Should we keep saving abroad?
A Fin24 reader writes:
My husband is currently working abroad and his permit expires in 2012. He will be returning to SA – would he be able to keep his bank account abroad and continue to deposit money into it as an alternative method of saving? Are there any rules and regulations we should take note of?
How would offshore investment benefit us?
Don Richter, an accredited financial planner with PSG Konsult in Houghton, responds:
Today, countries which still impose exchange controls are the exception rather than the rule.
Unfortunately South Africa is one such exception, even though exchange control regulation is much watered down from even a couple of years ago.
The main purpose of exchange control in South Africa is - and more particularly was - to prevent the loss of foreign currency resources through the transfer abroad of real or financial capital assets held in the country.
Fortunately the National Treasury has made significant concessions over the past few years, which allow individual taxpayers over the age of 18 and of good standing to apply for clearance to invest up to R4m per calendar year abroad.
However, seeing that your husband will be returning to South Africa and will therefore remain tax resident here, he will be required to declare any foreign reserves earned and retained in the offshore bank account within 30 days of arrival to Treasury or, more commonly, an authorised dealer.
Should your husband wish to add additional funds to this foreign investment, he will have to apply for clearance from the South African Revenue Service as stated above.
Even though the entire foreign investment application process sounds rather intimidating, in practice it isn't.
It should be noted that an offshore investment into a cash account will only really benefit you if the rand exchange rate weakens significantly, or if you earn significantly more interest in the foreign bank account.
Once you start considering the low interest rates typically earned on cash abroad or the adverse taxation once the foreign interest exceeds R3 700 per annum, then an investment into cash abroad quickly loses its appeal.
A better choice of foreign investment will arguably be in an appropriate offshore unit trust; any local financial adviser will be able to assist you in this.