High-Tax Country Resident Planning To Go Offshore: South Africa

If you are ordinarily resident in South Africa (which will be the normal situation for a native-born South African individual) then you are taxable on your South African-source income and world-wide investment income. Inheritance and gift taxes also apply, plus, since 2001, capital gains tax.

'Ordinary residence' is not defined in the law, but has been described as involving some continuity of residence, or as being the place where a person's belongings are stored, and to which he means to return. In the case of foreign-source interest income, a 183-day residence rule has been introduced to distinguish between those who pay or do not pay tax (which seems to clarify the meaning of ordinarily resident).

Many South Africans have wanted to shelter assets offshore, but far-reaching anti-avoidance legislation, limits on the export of capital and the requirement for registration of exported assets meant that tax advantages are hard to find. However, if a resident means to emigrate one day, or even to retire abroad, then the transfer of assets is probably worthwhile.

At the time of emigration, South African residents have traditionally been permitted to take only a limited amount of assets with them; the balance counting as 'blocked Rand', whereby only investment returns from it may be exported. Sophisticated investment vehicles have been developed to maximise tax-exempt returns using unit trust structures and other mechanisms. These mitigate the pain of being separated from one's capital, but there is evidently a high premium on legitimate methods of extracting assets from South Africa prior to departure.

Naturally, South African residents have taken good care that any assets or income arising outside the country stay there, although once again, the anti-avoidance rules mean that it will be hard to avoid taxation of investment returns.

Once departure has taken place, the situation is different, and if the decision not to return to residence is a firm one, the South African expatriate is reasonably free to invest wherever he can get the best returns.

Once a definite decision to move offshore has been made, careful thought should also be given to existing South African capital assets, including pension assets. Will it be possible to move them offshore within the capital control limits? Is it desirable to move them early, possibly into a worse tax situation, but at least into a secure investment environment? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

www.lowtax.net has full details of the offshore investment, taxation and legal regimes in 35 of the main offshore jurisdictions.

Individuals who have significant non-South African business income may be able to make use of offshore corporate tax shelters, especially involving Mauritius.

www.lowtax.net contains details of the corporate and partnership legal structures available in the 35 most prominent offshore jurisdictions, including Mauritius, together with descriptions of the most important business sectors in each jurisdiction, local tax regimes, and the international treaties entered into by each jurisdiction.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.