Cape Town – As advances in communications make the world a smaller place, new markets are opening up to businesses.
The benefits for South African firms include the chance to earn revenue in a currency stronger than the rand, such as pound sterling, euro or US dollar.
But this means that business owners and their key staff need to spend an increasing amount of time travelling to new and potential clients elsewhere in the world. This presents a number of challenges – among them, accommodation and ease of access to destinations outside South Africa.
If the business focuses on a particular country for its new markets, it could make good sense to acquire a property there so that accommodation needs can be easily addressed. Sometimes, owning a property may also be a route to gaining citizenship rights and an additional passport.
“Holding a second passport is particularly useful for South African business owners,” explains Sandra Woest, senior manager of Henley & Partners South Africa, specialists in residence and citizenship planning.
“A South African passport-holder requires a visa to travel to the majority of countries around the world, in particular to those at the centre of global business activity. An EU passport, for instance, allows visa-free travel to far more countries than a South African one. That’s an invaluable asset for a regular business traveller.”
Extensive research is necessary before buying a property in another country. It is crucial to consult with an expert in the field of residence and citizenship planning before making any decisions.
The following is Woest’s advice:
Laws relating to foreign ownership of property
Some countries do not permit foreigners to buy fixed property in the country. This is an obvious first consideration to bear in mind.
If you’ll be engaging in business operations from the country where the residence is located, you need suitable business support services – the quality of local banking services is important. So too is the currency used. You should be looking for a location with a stable currency.
You need to put in place suitable health insurance that offers medical cover worldwide. Having one policy that will look after you in both countries where you have a residence is important – but something that is often overlooked.
Income tax considerations
According to the latest edition of the Global Residence and Citizenship Handbook, sponsored by Henley & Partners, “…tax authorities begin to take note when (wealthy) taxpayers move abroad…”.
So, once you spend a long period in another country or visit it regularly, expect that authorities in the country of your usual residence will track your movements. This doesn’t have to be a concern as long as you plan properly and keep suitable records.
Another factor to consider is whether you intend moving your tax residence as a result of acquiring the property – and then there are many considerations involved. As Woest explains, “If you receive income in rand, it may not be ideal to have to pay income tax in a stronger currency because of the exchange rate.”
The risk of being liable for tax in both the country of your main residence and the secondary one is also something to be cautious about.
You could run the risk of paying income tax in one place, which may not have any inheritance laws, and then your family will be shocked to discover after your death that your former country of residence may be able to claim inheritance taxes on your worldwide estate. This is a significant issue that a specialist planner can assist with.
Timing of the purchase of the property
Establishing a secondary residence should be timed carefully for tax implications.
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This article was first published in Fin24 on 22nd April 2016.