South Africa’s ruling African National Congress (ANC) has revived plans to introduce a new tax on the wealthy to fund its basic income grant, Johannesburg-based Sunday Times reported in July, citing an interview with Mmamoloko Kubayi, the party’s head of economic transformation.
The proposal, which was first mooted at the ANC’s national conference in 2017, calls for an appropriately structured wealth tax, possibly linked to a land tax, to promote equity and raise revenue, the newspaper said. Kubayi was quoted as saying that the target should ideally be the top 5% of high-net-worth individuals and estates with significant assets.
“This looming threat of an additional ‘wealth tax’ in South Africa to fund a universal basic income grant will further erode the country’s tax base as high-net-worth South Africans move to emigrate or offshore their assets to avoid higher taxes,” said Dani van Vuuren, Business Development Consultant at Sovereign Trust (SA).
In the process, the country also faces the prospect of an accelerated ‘brain drain’, as highly skilled and entrepreneurial South Africans look to establish themselves in countries that are more politically and economically stable, while offering a more predictable tax regime.
“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 drive younger South Africans to consider their options after graduating, where they would attempt to work and earn in other countries where tax and crime rates are lower, and economic growth prospects better.
Over and above the immediate implications, a wealth tax is also not a sustainable solution. Speaking at the SA Institute of Taxation’s (SAIT’s) Tax Indaba, National Treasury acting director-general Ismail Momoniat said a wealth tax was simply not enough to achieve its suggested goals and implementing it would have wide-reaching consequences. “The wealth tax isn’t going to raise anywhere near 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 mooted, Sovereign Trust (SA) has already seen an uptick in the number of enquiries from high-net-worth individuals (HNWIs), entrepreneurs and professionals who are considering moving to other jurisdictions, whether via investment migration, dual citizenship or financial emigration.
The most popular destinations for emigration remain Australia, New Zealand, the US and Canada, especially for skilled persons, but there’s also a growing interest in countries that offer residency by investment options.
While jurisdictions like Cyprus, Malta, Mauritius and Portugal offer highly affordable options for residency by investment, there is also strong interest in more expensive destinations like the UK, Guernsey, Spain and the United Arab Emirates, says Van Vuuren.
In Cyprus, for example, foreign nationals can obtain Permanent Resident Permits (PRP) for an investment of €300 000 within two months. There are no language requirements, and holders are only required to visit Cyprus every two years to maintain their status. The PRP is valid for life and can be passed on to dependents. Those who choose to become tax residents in Cyprus can also minimise and even eliminate tax on income.
Mauritius has made it cheaper and easier for investors and expatriates to live and work. The island recently reduced the minimum investment required to acquire an occupation permit as an investor, and live in Mauritius as a non-citizen, to USD50,000 (MUR867,000), from USD100,000. The validity of an occupation permit has also been extended from three to 10 years, and the spouses of holders will no longer require a separate permit to invest or work in Mauritius. The holders of occupation permits will also be allowed to bring their parents and dependents under 24 to live in Mauritius.
Singapore recently launched its Overseas Networks and Expertise (ONE) pass to attract talent as it looks to cement its position as a global financial hub. And South Africans looking for a pathway to European Union residency are flocking to Portugal in their droves, despite newly tightened rules around the country’s prized Golden Visa, which gives non-EU qualifying individuals and their families full rights to live, work and study in Portugal.
In addition to the Golden Visa, the Portugal Passive Income Visa – also known as a ‘D7’ or ‘Retirement’ Visa – provides residency status to non-EU citizens, including retirees, who intend to relocate to Portugal and are in receipt of a reasonable and regular passive income. This passive income can be derived from pensions, rentals, self-employment, dividends or certain categories of investment income. The minimum income requirements are low – the main applicant requires passive income of just €8,460 (c. ZAR150,000) per year, with an additional €4,230 per adult dependent per year and €2,538 per child per year.
Another advantage offered by Portugal is its special tax regime for Non-Habitual Residents (NHRs), which enables qualifying entrepreneurs, professionals, retirees and HNWIs to enjoy reduced rates of tax on Portuguese-source income, while most foreign-source income is exempt from Portuguese taxation. Individuals of any nationality can potentially benefit from Portugal’s NHR regime for 10 consecutive years if they qualify as a tax resident in Portugal and have not been taxed as a Portuguese tax resident in any of the five years preceding the year in which residence is established.