SA expats with offshore investment strategies are well-placed to build wealth

25 July 2018Philip Smith, Standard Bank

Philip Smith, Head of Investments and Fiduciary at Standard Bank Wealth.

Philip Smith, Head of Investments and Fiduciary at Standard Bank Wealth.

Today, the world is truly a village. People who have internationally required skills now often live and work far from home. The time spent abroad can differ, but the common denominator concerning all expatriate workers is how to preserve their incomes and build wealth.

Philip Smith, Head of Investments and Fiduciary at Standard Bank Wealth International, says that South Africans abroad, regardless of the contract period involved, accept international assignments without fully considering the implications involved. What should be considered and resolved before leaving South African shores are issues regarding taxation, opening and operating accounts abroad and how to make offshore investments.

“There is a difference between being an expatriate and a ‘financial emigrant’. Financial emigration involves people permanently leaving the country. Therefore, after completing the Reserve Bank and SARS requirements, they are no longer regarded as South African taxpayers. They may maintain accounts in South Africa, but these become ‘Blocked Asset/Non- Resident’ bank accounts and only limited transactions can take place. Local taxes remain payable on rents or dividends paid into these accounts from local sources.”

“Expats must pay South African tax, regardless of where they work, although they can earn up to R 1 million before taxes kick in. This may sound significant and will benefit some classes of earners who relocate. The sting in the tail, however, is the fact that SARS regards free accommodation, paid flights home and other perks as part of the R1 million tax- free allocation.”

General services freely available for expats and financial emigrants include:

• Setting up local foreign bank accounts for South Africans living or moving abroad in countries of an expat’s choice.
• Instant access deposit accounts which allow for easy offshore fund transfer from South Africa and allow the deposit of funds from any source.
• Multi-currency accounts. These are available in pounds, US dollars and Euro’s which suit an international lifestyle by making it simple to manage money in different currencies while living abroad.

“The major drawcard of working as an expat are the potentially lucrative opportunities available, especially if the expat is living in a country that does not levy personal income tax. As expat status implies an intention to return home, thus getting advice on how to invest while living abroad is important,” says Mr. Smith, who adds that the starting point of developing a bespoke offshore investment strategy should begin with:

• Understanding that offshore investment should be a long-term commitment.
• Deciding how much to invest
• The tax implications for personal estate planning
• Deciding what access will be needed to invested funds

“Many expats simply invest their international earnings in South Africa as they are comfortable doing so. However, they are losing major opportunities by not using their increased earning power to protect themselves against the volatility of the rand, which has steadily weakened over the years against hard currencies like the US dollar, British Pound, and Euro. This means that the buying power of their savings is constantly being eroded.”

“South Africans already living abroad, or considering doing so, should get the best advice they can from an adviser backed by a team of offshore investment specialists to make sure that they do not miss out on major opportunities to make offshore investments that help build their future wealth,” says Mr. Smith.