The ben­e­fits of an off­shore bank ac­count

An off­shore ac­count holds nu­mer­ous ben­e­fits, and it is not as time-con­sum­ing, com­pli­cated or ex­pen­sive as you think.

Finweek English Edition - - COVER STORY OFFSHORE INVESTING - By Mag­nus de Wet editorial@fin­week.co.za is a di­rec­tor at Vista Wealth Man­age­ment, a rep­re­sen­ta­tive un­der su­per­vi­sion of Ac­credinet Fi­nan­cial Solutions.

nveis­tors

want­ing to get off­shore ex­po­sure in their port­fo­lios can ei­ther take their rands off­shore and in­vest (for ex­am­ple by buy­ing the S&P 500 ex­change-traded fund on the New York Stock Ex­change) or in­vest lo­cally in a rand­de­nom­i­nated off­shore in­vest­ment (like the CoreShares S&P 500 ETF on the JSE). In the­ory, the re­turns from ei­ther in­vest­ment op­tion should be ex­actly the same with a slight dif­fer­ence in taxes and track­ing er­ror from the ETFs. In the case of the lat­ter op­tion though, your re­turns from the in­vest­ment are still in rand, with your rands never ac­tu­ally leav­ing the coun­try.

Rand-de­nom­i­nated in­vest­ments are also not af­fected by ex­change con­trols, which limit the amount you can take off­shore. In short, South Africans are cur­rently al­lowed to take up to R10m a year off­shore sub­ject to tax clear­ance, and up to R1m with­out a tax clear­ance cer­tifi­cate. For a nor­mal in­vestor, this should not pose a prob­lem, and the cur­rent ex­change con­trol lim­its would only af­fect the very wealthy. There is of course a risk that the gov­ern­ment can re­duce the ex­change con­trol lim­its overnight.

These days most ma­jor South African fi­nan­cial in­sti­tu­tions (like Glacier, In­vestec, Lib­erty and Mo­men­tum) have off­shore in­vest­ment plat­forms in tax havens like Ber­muda, Guernsey and Jersey. Al­though you can de­posit your rands di­rectly with them to in­vest on their off­shore plat­forms, I rec­om­mend you rather open an off­shore bank ac­count and then de­posit your funds from that ac­count into your cho­sen off­shore in­vest­ment plat­form.

These days you can open a US dol­lar bank ac­count elec­tron­i­cally with a rep­utable in­ter­na­tional bank within five days. Hav­ing an off­shore bank ac­count pro­vides in­vestors with the fol­low­ing ben­e­fits:

Time:

As this is the first step in the off­shore in­vest­ment process, it gives you more time to do home­work on where and how you want to in­vest while you’ve al­ready locked in the ex­change rate. It is not rec­om­mended you just leave your money in a for­eign­de­nom­i­nated bank ac­count for an ex­tended pe­riod as in­ter­est rates off­shore are low.

Sav­ings ve­hi­cle:

While most off­shore in­vest­ment plat­forms would have min­i­mums with re­gard to ini­tial and top-up in­vest­ments, there are no min­i­mums in­volved with con­vert­ing your rands to your off­shore bank ac­count. In­vestors who there­fore don’t have enough funds avail­able to in­vest on an off­shore plat­form or in a spe­cific off­shore in­vest­ment ve­hi­cle can use their off­shore bank ac­counts to save un­til they have enough to start or in­crease an off­shore in­vest­ment.

Con­ve­nience:

Some off­shore bank providers would pro­vide you with a rand- and a for­eign­de­nom­i­nated cur­rency bank ac­count which are both in your name. The in­vestor would then first pay their rands into their rand bank ac­count with this in­sti­tu­tion.

This can be done by just cre­at­ing and pay­ing a ben­e­fi­ciary via your lo­cal on­line bank­ing plat­form. Once the rands are de­posited, the in­vestor just con­tacts their con­ver­sion agent to con­vert their rand pay­ment and put it into their for­eign­de­nom­i­nated cur­rency bank ac­count.

Trans­parency:

There is a cost in­volved with con­vert­ing your rands to a for­eign-de­nom­i­nated cur­rency. The con­ver­sion fee is mostly a per­cent­age-based fee and is col­lected by adding a few cents to the price you’re pay­ing for the for­eign cur­rency. For ex­am­ple, if the rand/dol­lar ex­change rate (as quoted in me­dia) is R13.50 per US dol­lar, you will pay R13.58. In other words, you pay eight South African cents more for ev­ery US dol­lar you buy. The process is how­ever very trans­par­ent, and your con­ver­sion agent will quote you the spot and the all-in price and it is up to you as the in­vestor to ac­cept it or not.

Stag­ger­ing:

Hav­ing an off­shore ac­count al­lows you to stag­ger the con­ver­sion of your rands into a for­eign-de­nom­i­nated cur­rency. With the volatil­ity of the rand, we rec­om­mend in­vestors to stag­ger their buy­ing of for­eign cur­rency and not con­vert all at once, as no one knows whether the rand is at that point at its top/bot­tom.

Con­trary to pop­u­lar be­lief, there’s no real ben­e­fit in con­vert­ing big amounts com­pared to small amounts. Only the SWIFT fee of about R250 is fixed per con­ver­sion trans­ac­tion.

Hav­ing an off­shore ac­count al­lows you to stag­ger the con­ver­sion of your rands into a for­eign­de­nom­i­nated cur­rency.

Flex­i­bil­ity:

Once your funds are off­shore in your own off­shore bank ac­count, you can in­vest in mul­ti­ple fi­nan­cial in­sti­tu­tions and are there­fore not tied to one spe­cific in­sti­tu­tion. You can also use your off­shore bank ac­count for debtors, cred­i­tors or other ex­penses you might have out­side the coun­try.

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