The 2020 reforms to the South African Income Tax Act removed the exemption on tax on foreign income for many South Africans living abroad, exposing them to a new tax liability. This has caused many expats to seek legal tax mitigation solutions.
With financial emigration a last resort solution which is unsuited to the majority of South Africans what are the other possible options to minimise the tax liability on worldwide assets? Here are some dos and don’ts:
Do make sure that any pension product you invest in is genuine pension provision. If this is not the case, investments can be viewed by SARS as tax avoidance.
Do be wary of pension planning options sold in South Africa as a SARS review has criticised many of these schemes. The Guernsey 40ee tax code, for example, has been oversold in South Africa and while flexible in terms of when benefits can be paid, this does mean it doesn’t look as much like a pension.
Do look at compliant pensions solutions in international offshore jurisdictions. The Guernsey 157a for example does not allow you to take a pension until after 55 and fits the genuine pension criteria better. The Isle of Man 50c is another regulated pension plan which is often recommended.
Do consult a financial adviser to carry out a funding gap analysis to assess your current pension provision versus the income you will need in retirement. If you have a high expat salary and a lifestyle to match your needs, it may well be higher than your existing pot will provide and this is a valid reason to boost savings into a pension plan. Your funding gap analysis can be held on file by your adviser and used to prove the legitimacy of your pension provision if it is questioned by SARS.
Don’t make important life decisions based solely on tax considerations – your life objectives and relationships must also be taken into account.
Don’t go it alone. Consult a professional with specialist knowledge who can produce a suitability report and find the right solution for you.
If you are a South African expat looking to invest and retain your non South African income outside of South Africa, there are pension planning options in offshore jurisdictions which will minimise your tax liability. However, you need to be extremely careful that you choose a legitimate option which is not going to raise eyebrows at SARS which is why you should consider your choice carefully and seek expert advice.
If you’d like to explore your options further please get in touch with us for a consultation.