One of the major premises upon which any country’s tax policy is built is that each citizen of that country must contribute to the fiscus, in proportions as nearly as is possible to the person’s means. Nonetheless, certain receipts may be tax-free in South Africa. Some examples:
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- Local dividends received from companies, after payment of dividend withholding tax.
- Dividends received from offshore companies, provided that the person in receipt of such dividends is an owner of at least 20% of the foreign company and that the company is an active as opposed to a passive company and thus is not hit by the controlled foreign company rules relating to the net income.
- Capital is tax-free. If you were to live off your capital, you would have no income to report and that living might be free of income tax.
- A certain amount of interest is likewise free of tax.
However, in my view, a reasonable lifestyle can’t be achieved if you were to live off the amount of interest exemption. Dividends aren’t really tax-free, as the income from which the dividends have been extracted has already been taxed.
Revision
In order to live tax-free, or even to pay as little tax as possible, in SA, would, I believe, entail planning your finances in such a way so as to fit within the little exemptions and loopholes found in the tax statutes. Furthermore, it’s a strategy that would require frequent revision, as laws change annually.
Tax authorities the world over seem to believe that citizens under their jurisdiction are nothing more than tax-generating units, that the maximum possible is to be extracted and more and better ways found to extract even more funds. Escape from such wealth-diminishing hostility seems impossible. However, if you’re prepared to move away from the jurisdiction where tax is levied, the objective of living tax-free might be more attainable.
As long as you discard the desire to return permanently to SA, you can even return as a tax refugee for short periods at a time, without awakening the burdensome tax liability that accompanies residence. In the absence of a double tax agreement with the new, low or no tax jurisdiction of residence, the South African statute that provides that you should not return for six consecutive months in order for the income earned offshore to be free of tax, would apply.
So, if you have the wherewithal to make a non-tax jurisdiction your home base you could escape tax. Those who write for a living or who sell knowledge or earn international commissions would be able to do so. Someone who sails the ocean on a yacht, making three or more jurisdictions their home base, might also be eligible to live tax-free, as long as they never stay long enough to attract liability in any port of call.
Free spirit? Not without effort, and not in South Africa.
Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.
