What to consider when accessing your offshore funds to improve cashflow
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FNB has seen an increase in a number of its private banking clients with offshore investments bringing them back into the country, as a result of cash-flow constraints brought about by the Covid-19 pandemic and a rocky economic climate.
The common perception is that the process of bringing offshore funds back into the country is a complex one, however in most instances this can be done relatively quick and easily if the correct procedures are followed. Similarly, applying the right protocols will also ensure that the funds can be invested offshore again if they are no longer needed in South Africa, without any unnecessary fees or additional regulatory implications.
Chantal Robertson, part of the Global Solutions Team at FNB Premium, says: “If you are a South African resident who has made the informed decision to repatriate offshore funds back to South Africa, the good news is that the process is relatively simple and straightforward. Although it is vital to follow the right processes in order to ensure compliance and avoid any unnecessary fees.”
Similarly, following due processes will ensure that these funds, or a portion thereof, can simply be taken offshore again in the future.
The below are key things you need to consider when planning to tap into your offshore funds:
Annual Discretionary Allowance
All South African residents, 18 years and older, are entitled to an annual Single Discretionary Allowance of R1 million which can be used for many purposes including travel, gifting and foreign investment. In addition, individuals are also entitled to a Foreign Investment Allowance of R10 million, subject to tax clearance.
“This means that those funds, plus any related income derived offshore from them, are regarded as offshore assets and you are under no obligation to bring these funds back into the country. Similarly, any foreign earnings generated while living and working abroad are also exempt, as well as foreign inheritances received from non-residents,” says Robertson.
Robertson explains that since there is no requirement for you to bring any of these legitimate offshore funds back to South Africa, if you choose to do so then the rand equivalent of the money you brought into the country is re-transferable out of the country again at any point in the future. Importantly, if these funds do leave the country again, they are not deemed to be part of either your annual Single Discretionary Allowance or Foreign Investment Allowance.
No additional tax clearance required
In addition, there is no additional tax clearance requirement for such transfers. However, it is imperative that the incoming funds are reported as a disinvestment of capital on the Cross-Border Reporting System, which is the 511 Balance of Payment series.
Retain reference details
It is vital that one retains the relevant transaction reference details, such as the deal number and deal confirmation. This is the only information that we, as a bank, would require should you wish to re-transfer these funds abroad again when your local cash flow is stronger.
“With this said, the decision to bring funds back into the country should not be taken lightly. Before you make any decision, speak to your wealth manager for professional advice in this regard,” said Robertson.