Getting the most from your investments as a South African Investor requires you to consider so many possible negative variables that we often become overwhelmed and end up doing nothing.
As a South African taxpayer you need to be aware that personal taxes, business taxes and VAT are all likely to be increased in the coming years. This is in part due to our very slow growth rate, but also to finance SOE’s and Government’s National health insurance (NHI).
There are figures being bandied about of the NHI costing as much as R258 billion year. The Government can get this from reallocating funds from other areas, raising taxes. The private Health business has historically been very good business in SA with Discovery being a shining star in the South African corporate crown. The potential repercussions of NHI to the private health industry has seen Discoveries shares knocked more than 30% in the past year.
Healthcare professionals are also leaving the country in their droves and this is likely to increase further. Who is going to service all of these people that the NHI intends servicing when they pay highly qualified healthcare professionals and Doctors peanuts? Patriotism will get you so far but eventually, countries that value their qualifications will lure them away from SA to greener pastures.
The SA Government is making it easy for these countries! South Africa is in a mess, growth is low, there is a good chance we will be downgraded, SOE debt levels are at unrealistic levels, National debt is very high and business confidence is low. All of these factors result in companies holding onto cash or investing their cash offshore, waiting for signs of improvement or solid direction from Government.
OK, so you get the rather bleak picture, which is by no means a comprehensive bleak list! One thing is for sure, you need a diverse investment portfolio to weather the storm and one of the better diversification strategies IMO is to send your money off-shore.
By sending your money off-shore you are, diversifying your investments, getting global growth exposure, hedging against Rand depreciation and the mitigation of SA’s political and economic risks. All in one go!
This sounds like a fantastic way to stabilise your investments but what are the practicalities.
- As a South African, you have a single annual discretionary allowance of R1 million where no certificate or tax clearance from SARS is required.
- South Africans have a further R10 million investment allowance to invest offshore with a tax clearance certificate.
- Rand denominated offshore investments. Asset Swaps. It is important to note that with an asset swap, typically done through a unit trust, the funds are paid out in Rands when redeemed. This is due to the fact that the funds never really leave SA.
South Africans are taxed on their worldwide income so any returns would be taxable at the prevailing rate unless all or a portion are invested in Tax Free investments.
Offshore investing and structuring your investments for tax efficiency is critical, so consult a professional to help you get the most from your investments.