An amendment to the South African Income Tax Act – introducing the so-called ‘Expat Tax’ – will have hard-hitting consequences for South Africans working outside South Africa. South Africans earning an income abroad should be considering their options. One of the best could be Malta.
South Africa has a residence-based tax system, which means that residents are taxed on their worldwide income, regardless of where that income is earned. So, even if you’ve worked overseas for several years, if your tax residency is assigned to South Africa, you are required to declare your foreign earnings to the South African Revenue Service (SARS) and pay income tax. If your tax residency is assigned overseas, you are declared a non-resident and only income that is sourced in South Africa will be taxed by SARS.
Currently, South Africans working abroad for more than 183 days – of which 60 days are consecutive – are able to earn foreign employment income free of South African tax. But from March 2020, South Africans will be required to pay tax in SA of up to 45% of their foreign employment income once it exceeds ZAR1 million (approx. US$75,000) per annum.
Doing nothing certainly isn’t advisable, so South Africans will need to assess their situation as soon as possible. Broadly there are three options available to South Africans that do not want to be exposed to the ‘Expat Tax’ – setting up an overseas structure through which to invoice an international employer; becoming a non-resident for tax purposes; or full financial emigration. If the latter two options make sense for your circumstances, you will need to consider establishing a new residence outside SA.
Many countries encourage immigration through citizenship by investment (CBI) or residency by investment (RBI) schemes – often known as ‘golden passports’ and ‘golden visas’ respectively. RBI and CBI schemes provide a clear delineated process to acquire a passport or alternative residence in exchange for specified investments and with minimum disruption to your life.
The Malta Individual Investor Programme (MIIP) was the first EU-approved citizenship programme. It offers citizenship of a European Union member state and the freedom to reside, work, establish business, move capital and travel anywhere in all EU countries, as well as EEA and EFTA states. It also offers visa-free travel to 165+ countries worldwide, including all of the EU member states and Canada and Australia.
An archipelago of islands in the central Mediterranean, Malta was admitted to the EU in 2004 and became part of the Euro zone in 2008. It has two official languages – Maltese and English – and offers a high quality of life with good education and health systems, modern infrastructure and excellent flight connections to many European countries and beyond.
The MIIP grants full citizenship and passports to the applicant and included family members – spouse, parents, grandparents and dependent or unmarried children. Malta has no restrictions on holding dual nationality and there is no requirement to physically reside in Malta before, during or after the approval of the citizenship application. Maltese citizenship is valid for life and transferable to dependents.
There are no tax consequences of citizenship in Malta. Non-resident citizens of Malta are only taxable in Malta on Maltese-source income. There is no minimum annual remittance and no tax is applied to the movement of capital into Malta. There are no inheritance, gift or wealth taxes. Malta also has double tax treaties in force with over 70 countries worldwide, which is one of the reasons it has also established itself as an ideal jurisdiction to hold intellectual property rights.
Applicants must make a €650,000 contribution to the Maltese government and must also acquire or lease a suitable property and purchase €150,000 worth of government bonds or bonds/securities that are listed on the Malta Stock Exchange. The property and the bonds/securities must be held by the main applicant for a minimum period of five years.
Eligible applicants must also have held Maltese resident status for at least one year and Malta offers a number of residency programmes. The Malta Residence and Visa Programme (MRVP) offers the main applicant and their dependents the right to reside or settle in Malta indefinitely and acquire an EU residence card that offers visa-free travel within the Schengen area.
MRVP applicants must make an investment in government bonds of €250,000 and acquire or lease a suitable property, which must be retained for a minimum period of five years. They must also evidence an annual income of not less than €100,000 arising outside Malta or capital of not less than €500,000.
Non-EU citizens do not have a right to settle or work in Malta and residency therefore depends on the provision of a work permit or special residency status. The Global Residence Programme (GRP) grants permanent residency rights to economically self-sufficient applicants keeping a permanent address in Malta in the form of purchased or rented residential property. Successful GRP applicants benefit from a 15% flat rate of tax on foreign-source income received in Malta, subject to a minimum tax payment of €15,000 per year.
Both the MRVP and GRP benefit from a three-month processing time and provide the right to reside indefinitely in Malta and an EU residence card giving visa-free travel within the Schengen area. There is no minimum physical residence requirement and tax residency status is available on showing ordinary residency in Malta.
There is now less than a year before South Africa’s ‘expat tax’ comes into force so it is time to act. The process of financial emigration could have potential tax implications, as well as opportunities to implement tax-efficient arrangements. Sovereign can assess your personal circumstances and advise you on the best course of action.
Similarly, the process of obtaining citizenship or residency consists of a series of important steps that need to be implemented carefully. Sovereign has a wealth of international and local expertise and a high success rate of delivering citizenship or residency within a minimum time frame. We will assist clients to identify the most suitable investor programme to match their circumstances and requirements and then manage each step of an application.
Citizens of countries that are politically or economically unstable often wish to emigrate or acquire an alternative citizenship or residency as an insurance policy – in case things at home take a turn for the worse. For South Africans working outside South Africa that time may be now – and Malta may be the answer.
For further information on Malta company structuring and residency please contact: