There is a difference between a second passport and getting a right to permanent residency. Where you get a passport, you become a citizen of another country and with this comes all the rights and privileges of your adopted country of citizenship. Permanent residency allows you to permanently reside in a country, such as the United States Green Card or Mauritius Permanent Residency, as two well-known examples.
Countries of Interest
The second passport option is available by investment into Europe and various Caribbean islands, as the most accessible options. The very popular Portuguese option is closing soon, and this has resulted in a flurry of last-minute applications.
Namibia as the new Option
There is an interesting and very viable new Namibian option which has become available. This was fully covered in the Henley presentations, including the extensive development in Walvis Bay. Namibia has no load shedding, a great cultural fit and easy access for running South African interests.
The “Big Five” Reasons
These citizenship by investment programs offer the traditional benefits of enhanced global mobility, as well as a proven risk mitigation and growth diversification strategy, including wealth and legacy planning. Whilst the second passport enables freedom of movement and to reside abroad, as well as opening-up various investment opportunities; the financial emigration from South Africa often happens first, which includes the process of getting your wealth moved abroad. The main reasons are –
Future security for family
It is only natural to do what is best for your family, especially regarding the future of the next generation, and this appears to be one of the driving factors for seeking a second passport. This includes the option of international education for children. This also holds multi-generational future benefit. Other considerations include personal security, security of the fiscal and judicial system as well as state provided benefits.
Seeking economic stability
A strong driving factor for wealth migration is rooted in future proofing oneself against currency and economic and political uncertainty. South Africa’s recent greylisting and fluctuating currency, along with its poor service delivery and the energy crisis add to these uncertainties.
Wealth protection
There is continued drive by the affluent to diversify and secure their financial position by investment in hard currency. There is an underlying nervousness on the financial stability and the reasons for this is well known.
The tax burden on the wealthy
The second passport also allows the move to a more tax friendly environment where there are no capital gains taxes, donations taxes and estate duties. This means there is considerable better wealth preservation and transfer of hard worked monies to future generations.
The South African system has high taxes with a top marginal tax rate of 45%, effective capital gains taxes at 18%, estate duty at 25% and retirement tax, which is capped at 36%. Compared to Namibia with no capital gains tax and estate duty, this becomes a simple mathematical exercise.
Ease of international travel
While business-friendly, secure economies and future proofing one’s wealth and generational security remains important, the ease of international travel is another tick next to having a second passport.
Depending on the chosen country, you may have the ability to travel to several countries without a visa. For example, obtaining a European passport could allow you travel to over 160 countries, or if you opt for a Guernsey passport, you can travel to 89 countries without a visa. In some instances, you will receive a visa on arrival, eliminating traditional visa application routes. This makes travelling for business, pleasure, and education much easier and hassle-free.
Failing to plan is planning to fail
A good roadmap will include a review of your financial products, CIPC compliance checks, and look at your assets and retirement annuities. It is also prudent to consider banking strategies to move funds offshore in light of the new SARS process for international transfers, and resident vs non-resident tax planning; all of which will inform what is sensible for retirement and/or wealth planning.
The new SARS process for international transfers is perhaps most important. It is document-heavy, requiring the disclosure of both your assets and liabilities at cost and market value, and it comes across as quite complex. Additionally, if any aspect of the application process is incorrect, or if non-compliance is picked up, you will not be approved to transfer funds overseas, halting your investment migration process in its tracks.
Roadmap your future
Affluent South Africans seek a second passport for several reasons, all of which were unpacked during Henley & Partners and Tax Consulting South Africa’s roadshow on investment migration. Regardless of the reasoning, however, a clear and well-planned roadmap and financial exit strategy remains crucial for anyone pursuing this path.
Due to its popularity with the market, Tax Consulting South Africa, in collaboration with Henley & Partners, will host a webinar on Investment Migration Is More Than Just a Plan B on 14 June 2023.
Sars Can Increase Your Tax Liability If You Appeal