For years, sending funds offshore felt like navigating a maze of red tape. Quietly and decisively, however, the South African Reserve Bank (SARB) and South African Revenue Service (SARS) have been rewriting that script. With the easing of regulations over time, such as the gradual increases in allowances and changes, and changes such as allowing entities such as trusts to externalise funds, the SARB and SARS have been shifting the narrative from gatekeepers to enablers to encourage investment into South Africa.
Many South Africans externalise a portion of their funds for both practical and strategic reasons. For some, it’s to hedge against the rand’s volatility and protect hard-earned wealth. For others, it’s about opportunity – diversifying into global markets, property or other offshore investments. At times, it’s for deeply personal reasons such as looking after a loved one living abroad, or a child’s tuition.
Below, we break down how individuals, trusts and companies can externalise funds in a compliant and practical way.
Single discretionary allowance
South Africans can use their single discretionary allowance (SDA) once per calendar year to externalise up to R2 million, a welcome increase from the previous R1 million by National Treasury. This can be done without a tax compliance PIN from SARS. Once the funds have been externalised, they can be used for your desired purpose offshore, ranging from investments, to travel or the maintenance of dependents living abroad. As an aside, it has become a popular trend for South African students to complete or further their tertiary studies abroad. If payment of fees and tuition for offshore institutions is made directly from your local bank account to the institution, this would not form part of your SDA.
Foreign investment allowance
When externalising more than the SDA amount, but less than R10 million, you can use your foreign investment allowance (FIA). The FIA requires that you go through SARS’s approvals for international transfers (AIT) process to obtain a PIN. To obtain the AIT PIN, you must be tax-compliant, provide the source of funds, and submit a three-year statement of your assets and liabilities. You can click here to see the requirements on the SARS website.
Notably, even though your SARS AIT may last for 12 months, your SARB allowances pertain to a calendar year. To the extent that you don’t use your allowance, you lose it!
Special application
Contrary to popular belief, you can externalise funds exceeding R10 million. The SARS process is the same (apply for an AIT PIN), but it includes an extra step: you need to apply to the SARB. The SARB currently only approves applications of more than R10 million if the funds are intended for investment purposes. Whether you intend to invest in different asset classes offshore, including immovable property, the SARB is likely to give the green light.
Unlike SDA and FIA funds, special application funds are subject to annual reporting obligations to the SARB to ensure they remain invested as intended.
Since 2021, special application funds may also be contributed to offshore trusts. This is another positive indication of the SARB easing exchange controls.
Asset swap
An asset swap is a great way to gain offshore exposure almost immediately without the need for an AIT pin. Both individuals and entities may utilise the asset swap mechanism.
An asset swap is an institutional investment allowance that allows investors, via institutions such as Investec Wealth & Investment International, to invest offshore into listed instruments. Although the investor would have offshore exposure, it’s important to note that asset swap investments are never fully externalised and remain within the SARB regulatory framework.
Many investors use the asset swap mechanism to gain offshore exposure and mitigate foreign currency fluctuation while they wait for their AIT pins to directly externalise their funds.
Externalisation by trusts
A local trust does not have an allowance to invest directly offshore. A trust may gain offshore exposure through an asset swap. However, a local trust may make a distribution of funds directly offshore to an individual or to an entity, such as a company or an offshore trust.
This distribution requires two approvals. First, the trustees would need a manual letter of compliance from SARS. Thereafter, an application must be submitted to the SARB for final approval.
For more on distributions from local to offshore trusts, please click here.
Externalisation by companies
South African companies may move capital offshore either by way of an asset swap (without SARS and SARB approvals) or through a foreign direct investment (FDI) in an offshore company, with approval from an authorised dealer. The FDI route is capped at R5 billion per annum, and it must go towards an active trading business, not a “passive” one, i.e., operating unlisted businesses. This comes with an obligation to report annually on its offshore investment. A company may externalise more than R5 billion, but must do so with SARB approval.
Moving money offshore does not have to be confusing or complicated. SARS and SARB have been gradually relaxing regulations to enable greater financial freedom for South Africans and encourage inward investment into the country. By staying abreast of the regulations, it’s easier to find a way to externalise your money in a manner that best suits your needs.
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