For South Africans looking to diversify their investments internationally, the South African Revenue Service (SARS) offers a useful tool -  the Foreign Investment Allowance (FIA). This facility allows individuals to legally transfer funds offshore, providing them with access to global markets, asset protection, and financial growth. However, navigating the FIA requires careful planning to ensure compliance and avoid unnecessary risks.

What Is the Foreign Investment Allowance?

The FIA is a provision that allows South African residents to invest offshore without violating exchange control regulations. Every year, individuals are permitted to transfer up to R10 million abroad for investment purposes. This is in addition to the R1 million Single Discretionary Allowance (SDA), which can also be used for investment, travel and gifts without the need for SARS approval.

Who Can Use It?

To qualify for the FIA, individuals must:
✅ Be South African residents for tax purposes.
✅ Be 18 years or older.
✅ Be tax compliant, with a valid Tax Compliance Status (TCS) Pin from SARS.
✅ Obtain approval from the South African Reserve Bank (SARB) if investing above the R10 million limit.

Why Consider Using the FIA Annually?

Diversification and Wealth Protection

The South African rand (ZAR) is known for its volatility due to local economic and political factors. Investing in foreign assets—such as equity funds, bonds, real estate, business ventures or even just cash - can help South Africans protect their wealth from currency depreciation and market instability.

Access to Global Investment Opportunities

The FIA enables individuals to participate in international markets This can lead to better returns compared to being restricted to South African investment vehicles.

Tax and Estate Planning Benefits

Offshore investments can be part of a broader estate planning strategy. Some jurisdictions offer tax-efficient investment structures, allowing individuals to reduce their tax burden legally.

Utilising Annual Allowances Effectively

Because FIA limits reset each year, individuals who do not use their allowance annually lose out on the opportunity to move funds incrementally. Transferring funds in phases can be more manageable and cost-effective than waiting until a lump sum transfer is required.

Risk Areas to Consider

While the FIA presents several benefits, it also comes with certain risks and compliance requirements:

Exchange Rate Fluctuations

Since the ZAR is volatile, poor timing of fund transfers could result in higher costs or lower value in foreign currency. Monitoring currency trends and working with financial advisors can help mitigate these risks.

Tax Compliance and Reporting

All offshore investments must be declared to SARS, and tax obligations still apply. Failure to comply could result in penalties, audits or legal consequences. South Africans with offshore earnings must declare them in their annual tax returns.

Regulatory Approvals and Documentation

Individuals transferring more than R10 million offshore require approval from SARB, which involves stricter financial audits and additional paperwork. Ensuring all documents are in order before attempting a transfer can save time and stress.

Political and Economic Risks in Foreign Jurisdictions

Investing abroad introduces exposure to foreign regulations, taxation policies and economic risks. It is crucial to research investment destinations thoroughly and seek professional financial advice.

Final Thoughts

The Foreign Investment Allowance is an excellent tool for South Africans looking to secure their financial future by diversifying internationally. While it comes with obligations and risks, strategic planning and proper compliance can unlock greater financial stability, wealth growth, and global investment opportunities.

If you are considering utilising your FIA this year, consult with a financial planner and your trusted tax consultant to ensure a smooth and compliant process.

Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. While every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.

Article prepared by: Stefan Diederiks CA(SA)

Director, Registered Tax Practitioner

For any queries or further information, please contact:

• Mansoor Salee

Director

M: (+27) 82 454 4786| E: mansoor@nexia-sabt.co.za

• Yousuf Hassen

Director

M: (+27) 82 333 3376 | E: yhassen@nexia-sabt.co.za