How to invest in offshore (US) shares from South Africa

Adding global companies to your portfolio is one of the best ways to diversify beyond the local market. Here's how South Africans can invest in US and offshore shares, and what to watch for.

Why invest offshore?

The JSE is a small slice of the world's markets, and it's concentrated in a handful of sectors. Investing offshore gives you access to industries and companies you simply can't buy locally — global technology, healthcare and consumer giants — and spreads your risk across different economies and currencies. It's diversification on a global scale.

Your two main routes

1. Directly, via an offshore-capable broker

Some platforms let you convert rands and buy shares listed in the US and other markets directly. You end up holding the actual offshore share in a foreign currency. This route uses your offshore allowances (below) but gives you the widest choice of individual companies.

2. Indirectly, via JSE-listed offshore ETFs or feeder funds

Many ETFs and unit trusts listed in South Africa give you offshore exposure while you invest in rands, locally. These don't use your foreign allowances because the fund handles the offshore investing for you. It's the simplest way to go global for most beginners.

The allowances you should know

If you take money physically offshore, two annual allowances apply to South African individuals:

• Single discretionary allowance — up to R1 million per calendar year, no tax clearance needed.
• Foreign investment allowance — up to R10 million per year, with a SARS tax clearance.

These figures can change, so confirm the current limits with SARS or your platform. Investing through JSE-listed offshore ETFs or feeder funds does not use these allowances.

Mind the currency

When you hold offshore assets, your return has two parts: how the share itself performs, and how the rand moves against the foreign currency. A weakening rand boosts your offshore returns in rands; a strengthening rand trims them. This currency risk cuts both ways and is part of why offshore exposure diversifies a rand-heavy portfolio.

Tax basics

Offshore investments can attract capital gains tax and tax on foreign dividends, and there may be foreign withholding taxes. The rules depend on how you invest and your circumstances, so it's worth confirming the specifics with a tax practitioner.

Getting started

Decide whether you want the simplicity of a local rand-based global ETF or the control of buying individual offshore shares. Either way, research each holding first — you can use FinBot to analyse US-listed stocks and ETFs the same way you would a local share.