Offshore Investing for South Africans: How to Diversify Globally

By / October 19, 2025

Global diversification has moved from optional to essential for many South African investors. The local market offers quality businesses and […]

Offshore Investing for South Africans How to Diversify Globally

Global diversification has moved from optional to essential for many South African investors. The local market offers quality businesses and attractive yields, but it represents a small portion of the world’s investable assets and is concentrated in a handful of sectors. Offshore investing helps spread risk, capture wider growth opportunities, and introduce hard-currency earnings into your portfolio. This comprehensive guide explains what offshore investing is, how South Africans can do it within the rules, the available product routes, the tax and cost considerations, and a practical framework to build and maintain a globally diversified plan.

What Offshore Investing Means (In Plain English)

Offshore investing simply means allocating money to assets that are domiciled outside South Africa. In practice, South Africans usually follow one (or both) of these paths:

  1. Direct offshore in foreign currency: You open a USD, EUR, or GBP platform or brokerage account and transfer currency abroad before buying foreign-domiciled funds, exchange-traded funds (ETFs), shares, bonds, or money market instruments.
  2. Rand-denominated offshore: You invest rands into local products that feed into offshore assets (for example, rand feeder funds, asset-swap unit trusts, or JSE-listed global ETFs). Your investment exposure is international, but you transact and hold the instrument locally in rand.

Both paths can work together. Many investors begin with rand-denominated solutions for simplicity, then add a direct offshore account when they need a broader menu or multi-currency cash pockets.

Why Offshore? The Key Benefits

  • Sector Breadth: Global markets provide meaningful access to technology, global healthcare, premium consumer brands, aerospace and defence, semiconductors, and industrial automation that are under-represented in South Africa.
  • Currency Diversification: Offshore assets earn and price in hard currencies such as the US dollar, euro, or pound. Over long horizons, this can partially hedge rand depreciation risk.
  • Geographic Risk Reduction: Spreading exposure beyond a single economy reduces the impact of country-specific risks, policy uncertainty, and local shocks.
  • Deeper Opportunity Set: Thousands of listed companies and a vast bond universe allow you to build more balanced portfolios, mixing growth engines with defensive cushions.
  • Portfolio Resilience: Diversification can reduce volatility and improve the odds of meeting long-term goals without relying solely on one market’s fortunes.

What South Africans Are Allowed To Externalise (Exchange Control 101)

South Africans invest offshore under the South African Reserve Bank (SARB) exchange control framework and South African Revenue Service (SARS) compliance rules:

  • Single Discretionary Allowance (SDA): Up to R1 million per adult per calendar year for offshore spend or transfers without prior SARS approval. This is processed via an authorised dealer (typically your bank’s forex desk) with standard FICA and supporting documents.
  • Foreign Investment Allowance (FIA): Up to R10 million per adult per calendar year, generally subject to SARS’s Approval for International Transfers (AIT) and supporting documentation.
  • Above these levels: Larger transfers may require special approvals and will involve a more detailed compliance review.
  • Authorised Dealers: Banks act as authorised dealers and handle reporting to the authorities. Expect to provide proof of source of funds, tax status, and standard KYC documentation.

Good to know: Rand-denominated offshore feeder or asset-swap funds usually do not require you to use your personal SDA or FIA at all, because the asset manager utilises its own foreign capacity. This is a major reason why many South Africans start there.

Five Practical Routes To Offshore Exposure (With Pros and Cons)

1) Rand-Denominated Offshore Funds (Feeder / Asset-Swap)

How it works: You invest rands in a South African unit trust or life-wrapper that feeds into an underlying offshore fund. The manager converts exposure using its own allowances.

  • Pros: No AIT admin; lower minimums; debit orders; straightforward FICA; suitable for building habits and for investing on behalf of minors.
  • Cons: You hold a South African-domiciled product; proceeds pay out in rand; performance reflects both underlying asset returns and currency moves; capital gains in rand inherently include the currency effect.

Best for: Easy, compliant access to offshore markets with minimal paperwork.

2) JSE-Listed Global ETFs and Rand Funds

How it works: You buy JSE-listed ETFs or unit trusts that track global indices. Some are direct; others are feeder structures. You transact in rand through your local broker or platform.

  • Pros: Simplicity; local custody; eligible for tax-free investment (TFI) accounts where rules permit; clear transparency on index exposure.
  • Cons: You still hold a local instrument; tracking differences and total expense ratios (TERs) vary; check if the ETF is a feeder or direct structure.

Best for: Hands-off global exposure with tight costs and familiar administration.

3) Direct Offshore Platform or Broker (Foreign-Currency Account)

How it works: You open a foreign-currency investment account with an offshore platform, transfer currency using SDA/FIA, and invest in foreign-domiciled ETFs, funds, equities, and bonds.

  • Pros: Full international menu, including UCITS funds and global money market options; multi-currency cash buckets; access to instruments not available locally.
  • Cons: Foreign transfer admin and costs; additional tax reporting; you must consider withholding taxes and potential situs estate tax exposure depending on jurisdiction.

Best for: Experienced investors or those needing specific global instruments or multi-currency flexibility.

4) Offshore Endowment / Life Wrapper

How it works: A life company issues a policy that holds a curated menu of offshore funds. Tax on investment returns is handled within the policy according to policyholder tax classes, which can simplify ongoing administration and suit particular tax profiles.

  • Pros: Potential tax efficiency for high-bracket individuals and some trusts; simplified reporting; beneficiary nomination and succession features.
  • Cons: Product rules and access periods apply; policy and platform fees; not universally tax-better for everyone. Suitability depends on personal circumstances.

Best for: Investors prioritising administrative simplicity and specific estate-planning features, where the tax profile is favourable.

5) Offshore Exposure Inside Retirement Funds (Regulation 28)

Retirement annuities, pension funds, and provident funds can allocate a significant portion of assets offshore within Regulation 28 limits (aggregate foreign exposure up to commonly cited caps). This means your compulsory savings can already contain meaningful offshore building blocks, with professional managers handling compliance and rebalancing.

Best for: Long-term, tax-advantaged savings where you want professionals to manage the offshore component within the regulatory caps.

Tax Basics For Individuals (High-Level Overview)

South African tax residents are taxed on worldwide income. Offshore investing adds a few moving parts:

  • Capital Gains Tax (CGT): Individuals include a portion of net capital gains in taxable income, resulting in a maximum effective rate that is widely referenced in public SARS tables. Keep meticulous records of base costs in rand, including foreign exchange rates on purchase and sale dates.
  • Foreign Dividends: Generally taxable in South Africa, but a partial exemption formula often applies when you hold less than 10 percent of the foreign company. If you meet participation thresholds (for example, at least 10 percent holdings with voting rights), some foreign dividends may be exempt. Confirm the specifics in the prevailing SARS interpretation notes.
  • Foreign Interest: Unlike local interest, foreign interest typically does not enjoy the same annual exemption for residents. It must be declared and converted to rand.
  • Dividends Tax (Local): Dividends from South African companies are normally subject to a withholding tax at the prevailing statutory rate, distinct from the foreign-dividend regime.
  • Foreign Tax Credits (Section 6quat): South Africa provides relief for taxes paid offshore, subject to documentation and rules on utilisation and carry-forward. Maintain statements and withholding tax certificates to substantiate claims.
  • Tax-Free Investments (TFIs): Returns inside TFIs are exempt from income tax, dividends tax, and CGT, subject to annual and lifetime contribution limits. Many JSE-listed global ETFs are eligible and can be powerful compounding engines if held for decades.

Important: Cross-border tax can be nuanced, particularly around withholding taxes, treaty relief, and potential estate or inheritance tax exposure in foreign jurisdictions. Professional advice is strongly recommended if you plan to hold foreign-domiciled assets directly.

Costs and Forex: What To Expect

Transferring money offshore and maintaining foreign assets involves several cost layers:

  • FX Conversion Margin: Banks and intermediaries quote a rate around the interbank rate; the spread they apply is a material part of your all-in cost.
  • Transfer and SWIFT/Telegraphic Fees: Outward payments may incur bank fees, intermediary bank charges, and telegraphic transfer fees. Always ask for an all-in quote.
  • Platform, Brokerage, and Custody Fees: Direct offshore platforms charge account or custody fees, dealing commissions, and sometimes inactivity fees. Local platforms charge admin and brokerage fees for JSE trades.
  • Fund and ETF Costs: Total expense ratios (TERs) and possible performance fees vary. Small differences compound significantly across decades.
  • Wrapper/Policy Fees: Offshore endowments add policy charges in exchange for tax and estate administration benefits. Assess value carefully.

Tip: Cost transparency is a competitive advantage. Request a written breakdown of FX spread, transfer fees, platform fees, and product TERs before you invest.

Building A Sensible Offshore Allocation (Practical Framework)

  1. Define Purpose and Horizon
    Are you hedging retirement, saving for children’s education in hard currency, or building inter-generational wealth? Your goal and time horizon determine the growth versus stability mix.
  2. Choose The Right Route(s)
    • Start with rand-denominated feeders and JSE-listed global ETFs for ease and low admin.
    • Add a direct offshore platform for multi-currency cash, UCITS funds, or instruments unavailable locally.
    • Consider wrappers where their tax and succession features clearly suit your profile.
  3. Construct The Core
    • Global Equity Core: Broad, low-cost exposure across developed and emerging markets.
    • Global Bond Sleeve: Investment-grade government and corporate bonds to moderate volatility.
    • Local Sleeve: Retain a measured allocation to South African assets to match rand-based liabilities and capture local opportunities.
  4. Decide On Currency Hedging
    Many investors hold equities unhedged to benefit from currency diversification, while selectively hedging parts of the bond sleeve to reduce FX noise.
  5. Automate And Rebalance
    Set target weights and either rebalance by time (for example, annually) or by bands (for example, when an asset drifts more than five percentage points from target). Automate contributions to maintain discipline.
  6. Document Your Plan
    Keep a simple one-page investment policy: objective, time horizon, target asset mix, product list, rebalancing rules, and when you will review.

Offshore Inside Retirement Funds

If you contribute to retirement annuities, pension, or provident funds, managers can allocate a significant portion offshore within Regulation 28. Understand how much foreign exposure already exists in your compulsory savings, then adjust your discretionary portfolio so your household exposure matches your intended global tilt.

Common Mistakes To Avoid

  • All-Or-Nothing Thinking: Diversification is about balance. Moving everything offshore or everything local is rarely optimal.
  • Ignoring Product Structure: Feeder funds, JSE-listed global ETFs, direct offshore ETFs, and endowments each have distinct tax and liquidity profiles. Match the structure to your use-case.
  • Underestimating Fees and FX Spreads: The difference between a tight and a wide FX margin can dwarf the platform fee. Always compare all-in costs.
  • Forgetting Cash and Emergency Needs: Keep a rand emergency fund so you are not forced to sell hard-currency assets at the wrong time.
  • Chasing Themes: Satellite ideas (for example, single-theme ETFs) belong in small weights around a robust global core, not as the main engine.

Step-By-Step Checklist (Discretionary Money)

  1. Select Your Route
    Decide between rand-feeder solutions, JSE-listed global ETFs, and/or a direct offshore platform.
  2. Prepare Documentation
    Ensure FICA documents, SARS tax number, and proof of source of funds are on hand. For transfers above R1 million, prepare for the AIT process.
  3. Get All-In Quotes
    Ask your bank or intermediary for the total FX spread and transfer fees. For platforms, list admin, dealing, custody, and inactivity fees.
  4. Implement The Portfolio
    • Rand-feeder and JSE routes: invest rands via your local platform.
    • Direct offshore: transfer currency, then buy your target instruments.
  5. Record Everything
    Keep contract notes, platform statements, and FX confirmations. Track cost base in rand for each holding and each contribution.
  6. Review Annually
    Rebalance back to target weights, reassess risk capacity, and update beneficiaries and wills. Consider jurisdiction-specific estate planning if you hold foreign-domiciled assets directly.

Offshore Exposure Via Tax-Free Investments (TFI)

Tax-free investment accounts allow you to hold eligible JSE-listed global ETFs or rand-denominated offshore funds and pay no income tax, dividends tax, or CGT on returns inside the account. Contributions are subject to the prevailing annual and lifetime limits, and contributions above those limits incur penalties. Used for decades, TFIs can be exceptionally powerful—especially when filled with diversified global equity exposure and left untouched.

Frequently Asked Questions

1) Is rand-denominated offshore worse than direct offshore?
Neither is automatically better. Rand-denominated offshore is simpler and avoids AIT, while direct offshore offers a broader menu and multi-currency flexibility. Many investors blend both.

2) How much can I take offshore per year?
Typically up to R1 million under the Single Discretionary Allowance, and up to R10 million under the Foreign Investment Allowance with AIT. Larger amounts require additional approvals.

3) Should I hedge currency risk?
Equities are often held unhedged for diversification benefits, while parts of the bond sleeve may be hedged to stabilise returns. The right approach depends on your goals and tolerance for volatility.

4) Do I need a foreign will?
If you hold assets directly in certain jurisdictions, a foreign will or specific estate planning could be prudent. If you invest via South African wrappers or rand-feeder funds, local estate administration is often simpler. Seek professional guidance.

5) Will I be taxed twice on foreign income and gains?
South Africa generally allows foreign tax credits under section 6quat, subject to rules, limits, and documentation. Keep meticulous records to claim relief correctly.

A Sensible Way Forward

  1. Decide your target global allocation based on your time horizon and risk capacity.
  2. Populate the core with broad, low-cost global equity and bond exposures.
  3. Use the simplest structure that achieves your goal.
  4. Keep costs low, document your approach, and rebalance consistently.
  5. Reassess annually and after major life events, not after every market headline.

If you approach offshore investing with clear goals, disciplined contributions, and thoughtful product choices, you can build a resilient portfolio that balances South African opportunity with global growth and currency diversification.

Sources

Related Posts