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OFFSHORE TRUST SOLUTION FOR SOUTH AFRICANS

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Mauritius trusts are regulated by The Trust Act 2001, the Code Civil Mauritian, and the common law relating to trusts.

Introduction

The Offshore Trust Solution provides a tax efficient and affordable offshore investment opportunity to South African individuals wishing to invest their local savings in foreign currency in a safe, stable and tax friendly offshore location. It is suitable for clients who wish to take moderate amounts of money out of the country for purposes of building wealth abroad. By investing in the offshore trust solution, domestic savings are not only hedged against local political and economic uncertainty but also protected against a depreciating South African Rand.
 

 

Investment Vehicle

An offshore trust serves as holding entity for the investment. The trust is constituted under the Mauritius Trust Act 2001 and is regulated by a declaration of trust containing details of its settlor, the nominated beneficiaries and the trustees of the trust. The investor acts as the settlor of the trust and as such may nominate and appoint the beneficiaries of the trust and issue letters of wishes to the trustees on how to manage the affairs of the trust. The trustees, of whom at least one must be resident in Mauritius, are responsible for administering the assets of the trust for the benefit of its beneficiaries. A duly authorized offshore management company, acts as trustee of the trust under license of the Financial Services Commission of Mauritius.

Investment Features

The offshore trust is funded with cash donations made by the investor to the trust. Donations are paid directly into the offshore bank account of the trust in Mauritius. Payments to the trust can be made and held in any foreign currency. In order to be exempt from donation tax in 3 South Africa, the value of the donations to the trust are limited to ZAR 100 000 per annum per person. In addition, no tax clearance or Reserve Bank approval are required for any cash transfers to the trust below ZAR 1 million. The declaration of trust authorizes the trustees to effect investments on behalf of the trust in any currency anywhere in the world.


Investment Composition

Below is a schematic depiction of the composition and operation of the trust option.

Fees and Costs

​The following fees and cost applies:  

  • Initial set-up cost of the trust: $ 250 

  • Annual trust management fee: $ 1500

  • Bank Account if required: $ 750

The initial set-up cost and trust management fee are recouped from the offshore bank account of the trust whilst the investment management fee is charged against the investment. The investment manager is authorized to realize any investment held by them should there be insufficient funds available to settle any of these fees.

Setting up the Trust

Documents required from the investor for setting up the trust comprise the following:

  • Certified copies of the Identification documents of the founder and beneficiaries of the trust;

  • Proof of address of the founder and the beneficiaries of the trust;

  • Contact details of the investor.

Investment Benefits 

​Ideal Offshore Investment Platform

  • Mauritius is an attractive destination for offshore investors.

    • Geographically convenient with a strategic time zone, being just two hours ahead of South Africa;

    • Easily accessible for South Africans with regular flights to Mauritius in only 3½ hours;

    • Politically and socially stable parliamentary democracy;

    • GDP growth of 3% to 4% for more than a decade irrespective of changes to government;

    • Well-regulated financial system, with a proliferation of international banks; −

    • Top-ranking African country in the World Bank Group’s Ease of Doing Business report.

Exposure to World-Class Offshore Financial Service Centre

  • Mauritius is a world-class financial centre with an attractive legal and tax regime for the formation of an offshore trust in which international investments can be held.

    • Simple tax system;

    • No exchange control restrictions;

    • Funds may be held and invested in hard currencies such as US Dollar, Euro and British Pound;

    • Earnings from foreign investments are effectively taxed at 3%;

    • No capital gains tax at disposal of investments;

    • No dividend withholding tax;

    • No donations tax;

    • No inheritance tax;

    • Double Taxation Avoidance Agreements (DTAA) with 17 African countries, including South Africa. •

Investment Flexibility

  • Under current exchange control regulations, South Africans are not permitted to hold any foreign currency in South Africa without approval. The ability to diversify investments in a hard currency to an offshore trust in Mauritius is therefore a strong motivating factor for South Africans who wish to hedge against the currency risks associated with holding Rand investments.

Estate and Succession Planning Benefits

  • An offshore trust remains a very useful estate planning tool for purposes of building, protecting and preserving wealth outside of South Africa.

    • Trust assets fall outside of the estate of the settlor/investor. The value of the funds donated to the trust as well as any investment returns would therefore be excluded from the investor’s personal estate in South Africa for estate duty purposes;

    • The investment through the trust limits the growth in the value of investor’s personal estate in South Africa and reduces the investor’s liability for estate duty in the event of death;

    • Assets held by the trust cannot be claimed by the investor’s creditors and are similarly protected from claims by the investor’s spouse in the event of divorce;

    • The winding up of a deceased estate can take an inordinate length of time with assets often being inaccessible to dependents during such process. The running of the trust is not affected by the death of the settlor/investor and the trustees can immediately take care of the needs of beneficiaries;

    • The investor at all times remains in control of his investment through the trust. The investment is held in the name of the trust and as settlor of the trust, the investor is at liberty to issue letters of wishes to the trustees on how to administrate the trust assets for the benefit of the beneficiaries, not only during his lifetime but also after his death;

    • A high degree of confidentiality in the details of the trust are not disclosed to anyone unless by order of the Mauritian Supreme Court.

 

 

Cautionary Notes

  • The Offshore Trust Solution is intended for investors wishing to build reserves outside South Africa.

  • Therefore, if distributions are made to any of the beneficiaries from funds accumulated by the trust in Mauritius, the income portion of the distributions can be subject to tax in South Africa at a rate of 20%.

  • Tax efficient solutions are available to investors who wish to withdraw money. This could attract additional costs.

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