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A proposed wealth tax could drive a huge amount of wealthy and skilled South Africans out

 

The looming threat of an additional ‘wealth tax’ in South Africa to fund a universal basic income grant will further erode the country’s tax base, as wealthy South Africans move to emigrate or offshore their assets to avoid higher taxes.

According to Dani van Vuuren, Business Development Consultant at Sovereign Trust, in the process, the country faces the prospect of an accelerated ‘brain drain’ as skilled and entrepreneurial South Africans look to establish themselves in countries which are more politically and economically stable, while offering a more predictable tax regime.

“South Africa’s tax rates on higher income earners are already high. We believe a further wealth tax will only serve to decrease our already diminished taxpayer base. And with more entrepreneurial citizens leaving the country, this would have a major impact on the fiscus through lower future tax income, reduced wealth creation opportunities and fewer potential employment opportunities through local businesses,” Van Vuuren argues.

The threat of a wealth tax could even drive younger South Africans to consider their options after graduating, where they would attempt to work and earn in other countries where tax and crime rates are lower and economic growth prospects better.

Over and above the immediate implications, a wealth tax is also not a sustainable solution.

Speaking at the SA Institute of Taxation’s (SAIT’s) Tax Indaba, National Treasury acting director-general Ismail Momoniat said a wealth tax was simply not enough to achieve its suggested goals, and implementing it would have wide-reaching consequences. “The wealth tax isn’t going to raise anywhere near amount needed. It is a ‘now and then’ tax – not something you can tax every year. It’s only when people get the cash for their assets that we can tax,” he said.

Van Vuuren said that since the idea of a wealth tax was mooted, her company had already seen an uptick in the number of enquiries from citizens considering other jurisdictions, whether through emigration, dual citizenship or financial emigration.

Popular emigration destinations

The most popular destinations for emigration remain Australia, New Zealand, the US and Canada, especially for skilled persons, but there is a growing interest in countries that offer residency by investment options.

While jurisdictions like Cyprus, Malta, Mauritius and Portugal offer relatively more affordable options for residency by investment, there is a strong interest in more expensive options like the UK, Guernsey, Spain and the United Arab Emirates, according to Van Vuuren.

In Cyprus, for example, foreign nationals can obtain Permanent Resident Permits (PRP) for an investment of €300 000 (R5.3 million) within two months.

There are no language requirements and you only have to visit Cyprus every two years to keep your status. The PRP is valid for life and can be passed on to dependents. Those who choose to become tax residents in Cyprus can also minimise and even eliminate tax on income.

Mauritius has made it cheaper and easier for investors and expatriates to live and work. The island recently reduced the minimum investment required to acquire an occupation permit as an investor and live in Mauritius as a non-citizen, to $50 000 (R867 000), from $100 000 (R1.7 million). The validity of an occupation permit has also been extended from three to 10 years, and the spouses of occupation permit holders will no longer require a separate permit to invest or work in Mauritius. The holders of occupation permits will also be allowed to bring their parents and dependents under 24 to live in Mauritius.

Singapore recently launched its Overseas Networks and Expertise (ONE) pass in an effort to attract talent to its shores as it looks to cement its position as a global financial hub. And South Africans looking for a pathway to European Union residency are flocking to Portugal in their droves, despite newly-tightened rules around the country’s famed Golden Visa, which gives qualifying individuals and their families full rights to live, work and study in Portugal.

Apart from the Golden Visa, the country also offers a non-habitual residency programme, which allows South Africans to apply for residency through the D7 residency visa.

What South-Africans lose when adopting foreign citizenship

Anyone who acquires citizenship in another country will automatically lose their South African citizenship. This is according to Colleen Kaufmann, a tax specialist and admitted attorney, and Marisa Jacobs, a managing director at Tax Consulting South Africa.

This includes all rights and privileges associated with being a South African citizen, including losing your right to a South African passport, your right to vote, etc.

Relinquishing your status as a citizen does not have any tax benefits for those seeking to cease their tax residency. Also, you will be alienated from certain rights you may consider your heritage and not worth sacrificing, according to Jacobs and Kaufmann.

So, when developing your roadmap towards full financial emigration, whether this is just financially moving your money or also the physical move of a family, it is critical that you consider deeply what South African citizenship means to you.

You must also be well informed of the options available to you, as these decisions impact the rest of your life as well as generations to come.

Residence vs citizenship

Foreign citizenship must not be confused with permanent residence abroad.

Many South Africans emigrate under a host country’s permanent residence programme, requiring them to hold an appropriate visa throughout. They cannot apply for that jurisdiction’s passport and may typically be excluded from rights reserved for full citizens, like voting. Just moving to another country does not result in the loss of your South African citizenship.

According to Jacobs and Kaufmann, when you formally accept citizenship in another country, you can be issued with its passport and enjoy all the benefits of being a citizen.

But you will relinquish your South African citizenship by that act alone. Although the Act provides for the resumption of your citizenship, this is not possible as long as you remain a foreign national.

Yet, there is a way to avoid this situation, but you must act quickly.

Dual citizenship

Section 6(2) of the Citizenship Act allows you to apply to the Minister of Home Affairs to retain your South African citizenship. This is provided you do so prior to losing it for accepting foreign citizenship. Because once it is lost, it is lost for good or undergo a process which no one will voluntarily undertake.

 

Original Article