It is true that over the last few decades, the world has really become more of a global village to most middle class citizens. Technology has been at the forefront of this globalization of planet earth. Global travel that broadens the mind and gives life experience is now more and more a normal part of life. Newsworthy events in one part of the world are quickly transmitted through social media and news channels for unrestricted viewing to inhabitants on the other side of the globe.
From a financial perspective the world’s markets are open for trade 24 hours a day and there is a constant steam of currency, company and investment news flow. Money can be transferred across the globe at the touch of a button and investment diversification opportunities abound.
These developments have both positive and negative implications. On a positive note access to investment opportunities is now wider than it has ever been and global diversification is a fact of life. But, from a negative perspective there has been an increase in global money laundering, tax evasion and the financing of drug and terrorist related activities. Ill-gotten gains can now be hidden and/or transferred through a labyrinth of structures in various jurisdictions around the world. As evidenced by the recent leak of the “Panama Papers” of clients of law firm Mossack Fonseca, global attention by regulators is now firmly focused on offshore structures and so called tax havens. Recent high profile press headlines in South Africa have indicated that SARS is quickly off the mark and will be investigating South African residents connected with these “Panama Papers”.
Technology and recent global cooperation and information sharing agreements signed by the world’s financial regulators, make it possible for information on cross border transactions and activities to be readily shared. The Big Brother effect of full disclosure in respect all your financial transactions and activities, and related structures to which you are connected, is now a reality. There is literally no place to hide!
Merely engaging in offshore investment activities or housing your investments in an offshore structure is not per se illegal, in fact it may very well be the most appropriate course of action for you to take. But, the offshore investor must take note of the following:
- Cross border investment activities are often complex. The domicile country in which the investment is based and the country in which the investor is resident, may both want to tax the said investment.
- Double taxation agreements which regulate these residence issues and give guidance in terms of first right of taxation, as well as relief for double taxation are very technical in nature.
- Tax laws as pertaining to trust, company, endowment and other wrapper structures differ from country to country and anti-tax avoidance legislation does not make for easy bed time reading.
- The correct taxation of and treatment of currency effects of offshore investments, is often more complex than a local investment.
- Estate duty, inheritances, generation and SITUS taxes vary from country to country and are not uniformly applied. This may very well lead to punitive unintended consequences for the investor on death.
- Investors must always assume that full disclosure of the underlying investment and the ownership structure will be readily available to all relevant authorities at all times.
- Ignorance in any or all of these factors is no excuse and the onus is on the investor to obtain appropriate advice.
South Africa makes up a very small proportion of the global economy and it is prudent and good for South African investors to diversify their portfolios with offshore investments. However, the manner in which they do it, the structures they do it in, and the advisors that they listen to, can make all the difference. Just like you don’t take a knife to a gunfight, make sure that you are well armed and equipped when you venture into the realm of offshore investing.