Against the backdrop of uncertainty and unprecedented change set in motion by the Covid-19 pandemic in 2020, many wealthy South Africans are making good use of their fortunes to seek brighter horizons beyond our borders. In the last five years, SA’s population of high-net-worth individuals (HNWIs with assets exceeding US$1 million) was reduced by 12% while the number of ultra-high-net-worth individuals (UHNWIs with assets exceeding US$30 million) shrank by 18%, according to the latest Knight Frank Wealth Report.
Why are wealthy South Africans emigrating? In short, expat tax.
There are numerous reasons behind the upswing in emigration, from political instability to a safer living environment for families, increased ease of commerce and the golden opportunity to give their children passports or citizenship in their ancestral countries.
Tax has also been a deciding factor for many wealthy departees, especially since expat tax was introduced. This new tax meant that South African tax residents with foreign employment (where they’re outside the country for periods exceeding 183 days, 60 days of which are consecutive, in any 12-month period) must now pay tax in South Africa on up to 45% of their foreign employment income where it is over the ZAR1.25 million threshold. This tax-exempt threshold is not as generous as it appears, because the definition of employment income is broad enough to cover allowances and fringe benefits that form part of foreign employment packages, but that aren’t strictly earnings.
The expat tax has led many South Africans living overseas to formalise their emigrant status to cut financial ties with the country from a tax perspective; but while deciding to leave is one thing, choosing where to move to is an entirely different decision on its own, and there are many factors that must be weighed up.
Where are South Africans going, and how are they getting in?
The United Kingdom
The UK remains a favourite for South Africans who want top employment opportunities, along with high standards of education and a great quality of life.
What do you need to know about getting into the UK?
Selecting the right visa can simplify the application process and increase your chances of success.
South Africans are getting into the UK in the following two ways:
- UK Ancestry Visa: this permits Commonwealth citizens who are the immediate descendants of UK nationals to live and work in the UK.
- You must be a Commonwealth citizen, at least 17 years old.
- You must have a grandparent born in the UK, Channel Islands, the Isle of Man, or in the Republic of Ireland before 31 March 1922.
- You must be able to support yourself and any dependants without having to rely on public funds.
Benefits of the UK Ancestry Visa:
- It is granted for five years and offers a solid route to seeking Indefinite Leave to Remain and ultimately gaining British Citizenship.
- You can work and live in the UK freely and without having to make a financial investment in the UK.
- Your other half (whether spouse, civil or unmarried partner) and your dependant children can all join you in the UK on this visa.
2. Skilled Worker Visa: the Tier 2 (General) visa category has been replaced under the UK’s new post-Brexit immigration system by the Skilled Worker Visa route. There is no age cap on this visa and there is currently no cap on the number of visas granted in this category.
- You need to have a job offer from and be sponsored by a UK-based employer.
- The Skilled Worker visa is points-based, with points being awarded for meeting certain requirements. You will need a total of 70 points to be eligible.
Benefits of the Skilled Worker Visa:
- You can live and work in the UK for up to five years and then apply for Indefinite Leave to Remain.
- If you have a job offer for a role that meets the minimum skill level, you only need to have 50 points.
- You are allowed to trade attributes, such as qualifications, for a lower salary to gain the required number of points.
- The Skilled Worker visa allows you to change jobs as long as your employer can sponsor foreign workers.
- Your family can join you in the UK and this visa can lead ultimately to citizenship.
With high standards of living, a fast-growing economy and excellent healthcare and education, Australia is consistently a top choice destination for South Africans – who make up the seventh largest migrant community.
Migrants are permanent residents in Australia that possess migrant or permanent resident visas that permit them to live and work in Australia indefinitely. While migrants aren’t citizens, they are able to become citizens once they’ve met the residency requirements.
How are South Africans getting into Australia?
The country’s permanent Migration Programme combines economic and family migration and is the main route to permanent residence. This programme includes:
- The Skill stream
- Family stream; and
- Special Eligibility visas
The Skill/ Stream visa:
- For workers with the skills, qualifications, and entrepreneurship most needed in the Australian economy.
- The Skill stream is fed by four components:
- Points-tested skilled migration;
- Business innovation and investment; and
- Distinguished talent.
What do you need to know about the most popular visas for South Africans to get into Australia?
Skilled Independent Visa (Subclass 189):
- A permanent resident visa for points-tested skilled workers under the age of 50.
- No employer or family sponsorship, or a state/territory government nomination.
- You must undertake the relevant skills assessment, and you may need an invitation to apply for this visa.
Skilled Regional (Provisional) Visa (subclass 489):
- Visa that allows skilled workers to live and work in specific regions of Australia for four years.
- Requirements vary depending on whether you apply in terms of the invited pathway or the extended stay pathway.
Business Talent (Permanent) Visa (subclass 132):
- An entrepreneur visa that permits you to open a new or develop an existing business in Australia.
- You will need to be nominated by a state or territory government agency and be invited to apply by the minister, in order to obtain this visa.
You will also need to have either:
- Net business and personal assets of no less than AUD1.5 million with an annual business turnover of no less than AUD3 million (for the Significant Business History stream) or
- Have secured no less than AUD1 million in venture capital funding to undertake the commercialisation and development of a high-value business concept (Venture Capital Entrepreneur stream).
Business Innovation and Investment (Provisional) visa (subclass 188):
- Entrepreneur visa for individuals who want to invest in Australia, or to own/manage a new/existing business.
- A nomination by a state or territory government or Australian agency is required, in addition to an invitation from the Minister for Immigration and Border Protection to apply.
An attractive destination for individuals and families looking for residence (and all the accompanying perks) in the European Union with a stable political and social climate, clear and favourable tax rules, a moderate climate and excellent quality of living.
How are South Africans getting into Portugal?
Portugal’s Golden Visa Residence Permit (GVRP) is a residency-by-investment programme that gives individuals and their family the freedom to live, work and study in Portugal. Best of all? You don’t actually even have to live in Portugal all year round, as the minimum stay requirement is seven days a year, and after five years, you’ll be eligible for citizenship. In addition to granting the right to work in Portugal, this visa also makes it possible for individuals to travel visa-free within the Schengen area.
Eligibility requirements for the Golden Visa Residence Permit:
- There are several investment options to choose from, including the purchase of real estate, fund investment or building a business in Portugal that creates jobs for locals. Minimum investment requirements start at €250,000.
Read more about Portugal’s Golden Visa.
What are the tax implications of leaving South Africa?
Emigrating from South Africa isn’t as simple as packing a bag and getting on a flight. Before making the decision, you’ll need to consider the tax implications carefully.
Those individuals that do not undertake tax emigration could land up being tax resident in their new country of residence AND South Africa, which means they’ll be taxed on the same income twice. To ensure you do not fall foul of the tax authority in either country, and to avoid a nasty tax bill surprise, it’s critical to examine the relevant tax residency rules, which includes looking at any Double Tax Agreements that might apply.
Quick question: If I undertake tax emigration from South Africa, will I have to pay capital gains tax?
Long story short? Yes. Once you’ve become a non-resident for tax purposes, it is deemed that you disposed of all your worldwide assets at market value, on which Capital Gains Tax is payable in South Africa. This is known as an exit tax.
Need help understanding the tax implications of your emigration plans? FinGlobal is ready to answer your questions and provide clarity on your future financial moves. Leave us your contact details and we’ll be in touch to discuss your unique situation.