Escape South Africa
South Africa’s unfavorable tax policies and currency are prompting an increasing number of citizens to look for a way out.

Over the past few years, South Africa’s currency has been weakening at a constant rate, losing substantial value since 2010. Recently, things turned into a full-blown currency collapse.

Now, South Africa plans to impose a form of citizenship-based taxation on South African expats living overseas in 2020, meaning South African citizens would need to report and pay on “large” incomes earned while working overseas.

This is the classic “block the exits” strategy employed by so many governments. I’ve complained about it as a US citizen for years, until I decided to disconnect and give up my citizenship.

South Africa is already suffering from its worst drought since 1992, which has increased food costs and caused a recession in the farming industry. The weakening of the rand now threatens to worsen the situation by driving up inflation. The only silver linings in the current situation are the boost the weakening rand has given to South Africa’s tourism and mining sectors.

Other than that, things look bleak. Which brings us to the question most South African investors and businessman are asking themselves: how can we escape high taxes and the possibility of an all-out rand currency collapse?

While the situation may seem dire, the solution is actually quite simple and has been around for years. I’m not here to convince you to renounce your citizenship, or even relocate out of South Africa. I am, however, telling you to take actions to be prepared.

Here at Nomad Capitalist, we share the concept of flag theory.

The basic idea of flag theory is to “go where you’re treated best” and diversify your affairs across the globe by “planting flags” in the different countries where you take your business, money, and life.

Planting flags in as many countries as possible helps you to maximize your freedom. Just as you wouldn’t invest your entire nest egg into one individual stock, you likely wouldn’t move your entire savings account to one country or currency.

Diversification is key.

In an age when globalization affects everything we do, there is no reason to be tied down to any one country, especially if that country is in the midst of an economic and political crisis.

The following are the basic principles of Flag Theory summarized and applied specifically to the situation you may be facing in South Africa.

1. Get out of South Africa (at least on paper)

This probably sounds like an obvious answer, but there are some important factors to take into consideration to determine exactly where you should go.

In Flag Theory, you hold a passport that allows you to leave the country and not pay tax there. Beyond having a South African passport, you should also establish a legal residence in a tax haven.

By obtaining legal residence in a country that does not tax overseas income (or any income at all), you can establish a base of operations for your life without having to pay taxes to the local government… for now.

You don’t have to move out of South Africa now, ideal as that would be. However, setting up a second residency in a safe country that offers a path to citizenship is a good first step to at least keep in your back pocket.

To counter the depreciating value of the rand, find a country where the cost of living is relatively low. You’d be surprised how much you can get for your money living in another country.

2. Get a second passport

While relocating out of South Africa can solve your tax problem for now, it won’t solve several other problems.

Namely, you will still be limited to a relatively small number of countries for which South Africans can enter visa-free. And when new tax laws come into effect, you will likely be paying South African tax.

I work with many US citizens who continue to be US citizens, even though it offers a less than optimal tax outcome. However, by being offshore, they still save 70-90% of the taxes they paid by being onshore, and it’s worth keeping US citizenship and a US passport in exchange for not saving 100%.

I don’t see the same benefits to South African citizenship, or the same tax savings possible once new tax laws kick in. Having a second passport gives you the right – but not the obligation – to renounce South African citizenship for tax, asset protection, or safety reasons when the time comes.

There are several ways to get a second passport, with the fastest taking a mere three or four months and starting at $100,000.

You should also pursue obtaining a second passport or citizenship in a country that does not tax non-resident income. Having a second passport greatly increases your mobility and decreases your government’s control over you.

3. Incorporate your business in an offshore tax haven

This is the country where you base your offshore corporation, and from where your salary is paid. Because this country is a tax haven, it will not tax your income. And, because you followed the first step, neither your country of citizenship nor residence will tax your offshore income.

Countries like the Cayman Islands, British Virgin Islands, Belize, Nevis, Seychelles, and even Hong Kong offer offshore corporations that require zero tax to be paid. Many of these offshore havens don’t even require you to file accounting reports or be audited.

There are two elements to being offshore: you, and your business. Both need to be considered. Simply owning an offshore company from within South Africa may offer you ease of doing business, but it won’t ease the tax burden of most small businesses. You need to set things up properly.

4. Have a multi-currency offshore bank account

Having an offshore bank account is probably one of the easiest and most important ways to protect yourself from the falling rand. To do so, you must find an asset haven where you can keep your money, preferably with no capital gains taxes. An asset haven may be different from your business base in that you want your assets to be stored in a stable place.

The best place for your business base would be a little-known country that has little interest or resources in making your life difficult. However, where you store your assets is a different story. You want the country you bank in to be stable and have an efficient judicial system to ensure your money is safe.

Beyond offshore bank accounts, you can store assets such as gold offshore. There are facilities to house everything from your classic car collection to your collection of rare art. You should also look at banks that offer multi currency accounts. This will allow you to take advantage of currency movements as well as offset one currency’s negative movements or weak interest rates.

Andrew Henderson

Andrew Henderson is the world's most sought-after consultant on legal offshore tax reduction, investment immigration, and global citizenship. He works exclusively with six- and seven-figure entrepreneurs and investors who want to "go where they're treated best". He has been researching and actually doing this stuff personally since 2007.
Andrew Henderson

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