Understand your offshore allowance

*This content is brought to you by Shyft, the global money app, powered by Standard Bank.

With the year coming to an end, those with an interest in offshore investing would do well to make the most of their SDA. But what exactly is an SDA? And how about an FIA?

It’s the most wonderful time of the year. Or not. The end-of-year rush has us all scrambling to get work done, exams written, and festive season shopping wrapped up in time. For investors, the end of the calendar year marks the need to calculate how much of their Single Discretionary Allowance (SDA) and Foreign Investment Allowance (FIA) is left to make sure they get the most out of offshore investing before the fireworks go off on New Year’s Eve.

All South African citizens have offshore transfer allowances that renew on 1 January each year. For smart investors and global citizens, understanding how – and when – to use those SDAs and FIAs is all about knowing your limits. Here’s how it works.

How SDAs work

South African residents over the age of 18 are allowed an annual SDA of R1 million, which can be used at your discretion (that’s the D in SDA) – or, as the South African Reserve Bank’s guidelines put it, “for any legal purpose abroad (including for investment)”.

That means pretty much anything, from foreign travel to studying abroad, offshore investing, or shopping sprees on Amazon (yes, overseas purchases on your South African credit card also count). This SDA does not need tax clearance.

The dates are important, though, because the allowance applies from 1 January to 31 December every year, and you’re not allowed to carry over any unused allowance.

If you want to transfer more than R1 million – say, R1.5 million – then consider breaking it down into two amounts: R1 million late this year (provided you have not used your SDA during the course of the year at any authorised dealer), and R500 000 early next year after the 1 January reboot.

What is your FIA?

South African private individuals (residents 18 years and older) also get a foreign investment allowance (FIA), which lets you send an additional R10 million offshore. This also resets on 1 January each year, and with this there are some serious terms and conditions attached. For example, you need to be up to date with your taxes and successfully apply for a SARS tax compliance status (TCS) PIN letter, which will come with a special status PIN. That paperwork can take about 21 working days to finalise, or longer if there’s a backlog at SARS. (Also remember that, while your offshore allowances are based on the calendar year, TCS PIN letters are valid for a year after being issued.)

Once you have your TCS, you can convert your ZARs into USDs (or other foreign currency) and shift your money offshore into an appropriate investment. Your FIA lets you invest in a wide range of investment products, including offshore unit trusts and exchange-traded funds (ETFs), share portfolios, structured products, and exchange-traded notes.

Want to buy some Tesla shares? How about an offshore ETF that tracks the S&P 500, or shares in Amazon, Apple, or Alibaba? All those options are available to you – provided you keep your investments under that R10 million annual limit.

Be sure to keep track of how much you’re sending offshore, though. If you get carried away and decide to dump, say, R15 million into Twitter stocks, you’ll have exceeded your annual allowance and you might be subject to steep penalties.

The advantage of offshore investments

Offshore investments aren’t just a nice-to-have; they’re an essential part of any well-diversified portfolio, giving you access to – quite literally – a world of companies and global economies. But the rules of investment apply globally just as they do locally. Invest with your head, not your heart, and don’t try to time the market.

Timing the market is especially enticing when you’re considering your SDA and FIA. Those allowances are, we must emphasise, tied to the calendar year and not the tax year – so from that point of view, time is a factor. If you’re planning to move your money offshore (whether it’s R1 000 or R10 million), it can be tempting to wait for the currency exchange rate to swing in your favour. If you do so, particularly when markets are as volatile as they’ve been this year, you run the risk of waiting too long and missing the 31 December cut-off.

That’s where a digital solution like the Shyft app gives you the edge. Shyft lets you buy, send and store local and foreign currencies (USD, GBP, EUR, and/or AUD) at a live rate, and allows you to invest in the top US stocks and ETFs – all directly from your phone, anytime, anywhere.

This post was sponsored by Shyft, the global money app, powered by Standard Bank. With Shyft you can buy forex instantly anytime, anywhere, and at the cheapest rates, and invest in top US stocks and ETFs. Shyft was named Best Financial Solution at the 2021 MTN Business App of the Year Awards. Visit Shyft to download it now, no matter where you bank. Shyft operates under the license of The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287)

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