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FOR some, getting tax clearance to take your money overseas
has been a bit like trying to move through airport security with a chicken
strapped to your head.
This has all changed, and not a moment too soon – the case
for investing abroad has rarely seemed so solid.
Government recently issued a circular announcing that you
can now invest R1m/year outside South African borders without having to obtain
a tax clearance certificate.
No clearance needed
Before the announcement, South Africans had an annual
“single discretionary allowance” of R1m to take out of the country, which could
only be used for travel, study, alimony and child support as well as for
donations. You were then also allowed to take R4m to invest abroad, but you
needed to have tax clearance from the SA Revenue Service.
But now you may also use the single allowance to invest
abroad – without tax clearance.
This has been welcomed, with some financial advisers
claiming that it was “virtually impossible” to get tax certificates for some
clients.
There have been complaints about constant changes in the way
applications have been processed and that SARS often decided not to issue the
certificate because of minor technicalities. In response, a number of small
outfits have sprung up, promising to assist investors in getting clearance
certificates.
Anti-laundering efforts
Gregg Sneddon of The Financial Coach in Cape Town, says SARS
sometimes seemed to require that applicants had to have the money they were
planning to invest abroad actually sitting in their bank account - they could
not move it from another investment.
This was part of anti-laundering efforts, says Sonja Frank,
a legal and tax adviser and director of Exceed Trust. SARS therefore requires
extensive source documents - including property transaction contracts and
transfer documentation - to make sure it knows where the money comes from. If a
client’s tax returns were not up to date this could also delay getting tax
clearance.
And the process for those wanting to start a business abroad - proving where your money will go, including premises and other expenses -
could be particularly onerous, says Frank.
She thinks that the new regulation will make a big
difference to those wanting to invest abroad.
So, the world is your oyster - and if you haven’t done so
already, you should get a tiny fork and some Tabasco, and dig in.
Shaky ground
There seems to be bargains elsewhere, with valuations in the
local market on the expensive side. The local market is trading at a
price-to-earnings ratio (which tells you how expensive a market is) of more
than 13 times - in line with its long-term average.
But US stocks are also trading at 13 times - significantly
cheaper than its historical average of 16. Other emerging markets like Brazil,
Russia, India and China are also trading at lower ratios than SA.
Also, the rand is looking shaky. The currency has already
lost 13% in the past year to the dollar, and 22% to the euro. Any further
weakening in the rand will give you an instant profit on your overseas
investments. With inflation ticking higher in SA, no sign of an interest rate
hike (which will make the rand more attractive to overseas investors looking
for yield) and amid continued nervousness about the eurozone (SA’s biggest
trading partner), it’s expected that the local currency may come under further
pressure in the future.
As a general rule of thumb, experts recommend having at
least 30% of your portfolio invested outside of SA.
“Offshore assets are included in investment strategies as
they behave differently to local assets and thus offer diversification
benefits. Investing offshore also allows access to opportunities that are not
available in SA - investing in Google or Microsoft for example,” says Jonathan
Brummer, Financial Planning Coaching Support Consultant at acsis.
Another reason to diversify is that the local market is very
resource-heavy, a sector, which may face a bit of a rough ride, according to
some. Allan Gray’s chief investment officer, Ian Liddle, recently questioned
the sustainability of commodity prices and mining company profit margins, which
are mostly substantially higher than their long-term averages. “For example,
the 21st century boom in iron ore prices has been of a similar magnitude to the
Nasdaq tech bubble in the Nineties, the Japanese stock market bubble in the
Eighties and the gold bubble in the Seventies.”
If you do want to diversify abroad, Sneddon likes direct
investments in global unit trusts – which are cheaper than going though
platforms like Glacier, which adds more costs and layers. Institutions like
Ashburton, Investec and Templeton, which operate in SA and are approved by the
Financial Services Board, offer offshore unit trusts to local investors.
- To read more articles on investing, go to www.fintalk.co.za
