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A Word of Caution on the Flight of South Africa’s Rich

27/09/2022BY Migrate 2 Oz

A Word of Caution on the Flight of South Africa’s Rich

Dani van Vuuren, a Business Development Consultant at Sovereign Trust, says that the threat of a new “wealth tax" in South Africa to pay for a universal basic income grant will hurt the country’s tax base even more as wealthy South Africans leave the country or move their assets abroad to avoid paying more taxes.

In this way, the country risks a faster “brain drain" as skilled and business-minded South Africans look to settle down in countries that are more politically and economically stable and have more predictable tax systems.

“South Africa’s tax rates on higher income earners are already high. We believe a further wealth tax will only serve to decrease our already diminished taxpayer base. And with more entrepreneurial citizens leaving the country, this would have a major impact on the fiscus through lower future tax income, reduced wealth creation opportunities and fewer potential employment opportunities through local businesses,” said Van Vuuren.

The threat of a wealth tax could even make younger South Africans think about what they will do after they graduate. They might try to work and make money in other countries where taxes and crime rates are lower and economic growth is more likely.

A wealth tax is not a good idea because it doesn’t solve anything in the long run. Ismail Momoniat, the acting director-general of the National Treasury, said at the SA Institute of Taxation (SAIT) Tax Indaba that a wealth tax would not be enough to reach the goals that had been set, and that putting it into place would have a lot of effects.

“The wealth tax isn’t going to raise anywhere near the amount needed. It is a ‘now and then’ tax – not something you can tax every year. It’s only when people get the cash for their assets that we can tax,” he said.

Van Vuuren said that since the idea of a wealth tax was brought up, her company had already seen a rise in the number of calls from people who were thinking about moving to another country, either physically or financially.

Australia, New Zealand, the United States, and Canada are still the most popular places to move to, especially for skilled people. However, there is a growing interest in countries that offer residency by investment options.

Van Vuuren says that there is a lot of interest in more expensive countries like the UK, Guernsey, Spain, and the United Arab Emirates. Countries like Cyprus, Malta, Mauritius, and Portugal offer more affordable options for residency by investment.

For example, if a foreigner invests €300,000 in Cyprus, they can get a Permanent Resident Permit (PRP) in two months. There are no language requirements, and all you have to do to keep your status is visit Cyprus every two years. The PRP lasts for life and can be given to people who depend on you. Those who choose to live in Cyprus for tax purposes can also pay less or no income tax.

Investors and people who live and work in Mauritius can now do so for less money and with less trouble. The minimum investment needed to get an occupation permit as an investor and live in Mauritius as a non-citizen has gone down from $100,000 to $50,000 (R867,000) (R1.7 million).

The length of time an occupation permit is good for has also been changed from three years to ten years. Spouses of people with occupation permits no longer need a separate permit to invest or work in Mauritius. People with occupation permits will also be able to move their parents and children under 24 years old to Mauritius.

Singapore just started offering the Overseas Networks and Expertise (ONE) Pass to try to get people to move there and help it become an even bigger financial hub. And South Africans looking for a way to live in the European Union are coming to Portugal in droves, even though the country’s famous “Golden Visa," which lets people and their families live, work, and study in Portugal, now has stricter rules.

Apart from the Golden Visa, the country also offers a non-habitual residency program, which allows South Africans to apply for residency through the D7 residency visa.