South African investors should be looking to invest in offshore markets to mitigate the risk of a shaky economy and a volatile currency, but many are being held back by misconceptions which prevent them from fully exploring their retirement and financial planning options.
Tim Mertens, the chairman of Sovereign Trust SA, said the combination of a downgraded credit rating, the forecast of negative GDP growth for 2020, an under-pressure Rand and an aggressive focus on tax collection by SARS meant that comprehensive planning by taxpayers was vital.
“Investing offshore is no longer something reserved for the high net worth market: it’s a necessary consideration for all South Africans. Those who can invest capital in other markets offshore, either passively or more actively, should take the opportunity as soon as possible. It’s time to debunk the myths around offshore investing so planners, business owners and investors can make an informed choice from the wide array of offshore options,” said Mertens.
Myth 1: Investing offshore is complex
With proper advice and the right partners, investing offshore can be easy. For those simply wishing to diversify an investment portfolio using the annual discretionary allowance of R10 million per year, there are simple structures available that can house any form of asset, whether active or passive. These structures can be tailored to individual circumstances.
Myth 2: Investing offshore is expensive
There are numerous stories of offshore service providers whose charging structures depleted overseas assets. However, says Mertens, there are low cost options available even on structures such as discretionary trusts, where fees are levied according to the value of the investment contribution. This is particularly popular for those wishing to invest for retirement provision. “The tiered approach to fees often results in trust structures that are highly cost-effective. In addition, the trust could be set up in a reputable jurisdiction such as in the Channel Islands, achieving both cost effectiveness and service quality,” said Mertens.
Myth 3: Offshore structures are illegal
Taxpayers are perfectly entitled to plan their affairs to legally reduce taxes by utilising tax concessions, benefits, exemptions or products such as a retirement annuity, says Mertens. “In the case of offshore structures involving cross border businesses, it is prudent to obtain independent tax opinion. However, for simple structures such as retirement trusts, this may not be required, especially when the annual discretionary allowance of R10 million is utilised, which would be sanctioned by both SARS and the SA Reserve Bank.”
Myth 4: Assets will not be safe offshore if the investor does not have control
Many investors are scared off by stories of non-regulated service providers who abscond, leaving the investor with little return or recourse. This can be avoided by using reputable service providers who have experienced, qualified legal and accounting experts on ‘the front line’. They should have Professional Indemnity Insurance in place as a pre-condition of licensing, as well as good relationships with banks, legal and accounting firms and professional organisations and regulators. This ensures comfort for the investor around the credibility and substance of the services being provided.
Myth 5: Access to offshore assets is difficult
Another common misconception is that offshore trustees will refuse a distribution to a beneficiary, or simply ignore the requests of the investor or member. These situations are extremely uncommon, says Mertens. “Proper legal separation from the offshore structure is the very thing that ensures the best chance of tax mitigation, or purpose for which the structure was set up. This is no different onshore, where retirement and provident funds are overseen, managed and controlled for the benefit of members by trustees.” In most cases, investments can be easily accessed if proper planning and the necessary compliance checks are done.
The bottom line is that it is prudent to batten down the hatches and plan for the protection of loved ones and hard-earned capital in times of economic strife, says Mertens. “Diversification, planning and future preservation of capital are all key for financial sustainability. If you get the right advice, offshore options are available for both investment and business diversification. The time to act is now.”