Investing offshore by staying local offers potential tax advantages

South African investors who find themselves having to cope with the volatility of local markets have long looked towards distant shores to seek better returns for their money because of the strength of advanced economies with leading companies like Apple, Facebook, Alphabet (aka Google) and Netflix generating extraordinary returns.

In doing this, choosing the right investment vehicle to take advantage of this offshore exposure is one of the choices you will be faced with. Depending on the way you choose to invest your money, there may be tax advantages, as well as additional benefits for the rest of your family in the long run.

While the JSE is one of the most advanced exchanges in the world, with a proven track record of good local companies, the process of diversifying your portfolio brings many rewards. It's no secret that South Africa makes up only a tiny portion of the world's capital markets.

With the relaxation of exchange controls and a discretionary allowance of up to R10 million per year available to invest overseas, many money savvy ordinary investors are investigating ways to get into these markets.

By putting your money in an offshore investment vehicle through a local money manager, you can decrease your exposure to the South African economy, while accessing different countries with different economies and invest in shares of some of the most profitable companies in the world.

With something like this you can also invest in offshore index trackers, which include equity, bond and cash trackers. Tracker funds reduce the costs of investing offshore due to their low management fees. One of the other advantages of staying with your local money manager is that you can further reduce your costs with lower platform fees by taking advantage of the aggregation benefit if you own other qualifying products with them.

Something not always considered by many investors is the managing of your estate. Some local investment products use an endowment wrapper, so no additional tax is payable when you need your money if you are the original owner.

The investment will be dealt with under South African rules, and can be transferred into an offshore or local bank account of your choice.

With your offshore investments being an endowment, the applicable taxes are generally advantageous to individuals in the highest tax bracket.

It's fair to say the choices you make with your money when heading overseas will influence your ability to enjoy meaningful returns in many cases. In this keeping your focus local by taking advantage of money managers operating locally within South African laws do offer some advantages.

We would suggest speaking to a Financial Adviser who can help you put together your offshore investments in a way the best suits your needs and personal circumstances. The global advantages are definitely there if you are willing to look at them from local perspective.