South African expats face a tax dilemma from next year – pay a hefty tax of up to 45% on their worldwide income or consider leaving home for good.
The new tax impacts any South African abroad earning R1 million or more.
And the new tax not covers benefits from employers like housing, travel and school fees as well as salaries.
The result is some advisers are suggesting becoming non-resident is the best solution as the tax law only applies to South Africans.
But this is not as straightforward as it might seem, because the move stops South Africans retiring back to their home nation.
Financial emigration is just one solution
“It’s a serious decision with long term implications that requires careful consideration,” said leading expat financial firm deVere Acuma’s Head of Africa, Gavin Smith.
“While this may not seem concerning at present; aspirations change with time and age, as do family circumstances – while not returning to South Africa now may not seem like the end of the world, who is to say the situation won’t change.
“Should an expatriate return to South Africa within five years after financial emigration, the South African Revenue Service will deem it a failed emigration and all taxes for that period will be liable.”
Exit tax is another issue – with an 18% capital gains tax charge on worldwide assets awaiting those making the move.
“Financial emigration is just one tool in the box for expats,” said Smith.
Taking the right advice
“investing in a foreign pension scheme is an effective way of storing foreign income, tax efficiently.
“Such schemes enable people to invest in primary currencies that are less susceptible to fluctuations than the Rand, in highly credit rated and regulated jurisdictions. These funds have the benefit of being accessible to investors from the age of 50, which means they can return to South Africa, which is a relatively cost-effective country to live in, with a decent amount of capital.”
“It goes without saying, however, that these kinds of investments should only be entered into with the correct advice.”
His views are echoed by deVere CEO and founder Nigel Green.
“By taking the right advice as quickly as possible, you can mitigate that tax liability,” he said.
“South Africans have a fantastic opportunity if they do take the right advice to reduce their taxation and to make sure they secure their financial future.”