Latest data from Standard Bank shows an increase in South Africans setting up offshore bank accounts to protect their wealth from domestic economic uncertainties.
The lender said it had seen a 121% increase in the number of people opening accounts overseas since June last year.
“With domestic events like local elections, the energy crisis and general economic uncertainty, we have noted an increase in inquiries,” Bridgette Kruger, head of private banking clients at Standard Bank said.
“However, we generally find that clients wish to diversify across borders to protect themselves from unforeseen events and uncertainty by placing some of their wealth offshore. Global and local events have the potential to impact our investments locally. A good strategy is to have some money offshore.”
Diversification was the main motivator for clients’ desire to externalise funds offshore.
“The two main reasons are exposure to international markets and hedging against fluctuations in local currency. The increase in offshore limits under Regulation 28 has also given South Africans more room to diversify offshore,” Kruger said.
The two main reasons are exposure to international markets and hedging against fluctuations in local currency.
“Regulation 28 now allows retirement funds to invest 45% of their members’ money outside SA from 30% previously. It is possible that this increased offshore exposure makes people see a need to open offshore bank accounts,” she said.
Local investors have been expanding their offshore exposure following the National Treasury’s decision to allow local pension funds to invest up to 45% overseas.
SA’s exchange control regime has two legs: the first allows anyone over the age of 18 to send R1m abroad every calendar year without obtaining a tax clearance certificate; and the other allows individuals to externalise R10m per calendar year, but this requires a tax clearance certificate.
“Firstly, it is advisable to get tax advice on any international holdings prior to executing them,” Kruger said.
“SA operates on a residency-based tax system. This means, if you are a tax resident in SA, you need to declare your worldwide income to the SA Revenue Service (Sars).”
Tax neutral
She added that some jurisdictions, such as the Isle of Man, offered the advantage of being tax neutral.
This means that no additional income or capital gains tax is paid. However, one is still obligated to declare any income or growth earned abroad to Sars.
Kruger said another driver for the surge in clients opening overseas accounts was for travel purposes and the preference to have hard currency and not worry about the rand weakening against other currencies.
She said some clients planned to retire overseas and saw the need to save in the currency of their choice.
“This will help them avoid the worries of not having sufficient funds in hard currency when they are making the move. In some cases, with restrictions on exchange control, if you do not plan sufficiently in advance, you can be caught out with too few funds to purchase things like property or a vehicle in your desired country.”
Investec, the niche private banking and wealth management group, has identified Switzerland as an opportunity for its wealthy clients in SA and other jurisdictions to grow their wealth, as part of its international strategy.
The company has a target market criteria for that destination for clients with $3m or more of investable assets. Switzerland has long been one of the most attractive places for affluent families and offers the privacy they yearn for.
According to a new index by advisory firm Henley & Partners, Switzerland is the best country to build multigenerational wealth. The US came in second and Singapore third.
Kruger said some deep-pocket customers were sending their children abroad to study, hence the need to open accounts overseas to avoid exposure to local currency fluctuations or being short-changed when sending funds at disadvantaged exchange rates.
“We are seeing an uptake on young people pursuing tertiary education predominantly in the UK and US. In some instances, this leads to working abroad post studies. Parents tend to then split their time between SA and the country where their children have temporarily settled.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.