SECOND RESIDENCY/CITZENSHIP TO BYPASS SARS TAX EXEMPTION?
“On August 18 the window period closed to submit public comment on the South African Revenue Services (SARS) and National Treasury’s amended draft tax law proposal to overturn the 183-day tax exemption rule.”
“South African tax resident employees working outside South Africa in low-tax or tax-free jurisdictions such as Mauritius, Singapore, Cayman Islands and the United Arab Emirates are now holding their breath to hear whether the South African government will do away with the rule or not,” says James Bowling, CEO of Monarch&Co, a facilitator of residency and citizenship programmes.
The government is expected to announce its decision soon. “They said earlier this year that the public can expect the changes in legislation to take effect from as early as March 2019 should the rule fall away,” says Bowling.
Many tax consultants have speculated that the rule will probably fall away. Bowling says that those affected by the changing tax legislation should get their affairs in order.
Since 2001, the 183-day tax rule exempted South African residents from paying tax locally if they spend 183 days or more – of which 60 must be consecutive – in any 12-month period, working outside South Africa.
The overturning of the rule could have severe implications, especially for employees that fall into the maximum 45% tax bracket and pay 25% tax in a foreign country. SARS will collect a tax deficit of 20% from them.
“In practice, South Africans looking to avoid the above, have limited and in most cases, extreme options to choose from, namely to return to South Africa for work (should their employer be able to guarantee them a position in South Africa) or emigrate,” notes Bowling.
RESIDENCY OR CITIZENSHIP PROGRAMMES
For those wanting to emigrate, Bowling highlights legislated programmes that allow South Africans to apply for second residency or citizenship by making a qualifying investment in real estate as one of the quickest and most effective ways to soften the impact of the proposed legislation. Programmes like the above are available in a number of countries, with Portugal and Grenada among the most popular for South Africans. “Aside from the fact that it only takes three months to obtain Grenadian citizenship, investors find the low qualifying investment thresholds of these countries, minimal visits and physical stay requirements (if any), taxation laws and perks, temperate climates, excellent education and medical facilities, and low crime rates attractive,” he says. The Global Peace Index recently rated Portugal the third safest country in which to live.“Healthy individuals with honourable characters and no criminal records will have no problem being accepted onto residency and citizenship programmes,” he says.
To obtain Grenadian citizenship, a real estate investment of $350,000 is required. Property ownership must be maintained for three years. Grenadian citizens enjoy visa-free or visa-on-arrival travel to 154 countries or territories worldwide. “It is the only Caribbean country that allows citizens visa-free access to China,” says Bowling, adding that citizens are allowed to live and work in the US by means of the E-2 Investment Visa.
Bowling says for residency leading to citizenship in Portugal, a real estate investment of €350,000 for selected real estate situated in areas scheduled for urban regeneration or €500,000 for other properties is required. Property ownership must be maintained for five years.
“Portuguese citizens enjoy visa-free or visa-on-arrival travel to 198 countries or territories around the globe while residents can travel visa-free within the Schengen member countries of Europe,” he says.