Taxation implications arising from South African residents investing abroad.

Abstract

South African investors who have invested or plan to invest their funds offshore have to comply with various legislations, more particularly, the Income Tax Act and the Exchange Control Act. The change-over process from a source basis to a world-wide basis has left many resident investors confused. The need for clarity is exacerbated by the amnesty granted to residents of South Africa, in terms of exchange control and income tax contraventions relating to offshore assets. Resident investors put together complex structures using trusts and companies to 'conceal' their assets. This amnesty provided investors with an opportunity to declare their investments and to legalise their foreign investment tax affairs without the fear of criminal prosecution. The practical application of the various tax provisions is complex and the consequences of non-compliance are severe. Many resident investors are unaware that they could apply to them. There are two crucial questions that are the cornerstone of this study and they have a significant impact on the future planning opportunities that may exist: • First, is the use of an offshore trust or foreign company beneficial? • Secondly, what is the most tax-efficient offshore investment vehicle? The aim of this dissertation is to investigate and identify the various forms of tax legislation as it relates to these foreign structures and investment vehicles, and then to provide a focused analysis of the relevant legislation. A case study is provided to facilitate the understanding and research of this topic.