Ralph Wichtmann, consultant at Sovereign Trust (SA) Limited
Many wealthy South Africans are seeking opportunities outside South Africa. According to Knight Frank’s Wealth Report 2021, published in February, South Africa’s population of high-net-worth individuals (HNWIs – assets over US$1 million) declined by 12% from 50,823 to 44,605 between 2015 and 2020, while the population of ultra-high-net-worth individuals (UHNWIs – assets over US$30 million) declined by 18% from 910 to 742 over the same period.
There are a number of possible reasons for this increase in emigration – political instability, safety and security, education, volatile currency or the lack of job opportunities in South Africa. There are also the pull factors of other countries. A safer living environment for families, free or affordable education and/or medical care, career progression, better ease of doing business and the chance to give children passports or citizenship of the countries of their ancestry and better future opportunities.
Tax has also been a prime factor, particularly since the 2017 amendment to the Income Tax Act – the so-called “expat tax”. As of March 2020, South African residents who are ‘employed’ outside South Africa and are out of the country for periods exceeding 183 days, 60 days of which are consecutive, in any 12-month period, now to pay South African tax of up to 45% of their foreign employment income where it exceeds the threshold of ZAR1.25 million. This might seem generous, but employment income includes allowances and fringe benefits paid to expatriates that cannot be considered as ‘earnings’.
Most south African taxpayers working abroad are already paying some form of local income tax, which should be deductible against South African income tax payable providing that a double tax agreement is in force between South Africa and the country in question. However, the ‘expat tax’ has led many South Africans who had already left the country, but not formally, to seek to formalise their emigrant status.
Deciding to emigrate is one thing; deciding where to move to is quite another and there are many issues that need to be considered. I looked at three destinations that South Africans should consider if they are thinking of emigrating.
The UK remains the preferred destination for South Africans looking for excellent employment opportunities, a high standard of education and a good quality of life. Choosing the right visa can make the process of applying much simpler and can lead to a more successful application.
- A UK Ancestry Visa allows Commonwealth citizens who are the immediate descendants of UK nationals permission to live and work in the UK. To apply, you must be a Commonwealth citizen, aged 17 years or older with a grandparent born in the UK, Channel Islands, the Isle of Man, or in the Republic of Ireland before 31 March 1922 and you must be able to support yourself and any dependants without having to rely on public funds. The UK Ancestry Visa is granted for five years and offers a good route to obtain Indefinite Leave to Remain and ultimately British Citizenship. You can work and live in the UK without restriction and there is no requirement to make a financial investment in the UK. Your spouse, civil or unmarried partner and your dependent children can all benefit by joining you in the UK.
- Under the UK’s new post-Brexit immigration system, the Tier 2 (General) visa category has been replaced by the Skilled Worker Visa route. This visa allows you to live and work in the UK for up to five years at which time you can apply for Indefinite Leave to Remain. To apply, you need to have a job offer from and be sponsored by a UK-based employer. There is no age cap on this visa and there is currently no cap on the number of visas granted in this category.The Skilled Worker visa is points-based. Points are awarded for meeting certain requirements and you need a total of 70 points to be eligible. If you have a job offer for a role that meets the minimum skill level, you only need to have 50 points. You are allowed to trade characteristics, such as qualifications, against a lower salary to get the required number of points. The Skilled Worker visa allows you to change jobs, provided that the employer can sponsor foreign workers, and to bring your family to the UK and can lead to citizenship.
Australia’s high quality of life, prosperous economy, diverse population, excellent healthcare and education systems continue to make it one of the most popular countries for South Africans looking to settle abroad. At the end of June 2018, 189,230 South African-born people were living in Australia, 36.9% more than the number on 30 June 2008. This makes the South African-born population the seventh largest migrant community in Australia.
Australian migrants are permanent residents of Australia that hold migrant or permanent resident visas and may live and work in Australia indefinitely. While migrants are not citizens, they do have the option to become citizens after meeting the residency requirement. Australia’s permanent Migration Programme incorporates economic and family migration and is the main pathway to permanent residence. It includes the Skill stream, Family stream and Special Eligibility visas.
The Skill Stream Visa is designed for workers with the skills, qualifications and entrepreneurship most needed in the Australian economy. The Skill stream comprises four components, namely: Points Tested Skilled Migration; Employer Sponsored; Business Innovation and Investment; and Distinguished Talent. The most popular visas are:
- Skilled Independent Visa (Subclass 189) – A permanent resident visa for points-tested skilled workers under the age of 50. It does not require employer or family sponsorship, or nomination from a state or territory government. You must have obtained a suitable skills assessment and you may require an invitation to apply.
- Skilled Regional (Provisional) Visa (subclass 489) – A four-year visa that allows skilled workers to live and work in specific regions of Australia. There are different requirements depending on whether you are applying under the invited pathway or the extended stay pathway.
- Business Talent (Permanent) Visa (subclass 132) – An entrepreneur visa that allows you to establish a new or develop an existing business in Australia. To get this visa, you have must have a nomination from a state or territory government agency and be invited to apply by the minister. You also must have either:
- Net business and personal assets of at least AUD1.5 million and an annual business turnover of at least AUD3 million if you intend to apply for the visa in the Significant Business History stream; or
- Have obtained at least AUD1 million in venture capital funding to start the commercialisation and development of a high-value business idea in Australia if you intend to apply for the visa in the Venture Capital Entrepreneur stream.
- Business Innovation and Investment (Provisional) visa (subclass 188) – An entrepreneur visa for people who wish to own and manage a new or existing business in Australia or to invest in Australia. Requirements include a nomination by a state or territory government or Australian agency, as well as an invitation to apply by the Minister for Immigration and Border Protection.
Portugal is a leading country for individuals and families seeking residence in the European Union and has become a popular destination for South Africans. Portugal provides a stable political and social environment, clear and transparent tax rules, good infrastructure, a favourable climate and excellent quality of life.
Portugal’s Golden Visa Residence Permit (GVRP) is a residency-by-investment programme that provides qualifying individuals and their families with full rights to live, work and study in Portugal. The minimum stay in Portugal under a GVRP is seven days a year, which will qualify you to apply for permanent residency and citizenship after five years. This visa also grants the right to work in Portugal and provides visa-free travel within the Schengen area. Applicants for the GVRP can choose from several investment options, which include the purchase of the real estate, investing in funds or establishing a business in Portugal that provides employment opportunities. Minimum investment requirements begin from €250,000.
The most popular investment options are generally the purchase of a €500,000 property or an investment of €350,000 into a private equity fund. Both of these options are set to change in January 2022. The private equity option will go up to €500,000, while the €500,000 property investment is to be limited to Portugal’s interior and less-populated regions. South Africans interested in the GVRP should therefore act as soon as possible before these changes come into effect.
It’s critical that any South Africans who are considering emigration should take a close look at the tax implications before they move. Citizens who do not also ‘tax emigrate’ may find themselves being tax residents both in South Africa and in their new country of residence, and therefore subject to tax on the same income twice.
Even though you’re living in another country, you may still be viewed as a tax resident of South African at the same time. To ensure you remain compliant and don’t get an unpleasant surprise in the form of an unexpected tax bill, it’s vital that you understand the tax residency rules and look at any double taxation treaties that are in place.
South African tax residency can be determined by either one of two tests. One is the ‘ordinary residence’ test, which looks at ‘the country to which a person would naturally and as a matter of course return to from their wanderings’. So if your assets, family and permanent home are in South Africa, you’ll be considered a South African tax resident. The second test is the ‘physical presence test, which takes into account the number of days you spend in South Africa over a fixed period of time.
Most tax treaties contain a ‘tie-breaker’ clause that gives the sole taxing rights to the country where a taxpayer has a permanent home. If a taxpayer has a permanent home in both countries, the country where their ‘centre of vital interests’ (personal/economic ties) are strongest is given taxing rights. Where there is a permanent home or the centre of vital interest cannot be determined, you’ll be taxed where you have a ‘habitual abode’, or failing that, by the country of which you are a citizen.
There are a few factors that tax residents need to bear in mind when they emigrate:
- Exit charges – upon becoming tax non-resident in South Africa, there is a deemed sale of all your worldwide assets at market value on which capital gains tax is payable.
- Capital taxes – it is also important to take note of the tax regime in the country to which you are moving to, and specifically whether it levies any wealth or capital taxes, or inheritance tax and estate duties. In Spain and France, for example, you are charged an annual tax that is based on the capital value of your worldwide estate.
There are many points to consider before making the decision to emigrate – and it’s always advisable to seek professional assistance before heading abroad.