Know the ins and outs
What you can and can’t do with your R2m…
MAJOR DEVELOPMENTS within the region, marketing of properties in Indian Ocean islands – even the longer-term prospects of an economic revival in Zimbabwe – are prompting a fresh look by South Africans at investment opportunities in the states making up the Southern African Development Community.
But before taking the plunge, South African taxpayers contemplating investments outside our borders – perhaps even a flat in a European city rather than an SADC country – need to understand what’s allowed and, in particular, the scope of the measures introduced in this year’s Budget and now overseen by the SA Reserve Bank’s foreign surveillance division (formerly exchange control).
First, they should know there’s a special provision allowing individuals to invest in fixed property – a holiday home or a farm, perhaps – in SADC countries (Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, SA, Swaziland, Tanzania, Zambia and Zimbabwe).
To invest in an SADC country you’ll need a tax clearance certificate and, while there’s no limit on an investment, the Bank’s foreign surveillance division will need to know what – and why – you’re buying. That provision is additional to the measure allowing individuals to invest, subject to a tax clearance certificate, an amount of R2m anywhere overseas.
That’s an overall limit – not an annual allowance – and may not be applied to an investment in the common monetary area (CMA) comprising SA, Lesotho, Namibia and Swaziland. That puts paid to any notion of forming an offshore trust that invests in turn in SA – or elsewhere in the CMA (the so-called ‘loopback’ structure that facilitates the export of capital and is in contravention of SA’s exchange control regulations).
And if an investor having used his R2m allowance runs into a spot of bother – say, an apartment in London is un-let for several months and there’s no rental income or cash reserve to contrib- ute to a mortgage – funds will have to be borrowed offshore without any recourse to SA. In dire circumstances a special application to top up or support an investment beyond the R2m allowance may be made to the Bank.
The R2m allowance is in addition to the R500 000 discretionary allowance that South African residents aged 18 and over may use for travel, gifts, donations to missionaries and maintenance. SA residents aged under 18 have a R160 000 travel allowance. Previously, annual travel allowances were limited to R160 000/ adult and R50 000/child under 12.
The R500 000 is a “consumption” allowance for those four categories only. While no tax clearance certificate is required, the intent is to avoid the administrative overload created by a welter of applications from individuals wanting larger travel allowances or to increase payments to family members overseas.
It’s a “lose-it-or-use-it” allowance that doesn’t permit any carry over from one year to the next. And since its application is confined to the four categories, a part of it may not be used to top up your R2m overall allowance, overcome the bother experienced through the lack of rental income from that London apartment – or to put down a deposit on another property investment. Director at Mazars Moores Rowland
(a tax, audit and advisory firm)