Diversify offshore, and reduce your tax burden

Many businesspeople in South Africa, including farmers, have substantial interests offshore. But they need to beware; SARS is watching.

With South Africa’s economy under severe pressure, many businesses, including farming operations, have embraced the idea of offshore diversification. This presents a stumbling block, however: tax must be paid in the jurisdiction where the trading takes place, yet the South African Revenue Service wants to tax the same income.

One way around the problem is to operate through a properly established offshore company and earn dividends in South Africa. Under a strict set of circumstances, these are free of South African tax – for now anyway.

To pay tax in two jurisdictions is crippling. Yes, there are double-tax avoidance agreements and there are also rules under South Africa’s Income Tax Act where relief is given unilaterally, but money is tight, and these rules are applied strictly.

EXCHANGE OF INFORMATION

Some business people might be tempted to simply ignore the threat. However, South Africa is signatory to a great number of automatic exchange-of-information treaties. These are found under doubletax avoidance agreements and mean that information pertaining to South African nationals or residents abroad may be shared between tax authorities.

Such agreements are augmented by the Common Reporting Standards (CRS), a set of rules that signatory countries impose to swap information on their tax residents or nationals abroad. Banking details, in particular, are open to scrutiny under the CRS.

The CRS is an initiative of the Organisation for Economic Co-operation and Development (OECD), a department of the EU. Its main goal, it seems, is to ensure that every individual on earth pays high taxes.

Ironically, the business and industry captains of the world are the very people whose efforts keep everything, including the EU, afloat. And their strength is closely connected to their capital reserves, which are threatened by high taxes!

IT SEEMS THE MAIN GOAL OF THIS EU DEPARTMENT IS TO MAKE EVERYONE ON EARTH PAY HIGH TAXES

It is for this reason that offshore financial centres (OFCs) came into being. Regrettably, most of these financial centres have, under pressure from the EU, become CRS reporting member states.

But not all of them! There is still scope for people who value their anonymity to trade – honestly, of course – through such OFCs. The list of countries that have signed on to the CRS is available on the OECD website (oecd.org). The absence of certain countries from the list might surprise the reader.