In an environment where taxpayers are not confident in their “return on investment” domestically and where something like the National Health Insurance financing system instills more worry than comfort, those who can afford to, are looking to hedge their bets elsewhere.
.
Portugal, amongst others, has been a popular jurisdiction for South Africa’s as a plan B. Anyone who has not lived in Portugal within the previous 5 calendar years, could potentially access the non-habitual residence regime. Under this regime, which came into effect to attract foreign investment in 2009, benefits include foreign income being exempted from Portuguese tax, foreign pension income is taxed at a special fixed low tax rate, and local ‘high value’ employment is taxed at a lower rate than usual. Portugal’s Mediterranean weather, renowned golf courses and pristine beaches are lifestyle attractions with Porto and the Algarve doubling up as destination attractions, although language may be a barrier.
.
This all sounds idyllic, but then the Portuguese Government has announced recently the end of the non-habitual residence regime effective 1 January 2024 onwards. The effect is that individuals looking to relocate to Portugal can no longer access the special tax regime, unless they meet the relevant conditions and hold a valid residence visa as at 31 December 2023. The announcement was made as part of the State Budget Law Proposal for 2024. It yet to be confirmed, but it is highly likely to realise.
.
In all of this, the question is this: Are friendly offshore jurisdictions really that friendly? Is the “friendly” tax treatment worth it to consider, and if not, what should be the real driving factors? Each country is sovereign and has its own economic sphere it which it operates. Portugal initially required foreign investment to stimulate its struggling economy with tax benefits as the carrot stick. It now decided to end the favourable non-habitual residence regime which begs the question:
.
Are friendly offshore jurisdictions really that friendly? What should be the factors driving a hedged bet if you consider a second jurisdiction?
.
We list a few wholesome factors from a family, practical and planning perspective:
.
- Is the weather as good as in South Africa? Would you live with it 24/7 365 days of the year?
- Where is the rest of your family and friends? Can you reach them with an overnight flight in times of a crisis?
- What is the country’s culture, people, food and drinks like? Do you see yourself easily settling in?
- If it is important to you, would you be able to braai with wood as we know it?
- Is it easy to find a home that you like or would you need to submit bid for your new home (e.g. Australian rental accommodation)?
- What access to healthcare and similar benefits would you have?
- Is the government regime and financial sector stable and reliable? Does it adhere to AML and KYC requirements?
- Do you see yourself growing old there and still being content?
- If you have done some estate and tax planning, does the legal system recognise and align with your current planning or would you require re-planning?
- Would you be able to support the Springboks freely and without fear from there?
.
The last one is of course tongue in the cheek, but this can apply to any other aspect of your life that you are passionate about.
.
It also illustrates that tax can never be a primary driver, because you may be looking for a country where you are taxed at a lower rate, or where the taxes paid are working for you, but you may just need to give up some of life’s joys for it.
.
If you are permanently relocating to another country and need to place your non-tax residency on record with SARS, or if you are planning to relocate and need advice on tax and other relevant laws which may have an impact on your decision, please contact Suzanne Smit at suzanne@fidelisvox.co.za.
.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)