South Africa a non-dom tax haven?

Cape Town came 10th in the ranks of the world’s most friendliest cities. Picture: Pexels

Cape Town came 10th in the ranks of the world’s most friendliest cities. Picture: Pexels

Published Oct 21, 2023


By Andrew Wellsted

Most South Africans are concerned about the trajectory of the economy and the political landscape in the country. Don’t be surprised if the term “emigration” comes up once or twice in most polite conversations.

But most honest South Africans will also admit that South Africa remains, in many respects, a fantastic place to live and raise a family. The climate; extensive and varied shoreline; internal geography; people; adventurous lifestyle,and the fact that a rand does go a long way locally, are among the compelling reasons why people still want to live in South Africa.

It turns out, somewhat surprisingly, that it can also be a tax efficient place to live for residents and immigrants; with a little planning of course.

By way of brief digression, the UK has famously had a tax regime known as the “non-dom” regime. This meant that, if you were residing in the UK, but were not domiciled there for tax purposes (a bit of a technical exercise), you paid tax only on income that arose from a source within the UK. In lay persons terms, money that was retained offshore was not taxable in the UK.

The regime was in place in order to make the UK an attractive place for high net-worth individuals to live and prosper. The idea is that if the wealthy live in a particular place, they spend cash there, bring their friends there and so on. The most famous exponent of this system being of course the prime minister’s (PM) wife, Aksharta Murty.

The regime has been criticised by some for favouring the wealthy and making real estate unaffordable to locals. That said, South Africa needs any foreign investment it can get, as well as any good public relations it can lay its hands on; we would be mad not to welcome itinerant swallows here with open arms.

If you are au fait with South Africa’s rules on the taxation of foreign structures, there are several scenarios in which the tax treatment envisaged under the non-dom rules can, broadly speaking, apply to people residing in South Africa.

Take the example of a wealthy European that moves to South Africa (probably Cape Town, but there are many more locations on offer) for their retirement years. With some relatively basic pre-immigration tax structuring, our immigrant could arrive in South Africa with few assets on their balance sheet, and the remainder of their former estate owned in an offshore structure such as a foreign trust.

The assets will be accessible, but are not taxable in the immigrants’ hands in South Africa. It is also relatively easy to become tax resident in South Africa; the summary being that our immigrant can now, in a short space of time, become resident while also claim the protection of a South African Double Tax Treaty should any other jurisdiction (such as their place of origin) claim taxation rights.

The result is that our immigrant is taxable, in certain circumstances (usually infrequently), only on funds brought into South Africa or on income arising in their hands directly during their time spent in South Africa. The offshore assets remain outside the South African tax net as our immigrant no longer owns these.

They can then enjoy the incredible landscape and lifestyle with access to Sub-Saharan Africa from a travel perspective with, in all likelihood, a massive drop in their effective tax rate. Of course, they can also be as itinerant as they wish; there are no day counting rules or other hurdles tying them here.

Remarkably, and due in no small measure to the relaxation of the exchange control regime, similar outcomes may be attainable for historic residents. With some careful planning, and a little patience, residents may be able, to a greater or lesser extent, to achieve similar results. Again, this would involve a foreign ownership structure where the assets of the South African in question are slowly, but legitimately, transferred into an offshore ownership structure. The outcome is much the same as described above, however.

The proposition described seems a little shocking and sounds implausible at first, but is a compelling one: it is possible to make South Africa your home (and tax base), to travel the world if you need to, with the peace of mind that your tax affairs are optimised and you live in a beautiful, if not flawed, country. If we could just get service delivery, it would be paradise.

* Wellsted is tax director at Osborn, Wellsted and Paulsen