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Plan B – financial emigration

The key to financial emigration is to set up an offshore trust, move your investments or capital into the trust and live from the trust.

Alongside the Springbok’s recent performance and the spur of hope they have given us for the Rugby World Cup in 2019, there has certainly been another conversation brewing at the weekend braai, airport lounge or golf trip. Financial emigration.

This is a hot topic these days and I have quite frankly not been surprised by how many people are drastically looking to emigrate financially.

Rumour has it that 6 000 people leave South Africa per week at present.

The current economic and political environment in SA certainly has not favoured many people over the last couple of years. The truth is it’s been there all along, but now we are really starting to feel the effect of the years of plunder by corrupt people in the country. You have worked hard for the wealth you created, to provide for your family and you are aware of the social and economic risks in the country.

Most of us are under the impression that we should emigrate physically to enable us to move our funds offshore, but to be quite honest that’s not as easy as it may sound and not necessarily the solution. Although there are a lot of negative factors in SA, a high standard of living is still enjoyed.

Perhaps a more viable option is that, should things really turn bad for the country, you’ve transferred your wealth out of the country to a ‘safe haven’.

I am not implying that we will end up like Venezuela. Although it’s possible, it’s not probable. 

Offshore investment

Firstly, if you are serious about taking money offshore and emigrating financially, then you must start by using your R10 million annual foreign investment allowance. It is possible to take out more than R10 million per year, but this comes at a cost and some serious tax clearance by Sars. However, it should not be a problem if your tax affairs have been in order. While this money will still be estate-dutiable, at least the first step of getting it out of the country will be done. From thereon you can make the necessary shifts considering things from a tax perspective regarding all taxes payable.

As a matter of interest, I want the reader to know that you can get almost 100% direct offshore exposure in your living annuity: you can hedge your pension against the rand and take part in the growth of international markets.

The key to financial emigration is to set up an offshore trust, move your investments or capital into the trust and live from the trust. According to popular belief, moving assets to your offshore trust creates a loan account and is estate-dutiable in SA. However, there are specific ways to get that loan account reduced by way of proper planning and utilising an international life policy.

It might also be a good idea to discuss the benefits of the Discovery Dollar Life Plan with a financial advisor. The plan is totally exempt from estate duty and can pay out to your offshore trust or to an individual’s offshore account. This can also help in creating wealth offshore for future generations.

Mauritius

There are different options to get residency in a country. In Mauritius for example you will need to invest $500 000 to get residency, but there are many other possibilities that need less capital.

At present I am investigating Mauritius as a destination to channel a client’s funds out of South Africa, to obtain a more favourable tax structure and maybe still be close to ‘home’.

Why Mauritius? Its geographical location and political stability has helped it become a sought-after location. Mauritius, through its Integrated Resort Scheme, has already attracted many South Africans and other foreigners. The island also offers an occupation permit and residence permit. The occupation permit can be applied for, either as an investor, a professional or self-employed individual. The occupation permit is valid for three years and can then be renewed. After three successful renewals, an application can also be made for a permanent residence permit of ten years.

Mauritius is attracting many investors because of its favourable tax system. The main thrusts of the Mauritian tax system are the following:

  • 15% tax on corporate profits
  • 15% tax on personal income (withholding tax)
  • No tax on capital gains
  • No estate duty taxes
  • No taxation on dividends
  • No restrictions on repatriation of profits, dividends and capital
  • Vast network of double taxation treaties
  • No inheritance taxes
  • No exchange controls

 

To date, Mauritius has concluded 37 tax treaties and is part of a series of treaties under negotiation. Mauritius benefits from a vast network of double taxation treaties which grant protection of wealth against uncertain political, economic and family conditions. Due to its strategic geographical situation, the island positions itself as a gateway to benefit from the exponential growth in emerging Africa. Moreover, double taxation trust holders can transfer wealth to their successors according to their will and in a tax-efficient way, maximising monetary benefits for family members and others.

Mauritius is part of the OECD white list of jurisdictions which are in compliance with the internationally-accepted tax standards, offering more transparency and confidence.

South Africa has always managed to back away from the end of the cliff when things got out of hand, but it appears this time around the problem is bigger than the short-term solution. Surely with time and some strong leadership the boat can be turned around, but perhaps it will be better to rather play it safe than be sorry.

ADVISOR PROFILE

Herman Klopper

Futurum Financial Group

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