Understanding Tax Implications Of Offshore Investments

Hiding Your Crypto? SARS Has Entered the Chat

Introduction

Investing offshore can be a savvy way for South Africans to diversify wealth and seek higher returns. However, it’s crucial to understand how these offshore investments are taxed in South Africa. South Africa follows a residence-based tax system, meaning if you are a South African tax resident, you must declare and pay tax on worldwide income – including income from offshore investments. Failing to account for foreign income correctly can lead to unexpected tax bills or penalties. CH Consulting, with its expertise in personal tax compliance, emphasises the importance of proactive tax planning for offshore investments. Our team has deep knowledge of South African Revenue Service (SARS) rules and the Income Tax Act, enabling individuals to navigate offshore investment taxation confidently and legally.

How SARS Taxes Offshore Investment Income

South African tax residents are required to report all types of offshore investment income to SARS. The Income Tax Act 58 of 1962 and SARS guidelines lay out how different categories of foreign income are taxed. Below is an overview of the main categories – foreign interest, dividends, rental income, and capital gains – and how SARS taxes each of them:

Foreign Interest Income: Interest earned from foreign bank accounts or bonds are fully taxable in South Africa as ordinary income. Unlike interest from a South African source, which has an annual exemption (R23,800 for individuals under 65), no interest exemption applies to foreign interest. Every rand of interest from abroad must be declared and will be taxed at your marginal income tax rate. If any foreign withholding tax was applied to that interest, you can claim it as a credit against your South African tax (under section 6quat of the Income Tax Act) to avoid double taxation. All foreign interest must be converted to rands (using SARS’s official exchange rates) when reporting it.
Foreign Dividend Income: Dividends from overseas companies are taxed differently from local dividends. In South Africa, local dividends are usually exempt from income tax for individuals (instead, companies withhold a 20% dividends tax at source). Foreign dividends, however, are included in your income tax calculation, though most foreign dividends receive a special exemption that results in a maximum effective tax rate of 20%. In practice, SARS exempts a portion of the foreign dividend (under Section 10B of the Income Tax Act) such that only 44.45% of the dividend is taxed, capping the tax at 20% for top-bracket taxpayers. No expenses may be deducted against foreign dividend income. If you hold at least 10% of the equity and voting rights in the foreign company, then the dividend is fully exempt in South Africa (often called a “participation exemption”). This foreign tax credit mechanism (outlined in SARS Interpretation Note 18 for section 6quat credits) ensures you don’t pay tax twice on the same income.
Rental Income from Foreign Property: Income from renting out overseas property is taxable in South Africa just like local rental income. If you own property abroad (for instance, a holiday apartment in Europe or a house in the UK) and earn rental income, you must declare that “foreign rental income” in your SA tax return. You can deduct property-related expenses from the foreign rental income – such as bond interest, property taxes, insurance, maintenance, and repairs – just as you would for a local rental property, provided those expenses are incurred in the production of that rental income. This helps reduce your taxable rental profit. The net rental profit (after deductions) is then added to your income and taxed at your marginal rate. Often, the country where the property is located will tax the rental income as well (for example, through withholding or requiring you to file a tax return there). Double taxation is prevented by South Africa’s foreign tax credit provisions and tax treaties: you can claim any tax paid overseas on the rental income as a credit against your South African tax liability on that same income. It’s important to maintain documentation of foreign taxes paid (like UK tax statements) to support your tax credit claims in South Africa. Also, remember to convert your rental income and expenses to rand using the correct exchange rate when preparing your tax return.
Capital Gains from Offshore Assets: South African residents are liable for Capital Gains Tax (CGT) on the disposal of their worldwide assets, which includes offshore property, foreign shares, and other overseas investments. When you sell a foreign asset at a profit (or otherwise dispose of it, such as by exchange or donation), you need to calculate the capital gain in rand terms. The gain is typically the difference between the sale price and the cost base (what you originally paid for the asset), converted to rand. Currency fluctuations can affect the rand amount of your gain or loss – a depreciation of the rand can increase your South African taxable gain (since the asset’s value in rands might have grown not just from price increase but also currency movement). For individuals, 40% of the net capital gain is included in taxable income (this is the inclusion rate per the Eighth Schedule of the Income Tax Act), and it’s taxed at your marginal rate. The effective maximum CGT rate for individuals is 18% (40% of a 45% top marginal rate). South Africa provides an annual capital gains exclusion – the first R40,000 of net capital gains in a tax year is not taxed. (If your offshore gains are small, this annual exclusion might cover them entirely.) It’s important to note that certain events can trigger a taxable capital gain even if you haven’t actually sold the asset – for example, if you emigrate and cease to be a tax resident, South Africa treats it as a deemed disposal (an “exit charge”) on your worldwide assets at that point. This means if you formally break tax residency, you may need to pay CGT on the increase in value of your offshore assets up to that date (excluding immovable property in South Africa, which is still taxed when actually sold). As with other income, any foreign tax paid on a capital gain can often be credited under section 6quat, and double tax treaties will determine which country has primary taxing rights. Always keep records of the purchase price (in original currency and rands at the time) and sale price of offshore assets – meticulous record-keeping ensures accurate CGT calculations and avoids disputes with SARS later.

Common Offshore Investment Types and Their Tax Treatment

Not all offshore investments are the same – different investment vehicles can have varied tax implications. Here we highlight the three most common types of offshore investments for individuals and explain how each is treated for South African tax purposes:

1. Foreign Property (Real Estate Abroad)

Foreign real estate is a popular investment, whether it’s a rental apartment in London, a holiday villa in Mauritius, or commercial property in Dubai. South Africans may acquire overseas property for rental income, capital appreciation, or as a part of emigration plans.

Tax Treatment: From a South African tax perspective, foreign property is treated similarly to local property in terms of income and capital gains:

Rental Income: As discussed, rental income from a foreign property is taxable in South Africa at your marginal rate, after deducting allowable expenses. You should declare the gross rent and related expenses in the “Foreign Income” section of your tax return. If you pay any property taxes or income tax in the foreign country on that rent, you can claim those amounts as foreign tax credits to avoid double taxation. Be mindful of exchange rates – use SARS’s published average rate or spot rates for the period to convert foreign rent to rands accurately.
Capital Gains: If you sell the foreign property at a profit, that sale triggers South African CGT on the gain (since you’re a SA resident) just as selling a local property would. Calculate the capital gain in rand (using the purchase and sale dates’ exchange rates). Individuals get the benefit of only 40% of the gain being taxable, and the first R40,000 of total gains per year is exempt. One difference from local property: the special R2 million primary residence exclusion (for a primary home) applies only if the property was your primary residence. If your foreign property was primarily your personal home (and you remained a SA tax resident), you might be able to claim that exclusion – but generally, for most purely investment properties overseas, any gain is fully subject to CGT (minus the annual exclusion). Also note, many countries will tax capital gains on property located in their jurisdiction – for example, the UK taxes non-residents on UK property gains. South Africa will give credit for such foreign taxes paid, up to the amount of SA tax due on the gain, under its foreign tax credit system. Always ensure you obtain proof of the acquisition cost and improvement costs (in rand or with exchange rate on each expense date) and keep records, as SARS may ask for these when you eventually report the sale.

2. Offshore Unit Trusts / Mutual Funds

Offshore unit trusts, mutual funds, or exchange-traded funds (ETFs) are collective investment schemes based outside South Africa. Many South Africans invest in offshore funds to access foreign markets or asset classes (e.g. an S&P 500 index fund, global equity funds, etc.). These funds might be domiciled in tax-friendly jurisdictions like Ireland, Luxembourg, or the Channel Islands, and often accumulate or distribute income in foreign currency.

Tax Treatment: The South African tax implications for offshore funds will depend on the nature of the income they produce and how they distribute it:

Foreign Dividends: Many offshore funds (particularly equity funds) distribute foreign dividends (or income that is treated as dividends) to investors. These are taxed in South Africa in the same manner as foreign share dividends: generally taxable with a 25/45 exemption ratio if you hold less than 10% of the fund, resulting in up to 20% effective tax. The full amount of any distribution should be declared, and SARS will automatically apply the partial exemption. If the fund withheld any foreign tax on distributions, that can be claimed as a credit. Some funds reinvest the income instead of paying it out; be aware that even reinvested distributions (sometimes called “accumulation funds”) are usually still taxable to you annually as if you received them in cash.
Interest and Other Income: If the offshore mutual fund derives interest or certain other income and passes it to you, that portion might be treated as foreign interest in your hands. Foreign interest from a fund has no exemption and is fully taxable. In practice, many offshore funds structure distributions as dividends, but certain types of funds (e.g., money market funds abroad) might pay interest. You’ll need to check the statements from the fund, which often break down the nature of income for tax reporting.
Capital Gains (from sale of units): When you eventually sell or redeem your units in the offshore fund, you could have a capital gain or loss. For SA tax, this is treated like any other capital gain on foreign assets. You’ll compute the gain in rand (using the purchase cost and sale proceeds converted to rand). The normal 40% inclusion and 18% max effective rate for CGT on individuals apply. One advantage of unit trusts is that the fund itself might not trigger tax when it trades internally; you’re only taxed when you receive distributions or sell your units. Keep in mind, though, that if the fund was very active internally, the value of your units reflects reinvested untaxed gains which will become part of your capital gain when you sell – so you eventually catch those gains for tax.
Roll-up vs. Distributing Funds: Some offshore funds are “roll-up” (accumulation) funds that do not distribute income regularly, instead reinvesting it. South African tax law may still require you to “look through” certain foreign structures or at least tax distributions when they happen (there’s no automatic tax on unrealized growth within a foreign fund until you sell, except in unusual cases). This means if you hold a roll-up fund and it pays no dividends, you won’t have annual foreign income to declare, but when you sell the investment the growth will come out as a larger capital gain. In contrast, a distributing fund will give you taxable income each year, but a potentially smaller capital gain on sale (since fewer gains are embedded in the price). It’s wise to consult a tax advisor on the optimal type of fund for your goals and the timing of any switches or withdrawals.

3. Foreign Company Shares (Offshore Equities)

This category includes direct investments in shares of foreign companies – for example, buying stocks on international markets (like US, European, or Asian stock exchanges) or owning equity in a private foreign business. Many South Africans hold foreign equities, ranging from a few shares in tech giants to significant stakes in offshore companies.

Tax Treatment: Owning foreign shares has two main tax consequences in SA: foreign dividends and capital gains:

Dividends: Cash dividends from foreign companies are taxed as foreign dividends income (as covered earlier). For portfolio stock investments where you own less than 10% of the company, the dividend will be partially exempt so that you pay tax up to a 20% effective rate. If you’ve had foreign withholding tax deducted (common rates are 15% in many cases, due to tax treaties), you declare the gross dividend and the foreign tax paid – SARS will credit the foreign tax, reducing your SA liability. If you happen to own a substantial stake (10% or more of the equity and voting rights) in a foreign company, any dividends from that company are fully exempt from SA tax. (This encourages investment in foreign subsidiaries and prevents double taxation when you have an active business abroad.) It’s worth noting that local South African dividends tax is a flat 20% withheld, whereas foreign dividends are added to your income – depending on your tax bracket, you might pay less than 20% (if you’re in a lower bracket) or 20% at most if you’re in the top bracket on those dividends.
Capital Gains: Selling your foreign shares (whether publicly traded stocks or a private company stake) will trigger capital gains tax in South Africa on any profit made. As with other assets, calculate your gain in rand by converting the buy and sell prices at the relevant dates. Individuals pay tax on 40% of the net gain at their marginal rate (up to 18% effective), after the annual exclusion. If you built a portfolio of offshore stocks over the years, keep records of purchase prices in rands (if you bought in foreign currency, note the rate at the time or use SARS’s average rate for that year) because you’ll need those for CGT calculations whenever you sell. If a foreign tax (like a capital gains withholding or foreign income tax on the sale) is imposed, South Africa will allow a credit for it, similar to other categories.
Special Rules – Controlled Foreign Companies: One important consideration for high-net-worth investors: if you hold shares in a foreign company that you (alone or with other South African tax residents) control (generally meaning 50%+ ownership or voting power), that company may be classified as a Controlled Foreign Company (CFC) under Section 9D of the Income Tax Act. South Africa’s CFC rules can tax certain types of the company’s undistributed profits in the hands of the South African shareholders each year, even if no dividend is paid. In other words, you could owe tax on the offshore company’s income as it accrues, to prevent taxpayers from parking income in tax havens. CFC rules have various exemptions (for example, if the company pays a high rate of tax overseas, or certain active business income exemptions) and detailed calculations. While this goes beyond simple investment taxation, it’s a crucial point for anyone who sets up an offshore company for investments: just owning foreign shares via a company doesn’t automatically shield you from SA tax. Example: If you and a SA partner set up a company in a low-tax jurisdiction to hold an investment portfolio, and it earns interest and dividends, you may need to report and pay SA tax on those earnings under CFC rules even if you reinvest them and take no dividend. Bottom line: If you have a large or controlling stake in any foreign entity, consult with CH Consulting or a tax professional to understand the implications. We can help determine if CFC rules apply and how to remain compliant (or structure your affairs in a tax-efficient way within the law).

Careful record-keeping and reporting are essential. CH Consulting can assist with tracking your portfolio for tax purposes, calculating credits, and ensuring all SARS declarations (like the ITR12 return) are correctly completed.

Common Mistakes to Avoid

When it comes to offshore investments and taxes, even well-intentioned investors can make costly mistakes. Here are some common pitfalls and how to avoid them:

Assuming “Offshore” Means “Tax-Free”: A frequent mistake is thinking that if income is earned overseas and kept offshore, it isn’t taxable in South Africa. In reality, if you’re a South African tax resident, SARS taxes your worldwide income regardless of where it’s earned or where it sits. Keeping money in an offshore bank or never remitting it to South Africa does not in itself exempt you from SA tax. How to avoid: Always declare your foreign income. Understand your residency status – if you are a resident, SARS expects disclosure of global income. Only ceasing tax residency (or qualifying for a specific exemption in the law) would change this. CH Consulting can help clarify your status and obligations.
Failure to Claim Foreign Tax Credits: Conversely, some taxpayers do declare foreign income but pay tax twice – once overseas and again in full to SARS – not realizing they can often offset the foreign taxes paid. South Africa’s tax law (Section 6quat of the Income Tax Act) and double taxation agreements provide relief so that you usually don’t pay more than the higher of the two countries’ tax rates on a given stream of income. How to avoid: Keep records of any taxes withheld or paid in the foreign country (like withholding tax certificates, foreign tax returns, etc.). When filing in South Africa, complete the foreign tax credit sections (SARS requires details of foreign taxes paid for each income type). If done correctly, SARS will credit the foreign tax against your SA liability. If you’re unsure how to do this on your tax return, get professional assistance – this can save you a significant amount of money and prevent double taxation.
Misapplying Local Exemptions to Foreign Income: Another mistake is applying South African tax exemptions or thresholds to foreign income when they don’t apply. For example, South Africa has an interest exemption (R23,800 for under 65) for interest earned from a South African source. This does not apply to foreign interest – all foreign interest must be declared in full. If a taxpayer incorrectly claims the interest exemption against foreign interest, they’ll understate taxable income and could face penalties. Similarly, taxpayers might be confused about foreign dividends – some think foreign dividends are taxed at a flat 20% like local dividends tax. In fact, foreign dividends must be included in your income (albeit partially exempted) and taxed at your marginal rate. How to avoid: Understand the scope of each exemption. When in doubt, consult SARS guides or a tax advisor. CH Consulting stays up to date on SARS Interpretation Notes and the Income Tax Act, so we can quickly tell you what exemptions apply. For instance, we know Section 10(1)(i) covers the local interest exemption (not foreign), and Section 10B covers the foreign dividend exemptions – nuances that can be critical in your tax calculation.
Incorrect Currency Conversion and Reporting: Converting foreign earnings to rand incorrectly is a common error. Using the wrong exchange rate (or forgetting to convert at all) can misstate your income. SARS generally requires using either the spot rate on the date of each transaction or an average exchange rate for the year (which SARS publishes for tax purposes). Some taxpayers also forget to report small foreign earnings, thinking they’re negligible – for example, a small amount of interest in an overseas account – but all foreign income should be reported (SARS doesn’t have a de minimis exclusion except the formal interest/CGT thresholds, which, as noted, don’t usually cover foreign sources). How to avoid: Use SARS’s published average exchange rates or daily rates from a reliable source for consistency. For instance, SARS provides an official average rate each year for major currencies. Pick a method (spot vs average) and apply it consistently for the tax year. Maintain worksheets converting each income or expense to rands. CH Consulting can assist by using up-to-date exchange rates and ensuring that your rand values are accurate and defensible. We also make sure you utilize any currency conversion relief available (for example, personal use foreign currency conversions can be exempt from CGT in certain cases – a detail to be mindful of if you held foreign currency as an investment).
Poor Record-Keeping: Offshore investments often involve multiple transactions, reinvestments, and foreign taxes. Not keeping proper records is a mistake that can lead to missed deductions/credits or incorrect calculations. You’ll need records of purchase prices, dates, dividend amounts, foreign taxes paid, etc., sometimes going back many years, to correctly calculate gains or claim credits. Without records, you might overpay tax (by not claiming something allowable) or underpay (risking penalties if audited). How to avoid: Keep all investment statements, trade confirmations, dividend advisories, and tax certificates from foreign financial institutions. Also keep exchange control documents for any funds you officially externalized – while this is more for SARB compliance, it can help substantiate the source of funds. Use a spreadsheet or professional software to track the “tax history” of each offshore investment (CH Consulting provides the necessary templates to complete for recordkeeping). And remember to document the rand value on dates of acquisition/disposal for capital assets. If you didn’t note it at the time, we can help reconstruct it using historical exchange rates.
Complex Structures Without Advice: High-net-worth individuals sometimes create offshore trusts or companies to hold investments, expecting tax benefits or privacy. While there are valid reasons to structure investments, misusing offshore structures without understanding SA tax law is a big mistake. South Africa has anti-avoidance rules (like the Controlled Foreign Company (CFC) rules in Section 9D and trust attribution rules in Section 7 and 25B) designed to prevent simply shifting profits offshore untaxed. For example, if you transfer assets to an offshore trust and you or your family can benefit from it, certain trust income or capital gains could still be taxed in your hands in SA under attribution rules. If you set up an offshore company that is managed by you/your agents and owned by you, it could be a CFC and its income attributable to you even without distributions. These provisions are complex, but the mistake is thinking “I have an offshore entity, so SARS can’t touch the income.” How to avoid: Always get tax advice before implementing offshore structures. CH Consulting specializes in advising on foreign trust and company structures for South Africans. We can help ensure that if you do go offshore, you either fall within exemptions or you at least know exactly how you’ll be taxed (and how to minimize it legally). Proper planning might involve where to locate the entity, how to time distributions, or perhaps using tax treaty provisions to your advantage. The key is transparency and compliance – it’s better to report correctly than to face SARS’s aggressive penalties for undisclosed offshore assets (SARS receives data from many foreign banks now through global information-sharing agreements).

By avoiding these common errors, you can invest offshore with peace of mind that you’re meeting your obligations and not paying any more tax than legally required.

How CH Consulting Can Help

Navigating the tax implications of offshore investments can be daunting – but you don’t have to do it alone. CH Consulting is here to help South African individuals (especially high-net-worth individuals and expatriates) and small business owners make sense of complex tax rules and stay compliant. Our team brings extensive experience in personal tax compliance, small business tax advisory, and even cryptocurrency tax compliance, ensuring a holistic approach to your financial affairs. Here’s what we can do for you:

Personalized Offshore Tax Strategy: We analyze your unique investment portfolio and income streams to develop a tax strategy tailored to you. Whether you have foreign rental properties, an international stock portfolio, or crypto assets on offshore exchanges, we’ll map out how each is taxed and identify opportunities to legally reduce your tax burden. For instance, we can advise on the timing of realizing gains, utilizing available exemptions (like the R1.25 million foreign employment income exemption or the annual CGT exclusion), and structuring investments (e.g., considering whether to invest via a local feeder fund vs directly offshore) to maximize after-tax returns.
Expert SARS Compliance: CH Consulting ensures that your SARS filings are accurate and complete. We handle the declaration of foreign income on your tax returns, including the proper conversion to rand and classification under the correct SARS source codes. We make sure you claim all applicable foreign tax credits (section 6quat rebates) and meet disclosure requirements. High-net-worth individuals often have multiple tax reporting obligations – for example, if you hold foreign assets above certain thresholds, SARS may require additional disclosure (such as the “Foreign Assets” declaration on the tax return). We guide you through these requirements so nothing falls through the cracks. Our expertise extends to handling SARS queries or audits related to offshore income – if SARS’s automated systems flag your return for review, we can assist in providing the supporting documents and explanations to satisfy SARS, preventing costly penalties.
Cryptocurrency and New Asset Classes: In today’s world, offshore investment isn’t just stocks and property – it might include digital assets like cryptocurrency, which by nature can be held and traded on offshore platforms. CH Consulting is at the forefront of crypto tax compliance in South Africa. If you’re trading Bitcoin on an overseas exchange or earning staking interest on crypto, those are considered foreign source earnings too. We can help determine the tax treatment (trading profit vs capital gain, etc.) and ensure you report crypto gains in line with SARS’s latest guidelines. Crypto taxation for SA residents is an evolving area, and our team monitors SARS communications and Interpretation Notes to keep our advice up-to-date.
Individual Focus and Comprehensive Support: Our firm has a strong focus on driven individuals, who often have complex scenarios – multiple residences, foreign trusts, luxury assets, etc. We offer comprehensive support that goes beyond just the annual tax return. This can include:

Provisional tax planning: ensuring you meet provisional tax payment obligations on your foreign income to avoid interest.
Emigration/immigration: If you are considering emigrating (or returning to SA) and worried about the tax impact on your offshore investments, we guide you through the “exit tax” calculations and any relief provided by tax treaties. We aim to make transitions as tax-efficient as possible.

Peace of Mind: Ultimately, CH Consulting allows you to focus on growing your wealth abroad without fear of non-compliance. We keep detailed records, remind you of compliance deadlines, and update you on law changes (for example, if SARS issues a new Interpretation Note or if the tax rates change in the annual Budget that affect foreign income). Our expertise and proactive approach mean you won’t be caught off guard by SARS. From minimizing the chance of an audit to defending your positions if one arises, we’ve got you covered.

We pride ourselves on professional, ethical service and up-to-date knowledge. Our team has successfully assisted numerous individuals with disclosure of previously undeclared offshore income under voluntary disclosure programs and guided crypto investors through their first tax filings.

We understand that tax is personal and sensitive, especially when dealing with offshore assets that are subject to increasing scrutiny by tax authorities worldwide. With CH Consulting as your partner, you gain a trusted advisor who will help you navigate the complexities of offshore investment taxation while you enjoy the benefits of global investing.

FAQ: Offshore Investment Tax for South Africans

Below we answer some common questions about how offshore investments are taxed for South African individuals:

Q: Do I have to pay South African tax on money I earn overseas but keep abroad?
A: Yes, if you are a South African tax resident, you are taxed on your worldwide income, regardless of where the money is earned or held. It doesn’t matter if the funds never come into South Africa. For example, interest earned in a foreign bank account, rent from an overseas property, or dividends from foreign shares all must be declared on your SA tax return. The fact that the money is “offshore” does not, by itself, exempt it from South African tax. The only exceptions would be specific exclusions in the law (like the foreign employment income exemption for salary earners abroad, or if you officially ceased to be a tax resident). If you are no longer a tax resident of South Africa (for instance, you emigrated and changed your tax status), then from that point forward SA will not tax your foreign income (it would only tax SA-source income). But until you break tax residency, SARS expects disclosure of your foreign income each year. Keeping the income overseas or in foreign currency does not shield it from tax. Always declare it, then claim any applicable credits for foreign taxes paid.

Q: How are foreign dividends taxed compared to local dividends in South Africa?
A: Local dividends (from South African companies) are not subject to normal income tax in your hands – instead, they incur a 20% Dividends Withholding Tax that the company pays to SARS before you get your dividend. Foreign dividends are treated differently. Foreign dividends are included in your taxable income, but typically only partially, so that the effective tax rate is similar to the 20% local rate for most individuals. SARS provides an exemption on foreign dividends (under Section 10B of the Income Tax Act) – in most cases, 25/45 of the foreign dividend’s value is exempt, leaving 20/45 taxable. The result is if you’re in the highest bracket (45%), you’ll pay 45% of 44.45% of the dividend, which comes to 20%. If you’re in a lower tax bracket, you effectively pay less than 20% (for example, if your marginal rate is 30%, you’d pay 30% of 44.45% ≈ 13.3% effective on the foreign dividend). Moreover, if foreign withholding tax was already taken off that dividend, you get to offset that against the SA tax. In summary: for small shareholdings, foreign dividends are usually taxed up to 20% (credits for foreign tax can reduce the SA portion), whereas local dividends incur a flat 20% (with no further tax on your return). One more note – if you own a sizable chunk (≥10%) of a foreign company, those dividends are fully tax-exempt in South Africa, while owning ≥10% of a local company doesn’t change the fact that 20% withholding still applies. This difference is due to SA encouraging repatriation of profits from foreign subsidiaries without additional tax.

Q: Is there any tax exemption or threshold for foreign interest income?
A: No – foreign interest income has no exempt threshold and is fully taxable. South Africa does have an interest exemption, but it only applies to interest from a South African source (such as interest from SA banks or SA government bonds). For this tax year, that exemption is R23,800 (for individuals under 65). However, interest from a foreign source is excluded from this exemption. SARS makes it clear that unlike local interest, foreign interest has no exempt portion. This means if you earned, say, R10,000 of interest in an offshore bank account, the entire R10,000 is taxable in SA (at your marginal rate). You should declare it under “Foreign Interest” in your return. If you paid any foreign withholding tax on that interest (not common, but some countries might tax bank interest for non-residents), you can claim that as a credit. But you do not get to exclude any part of the foreign interest on the basis of a general exemption. Always include the full amount of foreign interest earned.

Q: I paid taxes overseas on my offshore investment income – can I get credit for that in South Africa?
A: Yes. South Africa’s tax system is designed to prevent double taxation through the use of foreign tax credits (the mechanism is established in section 6quat of the Income Tax Act) and double taxation agreements (DTAs) with other countries. If you’ve paid a legitimate income tax or withholding tax in another country on income that is also taxable in South Africa, you can typically claim a credit for the foreign tax against your South African tax liability on that same income. The credit is usually limited to the amount of SA tax that would otherwise be payable on that income. For example, if you had foreign dividends of R100,000 and the foreign country withheld R15,000 (15%) in tax, and in South Africa your tax on those dividends before the credit is say R20,000, you would subtract the R15, 000 foreign tax and only pay R5, 000 to SARS. If the foreign tax was higher than the South African tax would be, the credit is capped at the SA tax amount (excess foreign tax can’t generally be refunded by SARS – though in some cases, treaty provisions might reduce the foreign tax in the first place). How to claim: When filling out your tax return, after declaring the foreign income (dividend, interest, rental, etc.), there’s a section to input foreign taxes paid on that income. SARS will require details like the nature of income, the amount of foreign tax, and the country it was paid to. It’s important to have documentation (withholding tax certificates, tax slips, etc.) in case SARS asks for proof. In summary, yes, you won’t be taxed twice if you properly claim the credit – you’ll end up paying the higher of the two countries’ tax rates, not both added together. If you need help calculating or substantiating your foreign tax credits, CH Consulting can assist.

Q: How do I declare my offshore investment income to SARS?
A: You declare offshore investment income on your annual Income Tax Return (ITR12), just as you would local income, but in specific sections for foreign income. On the tax return, SARS provides separate fields for “Foreign Interest”, “Foreign Dividends”, “Foreign Rental Income”, etc., under the broader “Investment Income” or “Other Income” areas. You should convert all amounts to South African rands using the applicable exchange rate (either the rate on date of receipt or an average for the period – SARS publishes average rates for the year). For example, if you earned $1,000 interest, and the average exchange rate for the year was R15/$, you would declare R15,000 as foreign interest. Likewise, foreign dividends must be declared in rand (before any foreign tax deduction). SARS also has fields to input any “Foreign Tax Credits” associated with each type of income (like Foreign Dividends tax credit, Foreign Interest tax credit, etc. using code 4112, 4113, etc., if you use eFiling – but if you’re not sure of the codes, the forms on eFiling guide you). In practice, a simple way is: go to the “Local / Foreign Income” section of your return on eFiling, there will be sub-sections where you can tick that you received foreign income. Then the form will open up fields for you to fill in the amounts in rand. For rental income, you might need to declare it under “Foreign Business/Trading” or “Other income” with a description, including the amount and foreign tax paid. SARS source codes commonly used are 4216 for foreign dividends, 4218 for foreign interest, 4219 for foreign rental/trading, and 4250 for foreign royalties. What’s important is that you do report it in the correct category. Once that’s done, if you have a credit, enter the foreign tax paid in the appropriate credit field. It can be a bit technical, so many people opt to use a tax practitioner. A tip: keep records of how you arrived at the rand amounts (SARS can ask for your exchange rate calculations). SARS has an “Average Exchange Rates” page where you can get official rates. In short: declare each type of foreign income in rand in the foreign income section of your ITR12, and include any foreign taxes paid so SARS can compute the credit. If you’re using a professional like CH Consulting, we’ll handle the classification and ensure all supporting schedules are in order.

Q: What happens if I formally emigrate or cease to be a South African tax resident – do I still pay tax on offshore investments?
A: Once you cease to be a South African tax resident, you generally stop being taxed by SA on your foreign income and foreign assets going forward. South Africa would then only tax you on South African-source income (e.g. SA property rental, SA dividends, etc., similar to any other non-resident). However, there is a one-time “exit tax” that may apply at the point you break tax residency. When you emigrate (for tax purposes) or otherwise cease to be a resident, South Africa treats it as if you sold all your worldwide assets on the day before you leave – this triggers a deemed capital gains tax calculation on those assets. You’ll need to declare a deemed disposal on your tax return for the year you emigrated. Assets like foreign shares, foreign properties, etc., are included (an exception is usually made for South African real estate – since SA can still tax that normally when you actually sell it, they exclude it from the exit calc). The deemed gains are calculated using market values on that day, and you’ll pay CGT on those gains (using the 40% inclusion, etc.). After that, any growth in those assets is not subject to SA tax because they’re now outside the SA tax net. Also, certain assets like interests in retirement funds might have special rules at emigration. In summary: after emigrating, your offshore investment income and gains won’t be taxable in SA anymore. But the act of emigrating itself may trigger a final tax bill on accrued gains up to that point. It’s essentially a clean-break tax. It’s important to do this process properly – you’d file a tax return declaring yourself non-resident from a date and include the deemed disposal schedule. SARS may ask for proof of your non-residency (like proof of visa abroad, or the financial emigration process documentation). Once done, you’re only liable for SA tax on SA sources. One more thing: even as a non-resident, if you still have certain South African financial assets (like local unit trusts), some of the income (like interest from SA sources) might be exempt for non-residents, and dividends would still have withholding tax, etc. But your foreign income – say interest on a UK bank account after you’ve emigrated – would not need to be declared in SA. Important: Emigration for tax purposes can be complex; you might want to consult CH Consulting before you leave. We assist with the exit capital gains calculation, and also advise on timing – sometimes people choose when to trigger emigration in a tax year to take advantage of things like the annual CGT exclusion or favorable exchange rates on that date, etc. Once you’re non-resident, ensure you understand any reporting duties (for example, you may need to inform your bank or financial institutions of your non-resident status for withholding tax purposes). But overall, post-emigration, South Africa says goodbye to taxing your offshore investment earnings.

Q: Where can I get help to ensure I’m handling my offshore investment taxes correctly?
A: You can contact CH Consulting for expert assistance. Our team specializes in exactly these issues – from calculating foreign income and credits to advising on offshore structures and tax residency matters. We stay up to date with SARS’s latest rules and Interpretation Notes, so we can provide accurate, actionable advice. Whether you have a simple query about a single foreign investment or need a comprehensive tax plan for a large offshore portfolio, we are ready to help. You can reach out through our website or book a one-on-one consultation to discuss your needs in detail. (See the call-to-action below!)

(Have more questions? Feel free to reach out to CH Consulting – we’re here to answer your personal tax queries.)

Conclusion

Understanding the tax implications of offshore investments is essential for any South African investor with global assets. With proper knowledge and the right advice, you can legally optimize your taxes, avoid pitfalls, and enjoy the benefits of international diversification. CH Consulting has the expertise to guide you every step of the way, from compliance to strategic planning.

Ready to take control of your offshore investment taxes? Contact CH Consulting today to ensure you’re on the right side of SARS and making the most of available tax reliefs. You can reach us here or book a consultation to discuss your unique situation. Let our experienced professionals help you navigate the complexities of personal and crypto tax compliance – so you can invest with confidence, knowing your tax affairs are in order. We look forward to partnering with you on your journey to global financial success!

Need Help Navigating 2025?

You are welcome to book a call if you want us to consult on your specific circumstances or complete your calculation and return on your behalf.

You can also email us at info@chconsulting.co.za if you have any questions; or check out our Google Reviews to see what other customers have experienced when working with us.

Disclaimer: This article is for informational (and occasionally humorous) purposes only and does not constitute legal or financial advice. Always consult a qualified professional regarding your individual circumstances… like us.

Understanding Tax Implications of Offshore Investments