Author: Erin Snyman (Head of Global Tax at Sail International)
It is often at times of unrest or potential political change that South Africans step back and assess their situation. So, what are the realistic choices?
Option One: Emigration
Emigration is certainly an option and hundreds of thousands of South Africans have taken this route in the last few decades. We won’t go into this option in detail, but we would like to stress the importance of considering your tax consequences both in South Africa and the country you are emigrating to (have a look at our webinar which explains some of these considerations “The tax consequences of emigration”)
Option Two: Diversify your investments by investing offshore
Investing offshore allows for diversification of investment portfolios and hedges your risk against local economic uncertainties. There are a few different offshore options:
- You have indirect offshore options and direct offshore options.
- An indirect offshore option is done through global assets where no physical cash leaves South Africa. This is either through Rand denominated offshore equity funds or through allocating a portion of your assets to locally based offshore funds.
- You then get direct offshore investment options. You can achieve this by utilising a platform to invest offshore directly (e.g. in bonds or equities) or as an alternative you can move your own funds offshore to invest in specific investments such as property.
For direct offshore investments you will need to ensure you remain within the limits for offshoring of funds. South Africans are allowed to take a maximum of R10 million a year offshore if they have been granted a SARS tax clearance certificate (Approval for International Transfer) to move money abroad. Without this tax clearance certificate, you can only send a maximum of R1 million out of South Africa each year using your Single Discretionary Allowance.
Tax consequences of offshore investing
As a South African tax resident, you will be liable for taxes on your worldwide income. This means your offshore income and gains will be taxed in South Africa. The other country may also hold taxing rights so where a double tax treaty exists it is always beneficial to assess the treaty to see the taxing implications of each income source so that you understand the impact and don’t risk being taxed twice.
South Africa has a lot of complex legislation around foreign dividends, controlled foreign companies, transfer pricing, capital gains tax and estate duty on foreign assets, as well as anti-avoidance provisions. This should not be a deterrent to investing offshore, but it is important to spend a bit of time understanding the potential consequences so that you don’t get caught out.
At SAIL we are passionate about assisting and aiding people with their offshoring considerations. Give us a call today to see how we can map the path to a successful offshore investment.
And for those South Africans who are considering returning, please do read this article for the taxing implications on return: Returning to South Africa? Give some thought to the tax consequences