South Africa - 0% cap gain / passive income tax for EU Swallows

[Hans Mandel]

My first post. Search function doesnt reveal anything. The advantages sound impressive.

I spend more time in South Africa than any other country. I do it anyways - because it is such great during EU winter.
5,5 months - rest travelling. Terminating my lease in EU and cut ties.
I am financially independent. I have a temporary retirement visa (4 years) - which WON'T allow me to work in SA.

My understanding:
- I will fail the "physical presence test" for SA Tax.
- I will have a my sole domicile there, but will not qualify to be a tax resident.
- concept: Every 5th year I must spend less than 90 days and off we go again.
source: South-Africa-Tax-Residency.pdf (oecd.org)

Result (?):
- I will qualify to terminate as a tax resident in Germany - I will have a new domicile - much better than perpetual travelling.
- I wont be a tax resident in Germany anymore - except certain german income of course
- 0% on passive global income in SA - except withholding taxes
- 0% capital gain tax on global equities. Nice.

Questions:
1) Anyone done that? Any concerns?
2) Freelancing: I struggle to get my head around if/how I can invoice for some freelancing consulting.

concerns:
1) Visa concerns - may I even do international freelance work while in SA?
2) German tax concerns: when client is a German company - where I used to be involved as shareholder - this may suspiciously be treated as work performen on German grounds and become taxable.
3) Recent concerns for my client: Any type of work labelled "consulting" and billed internationally are setting up the alarms in Germany.
3) A offshore corp was suggested - I am not keen on the overhead for +-100.000 euro pa. When done well the company profits may qualify as international dividends for EU / SA tax authorities. PE risks are expensive and tricky to overcome.

I highly appreciate your thoughts.
Hans


Life hack: of course I wont bring capital inside SA. Exiting SA will be a minor challenge limited to the value of my property.

 

[Martin Everson]

Welcome to the forum

I highly appreciate your thoughts.

Sounds logical.

So which tax residency are you putting on CRS Self Certification forms with banks etc? Or you plan on using non-CRS banks or crypto?

 

[Hans Mandel]

Dont understand CRS Self Certification - Does this mean which residency I report to my German stock broker?

I assume I tell my bank I am a "Steuerausländer" = non tax resident in Germany no more and domiciled in South Africa.
Then they wont deduct any local taxed on my capital gains. I am responsible to tax myself - which I wont have to since SA is generous enough to consider me "domiciled" yet not a tax resident. Yes I also find this too easy to be true.

I have a meeting with a SA tax consultant tomorrow. Any input to help me challenge him is appreciated.

 

[meze99]

South Africa is considered by some people as a failed state with rampant corruption, so there will be no problem to become a tax resident there after you have made a cash donation to tax office private pension fund.
Your tax non-residence status may be questioned by German tax authority if you have real estate there and other ties. Especially if you are a valuable tax payer, so talk to a German tax lawyer first.

 

[Hans Mandel]

Valid point: SA is corrupt. The actual tax interaction is apparently highly digitized nowadays so one should not deal with an individual.

I have property in SA - no property in Germany. Looking back 5 years I can prove I spent more time in SA than here. So domicile status should be easy to achieve.

I am worried about freelance income both with or without offshore company. I may also miss other bits. On paper SA is not considered a tax heaven and unsuspicious. I am surprised that I hardly read about this tax exemption anywhere in the known forums. I am impressed by this community btw.

German Tax advice:
One detail my german tax consultant was pointing out already: German tax law is so strict - the authorities may "punish" the client if client pays my offshore bill and on request if I cannot prove to the client that I payed "appropiate" taxes. Result: my client may not deduct my bill as german tax expense and hence pay full tax on my behalf - even years later. worst case for my client. German tax consultant advocated for EU company to prove "some" tax was paid to settle this.

 

[SCI]

This is interesting to know. I have lived in Camps Bay and will explore this avenue as I approach retirement (not for a while yet).

You will need an entity to bill your clients from the Germany side.

An easy non resident solution would be a US LLC (Wyoming, Nevada or New Mexico) or UK LLP. Various EMI's that you can open as a German citizen.

You would have to stay away from the European options due to VAT implications.

Mauritius and Seychelles are options also but both have tax implications upto 15% plus running cost. Banking relatively easy via your service provider.

HK, UAE and now Saudi Arabia are your tax free options but set up and running costs should be factored in as tax.

 

[Hans Mandel]

You will need an entity to bill your clients from the Germany side.

understood.

An easy non resident solution would be a US LLC (Wyoming, Nevada or New Mexico) or UK LLP. Various EMI's that you can open as a German citizen.

German tax advisor sais: LLC would be 0% - hence troublesome for my german client as this may be considered "weisse Einkünfte" = profits that are taxed nowhere and hence a major tax penalty for my client.

You would have to stay away from the European options due to VAT implications.

I have business clients who wont get a VAT bill within EU - from what I understand and how I am used to practice it in B2B invoicing.
So I heard EU offshore company might be best. Cyprus got mentioned, Estonia.

Mauritius and Seychelles are options also but both have tax implications upto 15% plus running cost. Banking relatively easy via your service provider.

An option I have looked into. Love the island. Dont see myself living there for 180+180 days and every 90 days every other year though.

HK, UAE and now Saudi Arabia are your tax free options but set up and running costs should be factored in as tax.

I dont mind to pay 15-20% - I am more worried about how to create enough substance. My HOPE is, that since I will be no longer EU tax resident the requirement for substance are less rigid. Dont expect SA to be particularly strict. As long as Germany wont construct a problem. this is where I get all irritated as I always did my businesses super legit. The new ideas are fully based on the fact that I live there anyways and only now discovered that the SA rules are all in my favour.

thanks so much for the valuable input.

 

[Hans Mandel]

UPDATE: Sadly - this setup was too good to be true.

SA TAX advisor claims: I cannot become domiciled in SA from Germanys perspective AND YET NOT a tax resident in SA.
The physical presence tests is no longer applicable, the moment I claim I am a resident in SA. There is no such thing as domicile yes, tax resident no.

Original source: Steuergünstige Wohnsitzstaaten mit Territorialbesteuerung (wohnsitzausland.com)
This model seems to be a SCAM.

I would not mind a second opinion. My understanding is: lets say I move to Mauritius - spend 3 months there, but another 4 months in SA - then the physical presence test would allow me to claim MRU is still my main domicile.

 

[SCI]

If you are willing to pay upto 20% tax then I would recommend the HK or UAE.

HK is a plug and play similar to UAE. Banking in HK is difficult but you can use NEAT plus other similar bank/EMI.
HK doesn't require you to be there but account opening can take a month.

UAE have now implemented tax to keep the EU happy. Your clients can justify their payment for deduction.
It does mean spending an initial period in the UAE to set it all up. Plus keeping up your residency by entering the country once every 6 months. You can transit through the UAE on your way back to SA for a day to keep residency going.

Both substance requirements are an office but the UAE banks have introduced requirements of a personal address recently. But some of the EMI's in UAE will allow you to open without proof of residence address.

 

[Hans Mandel]

Now I am looking into Cyprus (only 2 month presence required) or Mauritius - which I like anyways. Yet there I would probably need an additional EU company to invoice EU clients for IT services.

 

[Martin Everson]

Dont understand CRS Self Certification - Does this mean which residency I report to my German stock broker?

Yes.

You need a tax residency for bank etc. What you propose will not work with banks, brokers etc in reality where a tax residency is required unless you remain un-banked.

 

[Deepbarrels]

Life hack: of course I wont bring capital inside SA. Exiting SA will be a minor challenge limited to the value of my property.

Just curious, why would this be an issue, you already have real estate there, so is it because you think the authorities would think you are illegally working in SA ?

 

[Hans Mandel]

There is a website promoting SA as tax heaven - which is close to a scam.

IF YOU have a residency in a third country one can officially spend a lot of time in SA and own property and still have a very explicit argument that you can opt out of becoming a tax resident. Which at least is something to work with. Hope this helps the community.

 

[Neo29]

I've spoken to a number of South African tax advisors and it's still a bit of a wild west show here.
The latest one told me that it's fairly easy to claim non-residency based on the DTA agreement with your home country, assuming you own property there, while registering as non-resident in your home country. If they ask questions, proof of property ownership or even rental agreement from back home will suffice.
I've also been advised to not stick your head above the parapit by registering with the revenue service. It's very unlikely they will find out, even with CRS data at their disposal. Of course, times are changing and even countries like S Africa will eventually catch up using more capable tax specialists, AI, etc.