‘Using offshore structures gives investors access to global markets, better asset protection, and more efficient tax management over time.’
Investing offshore has long been a popular choice for wealthy individuals looking to diversify their investments, take advantage of tax benefits, and explore unique estate planning options.
For South African investors, one appealing option is the “loop structure,” which was legalised in 2021. This investment method allows them to reinvest in local assets while still benefiting from an offshore setup. This shift in the law has significant implications for financial planning and wealth management.
Sovereign Trust SA Director, Coreen Van der Merwe highlights that loop structures come with various benefits.
“Using offshore structures gives investors access to global markets, better asset protection, and more efficient tax management over time.
“Keeping part of an estate offshore can also offer special estate planning opportunities, reduce tax burdens on heirs, preserve wealth, and support smooth transitions between generations,” she says.
Loop structures are particularly useful for streamlining income transfers across borders. South African businesses, for example, can send dividend income abroad without being limited by the annual R11 million cap on personal investment allowances. By routing these payments to an offshore trust or company in a country with a favourable tax agreement, investors could lower their dividend withholding tax rate from 20% to as little as 5%.
New loop structures simplify offshore investments
Previously, South Africans had to create separate local and international structures to invest offshore, which added costs and administrative work. Now, loop structures allow investors to manage their assets within a single offshore setup, simplifying compliance and reducing management expenses. These structures also keep connections to South African assets while offering the security and benefits of an offshore trust or company.
However, investors need to comply with certain rules to make full use of loop structures. For instance, if a foreign entity buys shares in a South African company, the share certificates must be marked as “non-resident” within 30 days. Not doing this on time could mean that dividends cannot be distributed to offshore shareholders.
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Investors must also submit an annual audit report confirming the transaction follows an arm’s-length principle and report the details to the South African Reserve Bank (Sarb). This ensures regulatory compliance and helps avoid financial or tax issues.
Van der Merwe advises that due to the complexity of loop structures, working with professionals who specialise in cross-border investments is crucial. These experts can tailor strategies to align with personal financial goals, ensuring investors take full advantage of regulatory benefits to grow and protect their wealth for future generations.
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