Frequently Asked Questions
What is the position of the Channel Islands as International Finance Centres?
What is the political status of Jersey and Guernsey, being part of the Channel Islands?
Where does FirstRand Private Wealth Management and the International Advisory Service fit into the FirstRand Group?
How does my tax residency status influence my tax liabilities regarding offshore investments?
What is a Controlled Foreign Entity?
Is there a minimum value that I should have available before considering obtaining advice about the global structuring of my assets?
Will I be subject to double taxation?
As a South African resident, may I place my foreign investment allowance in an offshore trust?
Can I meet with the trustees of the offshore trust that I have set up when the need arises?
Are my current structures sufficient in the light of my long term objectives?
What is regarded as foreign earned income?
Will my offshore investments be subject to Capital Gains Tax?
Will my investments be liable to withholding tax?
Will my funds be subject to Foreign Exchange Control?
Can I hold my foreign assets in my SA trust?
If my SA trust inherits foreign assets, may it hold the foreign assets overseas?
If I bequeath my SA assets in my SA Will to my offshore trust, may the inheritance be transferred overseas to my offshore trust?
If I am a citizen or permanent resident of another country, how does this impact on my status from a SA Excon perspective?
If I have been out of SA for more than 10 years, will I be regarded as an emigrant and not subject to SA Excon regulations?
What allowances are in place for individuals for offshore investment/emigration purposes?
Do I need a separate will for my offshore assets?
What fees will be payable if I utilize the services of the IAS?
Can the International Advisory Service register an Offshore Trust on my behalf?
Why can I not be a trustee on the offshore Trust?
Does a Trust formed in Guernsey have a registration number?
Why does the trust need to have an investment advisor or investment manager appointed?
Do I pay tax when the trust distributes assets to me?
Does the trust pay tax in Guernsey?
Why should the trust not own UK property directly?
Can my offshore Trust own a house in South Africa?
Why should I pay tax on the income or gains of an offshore trust?
Why do I have to enter into a formal loan agreement with the trust?
Can anyone be a beneficiary of a trust?
Should I have concerns about the trust Company being owned by a South African parent?
Can I nominate the trust beneficiaries in my Will?
What is the position of Jersey as an International Finance Centre?
Jersey is rated amongst the top 10 IFC’s in the world and is held in high regard regarding the Regulatory Regime that the Government put in place in co-operation with several International Oversight Organisations. The Regulator, the Jersey Financial Services Commission, oversees all regulated finance business in Jersey and applies strict control and oversight. The legal system kept up with developments and Jersey is home to several top rated international law firms. The final court of appeal is the House of Lords in the UK.
What is the political status of Jersey, being part of the group of islands normally referred to as the Channel Islands?
As a Crown Dependency, Jersey has the constitutional rights of self-government and judicial independence. These rights were granted by Royal Charter 800 years ago and are unaffected by changes to United Kingdom or European government. Jersey’s legislative assembly, the States of Jersey, has total responsibility for the Island’s domestic legislation, including taxation and financial regulation.
The Island has a special relationship with the European Union, defined by Protocol. Neither a member nor associate member, the special relationship with the European Union is ratified by Protocol 3 of the Treaty of Accession of the United Kingdom to the European Community.
Where does FirstRand Private Wealth Management and the International Advisory Service fit into the FirstRand Group?
FirstRand is one of the largest South African financial institutions and includes FNB, RMB, Momentum and several other financial service providers. FirstRand International Wealth Management Holdings which is wholly owned by FirstRand is the holding company of FRPWM, FirstRand Trustees in Guernsey and Ashburton, a fund management company in Jersey. FRPWM is domiciled in Jersey with a presence in the DIFC, the Dubai International Finance Centre, as well as London. The IAS provides an advisory service to clients regarding cross border financial transactions and the legal, tax and excon implications thereof. The IAS provides an integrated service in the Wealth Segment through RMB Private Bank and FNB Private Clients in South Africa and FRPWM in Jersey and Dubai.
How does my tax residency status influence my tax liabilities regarding offshore investments?
Your liability for taxation on income generated from offshore investments will be determined by your tax residency and the rules applied by the tax authorities in your jurisdiction. South Africa applies a residency based approach in terms of which all tax residents in South Africa will be taxed on their world wide income with certain specific exceptions and with due consideration to any applicable Tax Treaties. Certain deeming provisions in the SA Income Tax Legislation may apply to your specific circumstances and income in an offshore trust could create a personal tax liability depending on your declarations in any amnesty applications. Residents and locally controlled entities are taxed on their South African and foreign income and non-residents are taxed in South Africa in accordance with source-based principles. Tax residency and the interpretation is rather complex and more information regarding your individual circumstances can be obtained from the IAS. A Controlled Foreign Entity in a foreign jurisdiction will also not be liable to pay tax on its foreign income in South Africa.
What is a Controlled Foreign Entity?
A CFE is a separate legal entity which is not liable for tax in South Africa as the management and control of the CFE is not exercised from South Africa. A discretionary Trust and a Foundation, if structured appropriately, will be considered a CFE. The IAS can provide advice regarding the legal and tax implications of incorporating a CFE and FirstRand Trustees in Guernsey can provide advice and incorporate required structures.
Is there a minimum value that I should have available before considering obtaining advice about the global structuring of my assets?
No, but in the light of the increase in the foreign investment allowance allowed to SA residents for Exchange Control purposes, it is even more feasible now to put an offshore structure in place from an estate planning point of view.
Will I be subject to double taxation?
Normally the local tax regulations in your jurisdiction will make provision to avoid double taxation, but it is always preferable to confirm the status of any cross border transaction. In South Africa relief from international double taxation is obtained both unilaterally under local regulations and bilaterally under applicable Tax Treaties.
As a South African resident, may I place my foreign investment allowance in an offshore trust?
Yes, and it may be done by means of an interest free or interest bearing loan or by way of donation, each method having its own consequences from a tax point of view in SA.
Can I meet with the trustees of the offshore trust that I have set up when the need arises?
Yes, a director of FirstRand Trustees in Guernsey comes to SA every 3 months to see clients. The IAS and the Fiduciary and Tax departments in FirstRand can also see SA clients on an ongoing basis regarding their offshore structures in Guernsey.
Are my current structures sufficient in the light of my long term objectives?
This question would have to be answered by an IAS specialist who can evaluate your current structures in the light of taxes as well as your long term specific objectives.
What is regarded as foreign earned income?
Broadly speaking this may include assets cleared through the Amnesty process, funds earned whilst working abroad, funds transferred offshore in terms of the individual foreign investment allowance and income earned thereon, and foreign inheritances.
Will my offshore investments be subject to Capital Gains Tax?
This will depend on your tax residency status, who the owner of the investment is, and the tax regulations applicable to yourself or the owner of the investment if it is owned by a separate legal entity. The source of finance in acquiring the asset and any amnesty applications may also influence your situation. The initial investment will also have to be structured according to your individual requirements, as the switching between investments may sometimes be considered as a trigger event for CGT purposes.
Will my investments be liable to withholding tax?
This will depend on the tax regulations in the jurisdiction where the investment is made. Jersey currently does not levy a withholding tax.
Will my funds be subject to Foreign Exchange Control?
Jersey does not apply any Foreign Exchange Control to funds in Jersey, and funds can be transferred freely to and from Jersey. South Africa does impose Foreign Exchange Control measures. The IAS will provide transaction specific advice and can also provide assistance with the applications and process to the South African Reserve Bank.
Can I hold my foreign assets in my SA trust?
No, this is not allowed in terms of current Exchange Control (“Excon”) policy.
If my SA trust inherits foreign assets, may it hold the foreign assets overseas?
As the current Excon policy does not allow for this, any accrual of foreign currency and/or entitlement to foreign assets would need to be sold and declared to an Authorised Dealer (SA bank) within 30 days in terms of exchange Control Regulation 6 and 7. However, a formal application could be made to the SA Reserve Bank (“SARB”) requesting exemption in this regard, which may or may not be approved depending on the circumstances and origin of the offshore assets.
If I bequeath my SA assets in my SA Will to my offshore trust, may the inheritance be transferred overseas to my offshore trust?
This is unlikely, unless all the beneficiaries of the offshore trust are non-residents, but an application would need to be submitted to the SARB in this regard.
If I am a citizen or permanent resident of another country, how does this impact on my status from an Excon perspective?
The definition of a SA resident for Excon purposes differs to that from a Tax and Home Affairs perspective. It is therefore essential to get specialist advice in this regard as each case needs to be reviewed in context.
If I have been out of SA for more than 10 years, will I be regarded as an emigrant and not subject to SA Excon regulations?
No, in order to formalise your emigration from SA, a Form MP336 (b) must be completed and submitted to the SARB.
What allowances are in place for individuals for offshore investment/emigration purposes?
Foreign Capital allowance is R4m per adult, which may be applied as follows:
- Foreign investment – Once-off limit of R4m per individual over 18 years, subject to Tax Clearance; OR
- Emigration – Settling-in allowance of R8m for a family unit or R4m for single persons
- (Emigrants are also entitled to their travel allowances and may take household effects with them to the insured value of R1m)
Do I need a separate will for my offshore assets?
It is normally preferable to have a will dealing with offshore assets, as this will address jurisdiction specific requirements and different legal systems and legal interpretations based on common law or civil law principles and simplify the administration of your offshore estate. The IAS provides an offshore will service through FirstRand Trustees or independent service providers to address your needs.
What fees will be payable if I utilize the services of the IAS?
When you request the services of the IAS you will be provided with an Engagement Letter incorporating the Terms of Business that will regulate the provision of services to you, and depending on the complexity of your requirements, an appropriate fee structure will be agreed with you.
Can the International Advisory Service register an Offshore Trust on my behalf?
The IAS is not a registered Trust Services provider and cannot perform any trust services, so you will be referred to FirstRand Trustees in Guernsey, who are part of the FirstRand Group and the Offshore Trust and Fiduciary product house for the Wealth Segment of the Group.
Why can I not be a trustee on the offshore Trust?
Although the Trust (Guernsey) Law 2007 does not specifically prevent a settlor or beneficiary from acting as a trustee, Licensed Fiduciary Services providers have to comply with a strict regulatory regime. In terms of the Money Laundering provisions, the Licensed Fiduciary provider has to ensure that they exercise due care and control over the trust assets and having a co trustee who is not also a licensed fiduciary provider makes it difficult for the trustee to comply with the Money Laundering legislation.
A Trust is also generally taxable in the jurisdiction where the management and control is exercised. Where a settlor or beneficiary is appointed as a trustee, tax authorities may take the view that trust is managed and controlled in the jurisdiction where these trustees are resident. Consequently it is FirstRand Trustees’ policy not to allow the appointment of personal trustees.
Does a Trust formed in Guernsey have a registration number?
There is no public record of trusts in Guernsey and as a consequence the trust does not have a registration number as is the case in South Africa.
Why does the trust need to have an investment advisor or investment manager appointed?
A trust can generally invest in any type of investment vehicle or instrument. Given the complexities and diversity of global financial markets, the trustees are generally not qualified to make investment decisions in isolation. In order to minimise investment risk and maximise returns the trustees would therefore rely heavily on professional investment managers or advisors to manage or advise on the trust investments.
Do I pay tax when the trust distributes assets to me?
This will depend largely on whether the distribution is of capital or income nature. As a trust distribution follows the “conduit principle”, any income distributions will be seen as income in the hands of the recipient beneficiary. Where the trustees however distribute capital to a beneficiary, this will generally not be subject to Income Tax, however if it contains an element of gain, the capital distribution may be subject to Capital Gains Tax. Where trust income or gains have already been subject to Income or Capital Gains Tax (as a result of the deeming provisions or the Amnesty Act), distributions from these funds would generally not attract any further taxation.
Does the trust pay tax in Guernsey?
No, Guernsey legislation currently exempts trusts from Guernsey Income Tax where the beneficiaries are not resident in Guernsey.
Why should the trust not own UK property directly?
Apart from many administrative and transactional advantages, interposing an offshore Company between the trust and the UK assets also has considerable UK Tax advantages. UK legislation imposes a tax charge, referred to as the “10 year charge” on UK situs assets held in a discretionary trust. The liability, as the name suggest arises on every 10th anniversary of the trust and the rate is approximately 6% of the market value of these assets on the anniversary date. Therefore the interposing an offshore limited liability company currently excludes the application of the charge.
Can my offshore Trust own a house in South Africa?
No. The South African Exchange Control provisions preclude a foreign trust from holding any asset, whether directly or indirectly, located in South Africa or in the Common Monetary Area.
Why should I pay tax on the income or gains of an offshore trust?
Although no Guernsey Income tax may arise, jurisdictions like South Africa often impute certain deeming provisions when a tax resident transfers assets to a foreign trust. The result is mostly that any income or gains arising in the hands of the trustee are attributed to the person or persons who funded the trust. Similarly, where a person (the donor) has been granted amnesty on assets held in an offshore trust, the donor generally remains taxable on the assets held in trust.
Why do I have to enter into a formal loan agreement with the trust?
A loan is a contractual agreement between the lender and the borrower. Although an agreement does not have to be in writing to be valid and enforceable, it becomes very difficult, e.g. in the event of a dispute arising, to verify the terms and conditions of the agreement. In addition the trustees are required to keep proper records and as a result it is FirstRand Trustees’ policy to ensure that all loan agreements entered into are recorded in writing.
Can anyone be a beneficiary of a trust?
Yes and it can include a class of beneficiaries, corporates and other trusts.
Should I have concerns about the trust Company being owned by a South African parent?
No, quite the contrary! When assets are transferred to a discretionary trust, full title of the assets vest with the trustees and they are generally empowered to do with the assets as they see fit. It is therefore important that the prospective settlor ensures that he trusts the trustee implicitly. The fact that the trust company is owned by one of the largest financial institutions in South Africa should offer additional comfort to settlors and beneficiaries alike.
Can I nominate the trust beneficiaries in my Will?
No. In terms of Guernsey Trust Law, for a trust to be valid, the beneficiary or beneficial class must be ascertainable at the point when the trust is formed. A stipulation that the beneficiaries of the trust will be those persons nominated in the Last Will and Testament could be seen as tainted. A Will may be changed several times during a testator’s lifetime and the beneficiaries nominated in the Will at the time of formation of the trust may vary vastly from those nominated in his last Will and testament. To ensure the validity of the trust, it is always preferable to specifically nominate the beneficiaries in the Trust Deed.
