Portfolio diversification is a key consideration for your long term investments and off-shore investments should be considered as part of that diversification strategy. Investing off-shore and enjoying tax free returns is simply a bonus and every South African who is working and paying tax or retired and paying tax, should consider.

The current negative sentiment in South Africa and low business confidence, coupled with tensions between the worlds largest economies leaves little old South Africa in a potentially tight spot. South Africa’s growth outlook has been pegged lower, Treasury is under pressure to bail out the state owned enterprises and the ruling ANC is in the troes of infighting and factionalism on a scale not experienced before.

For those of us who love South Africa and all that it has to offer, the only thing to do is to try and take advantage of whatever tax breaks we get and to improve our chances of making a better return on our investments. We are certainly not alone in a World that seems increasingly at war with itself, so despair not, we are one of many countries working our way through a tough situation.

How to invest Tax Free off-shore

Firstly, you are limited to a Tax free investment of R500 000 in your lifetime or R33 000 per year. These tax free investments can be as lump sum investments or as monthly investments but you only get these amounts as maximum tax free investment allowances.

There are numerous funds available to you as an investor, each with a different risk profile. With higher risk comes the potential for higher returns, so depending on your risk appetite or your stage in life, youi have the freedom to choose a fund or combination of funds that fits your personal risk appetite.

We recommend that you consult a qualified financial planner in our partner pool to help you select the fund or funds that will help you achieve your savings goals.

Off-shore unit trust funds

By diversifying your portfolio with off-shore-unit trusts, you are reducing your overall risk and positining your portfolio for potentially higher returns. While the Rand is under pressure and South Africa’s financial outlook worsens, investing in off-shore unit trusts is the ideal and very simple way to diversify your portfolio.

By selecting a unit trust portfolio that invests in foreign companies gives you a potentially more stable investment than a Rand hedge portfolio or stock.

Let us not confuse your annual R1 million unrestricted allowance to invest off-shore, here we are dealing purely with the tax free invcentive offered by treasury. You can still invest the up to R10 million annually off-shore proving you get SARS approval to do so. The returns you make on the amount above the tax free allowance will be taxed at the prevailing rate.

The great thing about off-shore unit trusts is that you can supplement your investment at any time, making it easy to seperate your tax free investments from your other investments. The reason we recommend this strategy is that if you exceed the R500 000 life time allownace or the R33 000 annual allownace, penalties of up to 40% can be imposed.

In all cases we recommend that you consult a certified financial planner before you take out any tax free investment.