One way South Africans can protect their wealth from a weak rand

Moving money offshore can offer South Africans diversification, rand protection, tax benefits and long-term wealth planning.

Sovereign Trust SA director Coreen van der Merwe said nothing in the South African Income Tax or Reserve Bank regulations prohibits South Africans from opening an overseas bank or investment account, or setting up an offshore trust.

“In fact, placing money offshore is often a prudent financial strategy,” Van der Merwe said.

She explained that exposure to international assets offers three vital benefits: it hedges against rand depreciation, enables portfolio diversification, and opens up access to a broader range of investment opportunities.

Van der Merwe explained that opening an offshore bank account makes sense early on in most cases, especially for individuals earning income abroad or running a business with international exposure.

She said offshore banking is a relatively straightforward way to build financial resilience and global diversification.

Setting up an offshore trust is usually a next-level step. “It becomes appropriate when your wealth reaches a certain scale, or when estate planning, intergenerational wealth transfer, or asset protection become key priorities,” she said.

“The benefits of asset protection, estate planning, and structured wealth transition can justify the setup costs of trusts.”

According to Van der Merwe, a high tax burden, exposure to litigation risk, or the need to ensure generational wealth may prompt earlier trust structuring.

In these cases, an offshore trust offers preemptive protection of assets. However, it is important to note that not all offshore locations provide the same benefits.

“Political stability, legal robustness, tax treaties, regulatory transparency, and the reputation of the financial services environment should all be taken into account when assessing a jurisdiction’s suitability,” she said.

According to Holborn Management Services, popular offshore investment destinations include Mauritius, Luxembourg, and the Cayman Islands.

Offshore investment accounts

Van der Merwe also outlined the different types of offshore investments, which offer different benefits and drawbacks.

Many South Africans use foreign currency accounts to manage foreign invoices and payments. Van der Merwe said these accounts remain subject to exchange control regulations and lack true independence.

“In contrast, offshore transactional accounts allow for the receipt of foreign funds, execution of global payments, and access to funds being held in foreign jurisdictions via debit, credit, or prepaid cards,” she said.

Funds in these accounts can also easily be transferred into various offshore investment accounts. When choosing an offshore bank, Van der Merwe urged South Africans to consider some things first.

This includes the minimum balance requirements, fees, online access, service reputation, and whether a personal appointment is necessary or a licensed intermediary can assist remotely.

A major advantage of offshore bank accounts is that they can offer tax benefits, allowing users to reduce their overall tax burden. However, it is crucial to remain compliant with tax regulations.

“It is also crucial to understand that while offshore earnings might not incur tax in their local jurisdiction, South Africans are taxed on worldwide income, interest and capital gains,” she added.

“Tax compliance is increasingly being automated under Common Reporting Standards, meaning that balances, interest and dividends are automatically reported to SARS via offshore banks.”

Offshore trusts

Knowing when to move from simply holding funds offshore to placing them in an offshore trust is essential, Van der Merwe said.

“While offshore accounts offer flexibility and convenience, trusts are designed for long-term wealth protection and legacy planning,” she said.

Some people use offshore trusts as a way to preserve assets across generations. “Others look to trusts to shield their wealth from divorce or creditor claims, or to provide for children with special needs,” she added.

Trusts are also useful for assets that cannot be easily split, like property, or when there is a clear need to separate personal wealth from business interests.

“In many cases, a trust offers an added layer of fiduciary oversight, especially when beneficiaries may not be financially experienced or able to manage money independently,” she said.

“Of course, these benefits come with costs, and timing is everything. If you are considering setting up a trust, it is essential to weigh the returns of the underlying investment against the annual trustee and administration fees.”

As a benchmark, the fees for a basic Mauritius trust, typically the lowest starting point, start at around $2,000 (R35,601) a year.

“If the returns on your offshore assets do not comfortably cover such costs, it may be worth waiting until your portfolio has grown before establishing a trust,” Van der Merwe said.

Other beneficial trust jurisdictions include Guernsey, the Isle of Man and Gibraltar. With a lot of wealth expanding into the East, trusts regulated by Singapore and Hong Kong laws have also increased in popularity.

“Moving your wealth offshore is not a decision to be taken lightly,” Van der Merwe said. “It must be built on a foundation of sound wealth planning.”

“Begin with a bank account, and consider a trust only when you have the scale and need to justify it. Further, you need to weigh up costs and fully understand the compliance obligations and tax reporting responsibilities.”