Offshore Trusts for South Africans living abroad who might return to South Africa

Many high-net-worth South Africans living and working abroad intend to return to South Africa at some point, whether prompted by family ties, lifestyle choices or local business opportunities. But returning to South Africa carries significant financial consequences, particularly when it comes to the preservation of offshore wealth.

If properly structured and funded before residency is re-acquired, trusts are one of the most strategic tools available to returning families. By establishing and funding an offshore discretionary trust while still non-tax resident in South Africa, the assets held in trust are removed from the settlor’s personal estates for South African tax purposes.

Foreign trusts help to preserve wealth across generations by avoiding probate and maintaining confidentiality. This protects against South African estate duty and shields future capital gains from being taxed locally. And, because assets can be held in multiple currencies, they can shield family wealth from the volatility of the Rand.

Moving capital between jurisdictions is significantly more straightforward when you are not yet tax resident in South Africa. South African tax residents are subject to South African Reserve Bank (SARB) approval under the exchange control framework, which governs how residents can externalise funds and under what conditions.

If you hold assets in an offshore trust, foundation or holding company, the terms of those structures, the jurisdiction in which they sit, and your relationship to those entities will all need to be examined closely before your tax residency status changes. Once you become a South African tax resident, certain deemed disposal rules, controlled foreign company (CFC) provisions and exchange control regulations begin to apply.

Holding assets offshore as a South African resident is entirely legitimate, but the basis on which those assets are held, the income they generate, and the disclosures required by South African Revenue Service (SARS) must be handled with care. Maintaining the legitimacy of your offshore trust assets therefore requires active management.

Crucially, the benefits of a trust will only be realised if its independence is beyond question. After reacquiring residency, SARS will scrutinise a taxpayer’s offshore structures to ensure they are legitimate, compliant and independently administered.

We always advise South Africans to seek advice from their legal, tax and wealth management professionals before making important decisions. Sovereign is fully licensed to set up offshore trusts and act as a professional trustee in Mauritius, the Isle of Man, Gibraltar, Guernsey, Cyprus, Malta, Hong Kong and Singapore.

As trustee, Sovereign will administer the trusts to ensure the settlor’s and the beneficiaries’ interests are balanced appropriately, as well as handling trust reporting, tax returns, accounts and registration.