Capital Distributions from SA Trusts to Offshore Trusts: What You Need to Know

Recent updates have brought clarity to the long-standing question of whether a South African trust can invest or distribute funds offshore. If you’re a trustee, advisor, or beneficiary involved with cross-border trust structures, this article will help you understand the latest regulatory position and what steps to take.

No Offshore Investments for South African Trusts

According to the South African Reserve Bank (SARB), local trusts may not invest directly abroad, as they do not have an annual foreign investment allowance like individuals do.

Distributions to Offshore Trusts Are Permitted — With Conditions

While South African trusts are not permitted to invest offshore, there is a regulated way to move funds abroad — through a capital distribution to a foreign trust, provided specific conditions are met.

This option is particularly useful for families or structures with global beneficiaries.

Conditions for Distribution

For a South African trust to make a capital distribution to a foreign (offshore) trust, the following conditions must be met:

• The offshore trust must be a named beneficiary of the South African trust.
• The distribution must follow the terms and conditions outlined in the local trust deed.
• The South African trust must be classified as a resident trust.
• The trust, and all entities or individuals linked to the trust, must be fully tax compliant, and able to show that any taxes linked to the distribution have been or will be settled.

These requirements ensure that the transaction is legal, transparent, and traceable from a tax and regulatory perspective.

SARB’s Assessment Criteria

To consider this type of application, the SARB will assess:

• The Ultimate Beneficial Owners (UBOs) of both the South African and foreign trust
• Whether the South African trust’s tax affairs are fully compliant

This means all SARS tax returns and declarations must be up to date before submitting an application.

What’s Still Unclear?

There are still a few grey areas in the guidance released by SARS and SARB:

• It’s not yet clear whether SARS is agreeable to cash distributions only, or if asset distributions (such as shares or property) are also permitted.
• There is no set limit on the amount that may be distributed

Need Help with Offshore Trust Distributions?

If you’re managing a South African trust and considering a distribution to an offshore trust or beneficiary, our team can help guide you through the SARB application process. Contact us today for expert assistance on documentation, compliance, and foreign exchange flows.

For more information or assistance please email enquiries@currencypartners.co.za or call (+27) 21 203 0081 to get in touch with our expert team.