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Trends being witnessed by the property market and tax specialists point to South Africa experiencing somewhat of a turn in terms of migration, with both groups seeing a trend in expats returning to the country.
According to Tax Consulting SA, the migration patterns in 2024 are set to remain “dynamic”, but there are a growing number of South Africans who once left local shores that are now contemplating a “return to their roots”.
“The world has evolved significantly over the past few years, prompting many to reassess their choices,” the group said.
This trend is rooted in a variety of factors, including lifestyle and cost of living considerations, as well as the allure of affordable luxury in home ownership – something which is nearly impossible in many other markets and popular emigrant destinations.
“As the desire to return gains momentum, our practice has seen an increasing number of expatriates inquiring about the practicalities of coming back to South Africa,” the group said.
While the focus is often placed on what South Africans should do or consider when leaving the country, there are a plethora of factors that need to be taken into account for those looking to come back, Tax Consulting said.
“As the trend of South Africans returning gains momentum, the key to a successful transition lies in meticulous planning and understanding the regulatory intricacies.
“From securing non-resident status to properly structuring one’s asset portfolio, every step is important,” the group said.
Tax Consulting highlighted some of the more technical tax aspects for expatriates looking to make their way back to South Africa:
Understanding Your Legal Status
Before delving into the details of returning to South Africa, Tax Consulting said individuals must understand their status for tax and exchange control purposes.
Expats will have to ensure tax compliance every step of the way, and will need a thorough analysis of their financial affairs, including Reserve Bank status, and classification of bank accounts as resident or non-resident.
The Non-Resident Advantage
“A critical point around one’s return to South Africa is the significance of being classified as a non-resident beforehand,” the tax experts said.
“Without this, individuals might inadvertently find themselves still considered to be South African tax residents, even if they have physically moved abroad. This distinction is vital to avoid complications down the road and align one’s status with regulatory expectations.”
Affairs Before Arrival
Once non-resident status is confirmed, the focus shifts to structuring affairs before re-entry.
“The need for a meticulous evaluation of assets and liabilities cannot be understated, considering the capital being brought back to South Africa.
“Acquiring property is also a common step, driven by the affordability of housing in South Africa. However, the emphasis is on doing it correctly – there is a wrong way to go about things, which can prove expensive and difficult to unwind later on,” the group said.
Navigating Tax Implications
Navigating the tax implications of various assets and incomes, such as foreign pensions, rental income, and offshore trusts requires a detailed roadmap.
“This plan helps individuals make informed choices on what to bring into South Africa, what to leave abroad, and how to structure assets for maximum tax efficiency. The goal is to avoid pitfalls and make the right moves based on a thorough understanding of the tax landscape.”
The Remittance Basis of Tax
A common misconception among expatriates is the idea of the remittance basis of tax in South Africa.
“Unlike certain other commonwealth countries, South Africa does not cater to this, but taxes worldwide income for residents regardless of whether or not such funds are remitted into the country.
“Understanding this distinction is paramount to prevent financial missteps upon return,” Tax Consulting said.
Estate Duty Dilemma
For higher net worth individuals, the spectre of estate duty looms large.
“Proper structuring becomes imperative to avoid hefty taxes on worldwide assets. Without thoughtful planning, a significant portion of an estate could be lost to a 25% tax rate where asset values exceed R30 million, before even considering capital gains tax and any other dues.
“This makes South Africa less attractive for wealthy retirees who re-enter South Africa without a well-planned and executed approach.”
Residency Planning
When making the journey back home, strategically navigating the South African residency tests is a crucial component.
“Unlike some other countries, South Africa offers a highly nuanced approach to tax residency, providing some flexibility to those returning.”
Cost-Efficient Business Structures
For those considering working in South Africa upon their return, it is critical to have an understanding of the cost structure for setting up a business.
Establishing a South African company is cost-effective and efficient, especially when compared to international alternatives.
However, there is a significant need to steer clear of anti-avoidance provisions, which could complicate matters in the long run.
Read: ‘Reverse emigration’ trend is boosting South Africa’s major cities
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