The Covid-19 pandemic has left a trail of devastation across entire industries and has forced many South African businesses to consider new approaches and markets. A growing number have been looking to establish overseas operations to create a greater range of options and opportunities.
While many South Africans have offshore investments, retirement structures and trusts, relatively few have set up formal trading entities to transact business overseas. That has started to change in the past couple of years, as South African entrepreneurs and business owners have been establishing offshore trading or holding structures in places like Mauritius, Gibraltar, the Isle of Man, Guernsey and the United Arab Emirates.
“The pandemic isn’t going to go away any time soon and it’s got a lot of people rethinking the way they do things,” says Sovereign Trust (SA) managing director Richard Neal. “We’re seeing many clients looking to set up offshore operations to target fresh markets, organically create wealth overseas, and then use those funds as a springboard for expansion. With the right planning, overseas investment can also offer future immigration pathways.”
Apart from the ability to reach new markets quickly and create diverse revenue streams, the immediate benefits of setting up an overseas/offshore company include ease of trade, not least the ability to pay suppliers and receive funds in a foreign currency without having to obtain South African Reserve Bank (SARB) approval every time.
South African entrepreneurs can also be attracted by the longer-term benefits of registering an offshore company, says Neal, which can include:
- Providing a gateway for international market expansion;
- Access to a stable and business-friendly legal system;
- Access to a more flexible regulatory regime;
- Offering tax neutrality on international earnings in respect of company income and capital gains;
- Offering better access to global funding; and
- Providing a vehicle to separate or protect assets, such as Intellectual Property, from operating entities.
One of the most popular destinations for South African businessmen looking to establish an offshore company remains Mauritius, which is attracting a growing number of investors with its relatively close proximity to South Africa and its attractive tax regime and lifestyle. Occupation and residence permits are freely available to foreigners wishing to work, invest, live or retire in Mauritius.
Part of the attraction of Mauritius for foreign investors has always been its simple taxation system. Corporate income, personal income and dividend income are all taxed at a rate of 15%, with further tax concessions available. Mauritian tax residents are taxed on Mauritius-sourced income only, and there is no capital gains tax, no property tax and no inheritance tax. There are also no foreign exchange controls.
Other popular destinations include Gibraltar, the Isle of Man and Guernsey, which offer the benefit of being in the same time zone as South Africa and the familiarity of having many South African financial institutions based there.
“It’s important to choose the right offshore destination based on your products and services, and your specific business and personal objectives,” says Neal. “Don’t make life-changing decisions based on a friend’s recommendation or on anecdotal evidence. Before you embark on your offshore journey, you should take advice from experts who can unpack the various country and investment options available to you based on your specific needs.”