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When South African entrepreneurs consider emigrating to expand their business internationally, they should have a professional, in depth look at local requirements, and consider the tax planning opportunities, says Richard Neal, director at Sovereign Trust (SA).
Entrepreneurs moving overseas to take advantage of a new market will almost certainly be required to establish a corporate entity overseas, either in the country they are moving to or in a jurisdiction within the common market.
"Care must be taken in hastily establishing an overseas company - there are pitfalls as well as opportunities in this arena. Preparation prior to departure can make or break the success of overseas business expansion," says Neal.
Things to consider prior to establishment include determining who the director of the newly formed overseas company will be. Most entrepreneurs would want to be the listed director, however, while they retain their South African tax residency, this move could bring the overseas company into the South African tax net - via the Place of Effective Management rules.
"It is far better to enlist the services of a corporate services provider to establish and manage the company until the entrepreneur has lost their South African tax residency, at which point they can become the director," advises Neal.
Some jurisdictions require local residents to be the director or require two resident directors. Local management or even local shareholding requirements can pose a massive threat if the local provider turns out to be untrustworthy.
He says that, before entrepreneurs assume that financial emigration is the only option to escape taxation on their foreign earnings, they need to brief a tax advisor on the entire situation and consider less drastic and expensive options.
Shareholding in an overseas company can be a great tax planning opportunity. Most jurisdictions allow the shares of local companies to be held in foreign entities such as trusts.
"Entrepreneurs are so focused on the operation of their business, they don’t realise that the new venture is an opportunity to accomplish dynastic planning," says Neal.
"The new company would start with little or no value, a perfect opportunity to assign the shares to a Trust in a stable and low tax jurisdiction."
Saving for retirement is also solely at the discretion of the entrepreneur. Just because the entrepreneur leaves SA doesn't mean they should stop making provisions.
Entrepreneurs can consider establishing an overseas retirement plan in a favourable jurisdiction. Guernsey, for example, has legislation which makes it a very attractive locale to establish a private retirement savings plan, according to Neal.
