Expatriate Executive: South Africa

Summary of local taxation situation

Since 2001, residents (called 'ordinarily resident') are taxed on their world-wide income, but non-resident persons continue to be taxed only on their South African source income.

'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.

Expatriates on assignment are normally classified as 'temporarily resident', which is equivalent to non-resident from a tax perspective, although there might come a point at which this could be challenged if roots start to go down too deeply. For instance, after three years immigrants are brought within South African exchange control laws, although they can leave with their assets intact for another two years after that. In 2010, proposals were announced to relax certain aspects of South Africa's exchange control regime.

Foreign nationals entering South Africa need to make a declaration of their foreign assets, and undertake that these will not be made available to residents of South Africa during their stay.

There is no requirement for temporary to remit earnings from foreign assets to South Africa, and they may make 'reasonable' transfers home from monies earned in South Africa.

On departure, an expatriate may take away his savings, but needs to confirm that he has not emigrated from South Africa before.

South African-source (taxed) income includes earnings from employment, remuneration for services rendered in South Africa, rent from property assets located in South Africa, and interest from loans applied or used in South Africa. Dividends however are not taxed in the hands of a South African natural person.

A capital gains tax was introduced in 2001.

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, but does not apply to 'temporary' residents).

Anti-avoidance legislation is quite well-developed in South Africa, and an ordinarily-resident individual will find it quite hard to develop foreign companies or trusts to defer tax; however, this will not affect expatriates as long as they retain temporary resident status.

NB: South African tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

It is clear from the above that an expatriate working in or from South Africa is in a good position to acquire and maintain offshore assets, as long as temporary residence status is maintained, and as long as income from them is not remitted to South Africa.

Depending on the personal situation of a given individual (or his employer), it may be worth investigating a base in Mauritius from which services can be supplied to South Africa in a tax-efficient way.

The consequences of becoming resident are very negative for an expatriate, especially since the introduction of capital gains tax. Any growth in capital assets will be taxed over the period in which an expat is regarded as resident in the country, even if the assets are located overseas and they remain unsold.

On becoming tax resident, the expatriate is given a tax base for capital gains tax equal to the market value of his assets. This exempts the accrued gain up to that point, but when he ceases to be a resident when his tour of duty is complete, he is treated as having sold his assets at their market value.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions, including Mauritius. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

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.