For years, South Africa has offered an exemption from tax in respect of South African residents who worked outside of South Africa for at least 183 days a year, including at least of one stint of 60 days. They would remain taxable in respect of any income earned in the other half of the year whilst in South Africa.
This exemption has proved invaluable to those hardy taxpayers who were prepared to work in not so accommodating circumstances, such as building sites in out of the way places in Africa. It has also proved useful to employers in allowing them to offer competitive salaries, in places like the Middle East which do not tax at all, or for air and sea crew who were competing against others in similar positions.
The Minister of Finance has now announced in the 2017 budget that the exemption will be withdrawn unless the individual is taxed in the country where the services are rendered. The details of that requirement are still to be tabled, but for the many thousands affected, the question is what to do about it. For some, treaty relief may be available, dependent on the country where the services are rendered, but for others the question begs asking as to whether now is the time to cut ties completely with South Africa and take up residence elsewhere. The issue, as always in circumstances like this, is where?
We consider some possibilities below in very brief format. The actual position would need to be considered in some detail before any decision is made.
Mauritius is an obvious choice. It is convenient and a wonderful place to live with extensive air links to the rest of the world. Although there is a world-wide tax system, only money remitted to Mauritius is taxed and then only at 15% with no CGT or death duties. It is also relatively easy to get a work permit, so any individual concerned could employ himself via a Mauritius company, remit enough to get a work permit which would be taxed at 15%, and continue to enjoy the rest tax free from Dubai for example.
We anticipate that labour broking companies will appear in Mauritius to facilitate exactly this.
Also, an obvious choice for those working in the Middle East. Dubai does not levy tax at all so a move to Dubai will not result in any taxes. It is, however, an expensive place to live and the life style will not suit all families. It certainly, however, solves the problem and will lead to significant savings.
Botswana is just next door. It also operates on a source based system, similar to Hong Kong, so it should be possible to structure your life to still live in Africa, but to pay minimal tax in Botswana (base rate of tax 25%) whilst working elsewhere. Botswana also does not have exchange controls making it a very attractive local location.
Under the UK resident-non-domiciled rules you could live in the UK and work elsewhere and only be taxed on income remitted to the UK. In theory this would work, but given the cost of living in the UK it is likely that a lot of the income would have to be remitted so possibly not the best choice.
For those that are not physically based in Africa, such as air or sea crew, there are many other possibilities that could be explored. Some of these are Hong Kong, Singapore, Malta and Cyprus. The exact details would obviously have to be examined but I am very sure that hundreds of thousands of South African taxpayers are currently doing exactly that. We would be very happy to assist in conducting that exercise or in setting up the requisite structures to look at outsourcing possibilities.