Tax Advisers - Deloitte

South Africa
It should also be noted that an individual who relinquishes his/her South African tax
residence will become subject to capital gains tax on all his/her assets. Provision must
be made for group life, disability and medical cover for employees leaving South Africa
and as the costs of taking out such coverage in a foreign country can be prohibitive,
this also requires careful consideration.
Inbound expatriates will be subject to South African tax on their South African
earnings, but should not be subject to South African tax on their foreign earnings or
capital gains unless they become South African tax residents. Until recently, an
individual acquired tax residence if he/she worked in South Africa for more than three
years, but this period has been extended to five years, to encourage expatriates not to
leave South Africa after three years.
As already noted, the government is keen to encourage retirement in South Africa, and
for that reason proceeds from offshore pension funds are not taxed, although this may
change in the future with the proposed revision of the tax treatment of retirement
finds. However, at least for now, proper planning may allow a person who can avoid
tax on their foreign pension in the country from which it is paid to enjoy the best of
both worlds.
Multinational groups have adopted a number of different approaches to the issue of
how to provide pensions for highly mobile staff. One approach is to establish a fund
for such employees in a tax haven. While this may overcome the problem that
providing for country-specific pension funds tends to be a cumbersome process, it may
be unattractive from a tax perspective – for example, if contributions to the fund are
not tax deductible (which is likely to be the case) but the member is ultimately subject
to tax when he or she receive a pension from the fund.
Although it is often not possible to make pension funds operate tax efficiently in the
case of globally mobile employees, it is important not to overlook one of the major
benefits of such funds, which is the forced saving element. Employer pension funds
ensure that at least some provision is made for the retirement funding of employees
who might otherwise lack the discipline to make such provision for themselves.
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