However, according to offshore tax planner Tax Smart Solutions, this may not be the best solution.
The firm told International Adviser exclusively it had developed a new structure targeted at South African expat workers that earn over one million rand (£53,855, $71,667, €62,788) a year which takes away the 45% tax burden and, to a large extent, puts them back financially to a situation where there is no income tax payable in South Africa.
The so called ‘Tax Smart Solution’ is aimed at those expats that are on a “30 days on 30 days off” type of contract who previously could benefit from the 183-day exemption.
“For a client on a remuneration package of circa ZAR 4 million a year, the structure saves them over approx ZAR 1 million a year in tax,” said Chirag Lakhani, co-founder of Tax Smart Solution.
“This saving is after all costs for the structure are taken into account.”
He said the solution had been verified by South African tax lawyers and was based in the Isle of Man.
“We approached the problem, not from a tax residence-based base, but one of how the cash flows.
“By simply restructuring how the money flows we are able to create a flow of funds that is fully disclosed in your South African tax return but that will not liable to tax in South Africa,” he said
Financial emigration too challenging
Lakhani said some of the solutions to this issue for expat workers being put forward, such as financial emigration, simply did not take the individual out of the tax system and left them exposed to the South African Revenue Service.
Tax liabilities, such as the capital gains tax ,will hit financial emigrants if they leave South Africa.
“South Africans [looking to emigrate] need to nominate a bank, known as the authorised dealer, to handle their financial emigration,” Lakhani continued.
The bank would then need to know all the details of the assets held in South Africa and who will be their custodian.
Additionally, financial emigrants will only be able to have one bank account, “a blocked Rand account” that would restrict how expats can use their funds, Lakhani added.
“In other words, unless your authorised dealer is happy with your asset custody and with your debts and ability to secure and service them, they will not process your financial emigration.”
However, if they might want to go back to South Africa, they will be treated as non-residents – with borrowing and banking restrictions – unless they formally immigrate back into the country.