A Single Discretionary Allowance (SDA) is a banking term which refers to a limit set by the South African Reserve Bank. The SDA allows South African residents to make international payments and investments (under certain guidelines and regulations) of up to R1 million per calendar year without any supporting documents.
As SDA, in a nutshell, allows South Africans to export funds overseas without needing a tax clearance certificate. However, it is important to know that this allowance comes with strict conditions, which can make for an expensive mistake if processes are not followed correctly.
How can an SDA be used?
If you want to use the SDA, you need to apply through your bank, telling them the nature of the transfer. If the intention for the funds (up to R1 million) falls within the SDA stipulations and all conditions are met, you will need to declare the usage of the funds. SDA utilisation can include:
- Study allowance,
- Investment purposes,
- Missionary or non-profit sponsorship.
Under these come their own set of regulations. For example, if you have travelled and purchased foreign currencies to spend abroad, but did not spend the funds entirely, you can’t keep the funds offshore (or buy offshore assets with the foreign money). This is because the SDA was used with travel intention and not investment purposes.
If an investor has the intention of transferring more than the R1 million limit abroad, they would need to opt to use their foreign investment allowance (FIA). This has been laid out by the Currency and Exchanges Manual for Authorised Dealers and has its own set of regulations.
What are the benefits of foreign investment and offshore trading?
There are several reasons why investors might want to move money out of the country and invest offshore instead. One factor is simply that diversifying a portfolio of investment is always recommended, whether across industries or countries. Another, more pressing, reason is to shift funds away from risk specific to South-African investment. This would be looking to invest in either the global market or moving funds to a country beyond the domestic market to protect against any inflation or devaluation of the rand.
What documentation is necessary to transfer under the SDA?
While supporting documents are not necessary, the South African citizen must produce a valid Identity Document (either the green bar-coded booklet or the Smart ID card) for identification purposes at the Authorised Dealer to exchange Rand for foreign currencies. For this, the ID number is necessary when the bank reports the transaction for foreign currency and inputs the information into the FinSurv Reporting System.
What is the best way to invest abroad?
If an investor wants to take advantage of the SDA to move funds abroad, there are several options to invest up to R1 million.
Important! Take care to read through any conditions before taking action, as the penalty for breaking the regulations can be steep.
One of the most effective ways to save money in a legal offshore investment is to physically move cash from a South African bank account to an overseas account. Under the limit of the SDA, converting South African Rands into foreign currency can be a legal process if you are a taxpayer over 18 years old.
An SDA helps ensure investment abroad is above board, legal, and within both tax and governmental regulations.
Other abroad investment opportunities
Cryptocurrency investment, such as arbitrage trading, is also another way to diversify your investment portfolio across borders. Bitcoin and other digital assets have become known as one of the new popular safe-haven assets to hedge against inflation. While SARB has not released formal communication about Bitcoin trading abroad, it remains a legal method to both make a profit as well as invest in offshore trading.
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