Navigating the ins and outs of foreign currency allowances can seem like a daunting task, especially if you’re not familiar with the terminology and regulations. As a South African citizen over 18, you have access to two essential allowances: the Single Discretionary Allowance (SDA) and the Foreign Investment Allowance (FIA). In this guide, we break down the differences, explore the permissible uses, and provide practical tips to make the most of these allowances.
Understanding the Basics: SDA vs. FIA
Single Discretionary Allowance (SDA):
– Limit: Up to R1 million per calendar year.
– Tax Clearance: Not required.
– Uses: Gifts, loans, investments (e.g., shares), donations, study allowances, overseas card payments, and more.
Foreign Investment Allowance (FIA):
– Limit: Up to R10 million per calendar year.
– Tax Clearance: Required from SARS before utilisation.
– Uses: Investments in offshore portfolios, property, assets, and investments in foreign countries beyond the common monetary area (eSwatini, Lesotho, Namibia, and South Africa).
Your travel allowance, capped at R1 million per year, is a subset of your Single Discretionary Allowance. Remember, you cannot purchase physical foreign currency more than 60 days before your departure. Instead, consider saving in a foreign currency to manage travel costs and capitalise on currency fluctuations.
To avoid penalties and stay within your limits, consider these three practical tips:
- Organise Your Transactions:
– Keep a detailed record of all overseas payments and investments.
– Create separate folders for SDA and FIA transactions.
- Set Budgets for Investments:
– Establish monthly limits for foreign investments.
– Apply for a SARS Approval for International Transfer (AIT) when approaching the SDA limit.
- Use a Dedicated Account:
– Utilise one bank account or credit card for all overseas transactions.
– Prevent exceeding your yearly allowance with focused financial management.
Regularly check updates from the South African Reserve Bank and the South African Revenue Service to stay informed about any rule changes or amendments related to foreign currency allowances.
Your R1 million SDA is a versatile tool. Here’s a more comprehensive breakdown of its applications:
– Monetary gifts and loans to non-residents.
– Travel allowance within 60 days before departure.
– Donations to missionaries.
– Foreign capital allowance.
– Wedding expenses with documentary evidence.
– Study allowances with proof of registration.
– Maintenance and alimony payments as per court orders.
– Travel allowance for minors (R200,000 per year).
– Use of South African debit or credit card abroad.
For individuals above 18 and in good standing, investing up to R10 million offshore per calendar year is possible with a SARS Approval for International Transfer (AIT).
More important points for consideration:
– Approval for Amounts Beyond R10 Million:
– Apply to SARB for Tax clearances for these transactions.
– Foreign Currency Account in South Africa:
– Private individuals can open foreign currency accounts for permissible transactions.
– Exporting Krugerrand Coins:
– Residents can export Krugerrand coins up to R30,000 as gifts.
– Non-resident visitors can export up to 15 Krugerrand coins with proof of acquisition through foreign currency.
Credit/Debit Card Payments:
– “Card not present” transactions (e.g., online shopping) have a limit of R50,000.
– “Card-present transactions” while traveling are allocated against your SDA.
– Penalties for Violations:
– Violating SDA conditions can result in penalties.
– Ensure compliance with SARS and the SARB rules to avoid unforeseen consequences.
– Tax Implications:
– Different purposes (gifts, loans, study, etc.) have varying tax implications.
– Be prepared for potential taxes on certain transactions.
Your foreign currency allowances offer incredible opportunities, but careful navigation is key. Ignoring the conditions can lead to costly mistakes. Whether it’s making loans, travel expenses, or online purchases, understanding the nuances of each transaction type is vital. Stay informed, track your spending, and utilise these allowances wisely for a seamless and rewarding financial journey. If you have questions or need assistance, we’re here to help. After all, you deserve the best rates and lowest fees.