: You do not need to use your SDA and FIA sequentially. In other words, you can use either allowance independently or combine them within the same calendar year.
- Direct offshore investing is appropriate if you intend to access funds abroad—for example, for international education, travel, or retirement in another country. However, it is not advisable to use offshore investing to speculate on short-term currency movements. Remember, currency volatility may result in short-term gains or losses, but long-term investing should remain focused on strategic goals, not currency arbitrage. Having said that, bear in mind that offshore investing introduces complexities such as foreign tax obligations and estate planning challenges.
Key takeaway: Let long-term goals drive your offshore investment decisions—not currency fluctuations.
- South Africans enjoy a number of local tax incentives, including the deductibility of retirement annuity contributions and the tax-free savings account structure. These vehicles, however, are subject to Regulation 28 of the Pension Funds Act, which limits the extent of offshore exposure permitted within retirement funds. Encouragingly, the regulation was amended in 2022 to increase the offshore allowance from 30% to 45%, providing investors with greater opportunity to diversify globally through their retirement portfolios. It’s therefore important to factor in the global exposure you enjoy through your retirement funds when structuring your investment portfolio.
Key takeaway: Don’t overlook the offshore exposure already embedded in your regulated retirement savings.
- If your offshore exposure is limited to foreign-domiciled investments—such as unit trusts or ETFs—you generally don’t need a separate foreign Will, as these assets can be included in your South African Will. However, if you own immovable property or run a business abroad, it may be necessary to draft a Will specific to that jurisdiction. Keep in mind that certain countries, including the UK and the US, impose inheritance tax on assets held by non-residents, including listed shares.
Key takeaway: The nature of your offshore assets determines whether you need a separate foreign Will.
- Unlike South Africa, which recognises freedom of testation and allows individuals to distribute their estate as they wish, many civil law jurisdictions apply forced heirship rules that may override your intentions as set out in your Will. These laws are designed to protect close family members—typically a surviving spouse and children—by legally entitling them to a fixed portion of your estate, regardless of your personal wishes or testamentary instructions. This means that even if your South African Will excludes certain heirs or distributes assets differently, local laws in those jurisdictions may take precedence. Forced heirship rules vary significantly between countries and can affect not only immovable property but also financial assets such as bank accounts and shares. If you own assets in a jurisdiction that applies forced heirship, it is essential to seek specialist estate planning advice to ensure that your overall legacy plan remains coherent and legally enforceable across borders.
Key takeaway: If you own assets in civil law countries, consult an estate planning specialist to avoid unintended outcomes.
With the right knowledge, tools and guidance, every investor can access global markets to enhance diversification, manage risk and align their investment portfolio. However, your decision to invest offshore should be grounded in a comprehensive financial plan wherein your offshore allocation is designed to support, not substitute, your long-term wealth strategy.
Have a fantastic day.
Sue
