Tax tips for wealthy South Africans emigrating to the US
There are three areas of concern that high net-worth individuals looking to emigrate to the United States must consider to ensure that their wealth is secure.
America is a popular destination for South African emigrants, with data from Statista showing that over 100,000 South Africans lived in the US in 2020 – trailing only the United Kingdom and Australia in the number of South African ex-pats.
According to Tax Consulting South Africa, the three main areas of concern include visa options, relocation plans, and tax emigration.
George Ganey, a founding partner at Ganey Law Group, said that the most common residency via investment route is the EB-5 Immigrant Investment Program visa.
The EB-5 requires investment in an enterprise that creates jobs for US citizens. It costs $900,000 for specially designated areas and $1.8 million for non-designated areas.
The investor and their family are given conditional permanent residence and can be given a green (a permanent residence) card after two years.
“The EB-5 visa is certainly the most effective for South Africans, as recent legal reforms offer greater protection to investors, more clarity around timelines, and other assurances,” Ganey said.
Employees of existing or new branches of multinational companies can also enter the US via the the L-1A or New Office L-1A visas. Both visas can eventually lead to permanent residence status.
Ganey added that the once viable E-2 visa is no longer an option for South Africans due to changes in the law.
One also has to carefully plan how they will process the relocation of their family, wealth and business to the US.
Sheldon Halcrow, President of Caleo Capital USA, said that it starts with a needs analysis.
“Many people have their hearts set on the US without considering it’s a country of 50 independently governed states, each with its own unique economy and culture,” Halcrow said.
Although employees go to where they are sent, the independently wealthy should look for the state that holds the best business and investment opportunities – including tax benefits. This is on top of the lifestyle that they want for their family.
Moreover, a global asset inventory can highly areas of concern, deal with regulatory issues, and create a wealth migration roadmap.
Finally, those looking to immigrate should sequence the journey carefully as the transition can happen over phases in the long term – synchronising each step is crucial.
“A sequencing document, along with regular reviews, ensures that when they land, much of the groundwork has already been done, like opening a bank account, having a US cell phone, or obtaining a means of ID,” says Halcrow.
Exiting South Africa is a crucial step for gaining entry to the US, particularly from a tax perspective.
“You need to develop a detailed roadmap that clearly defines where you are coming from and where you want to go and contains a definite plan on how to get there,” Thomas Lobban at Tax Consulting South Africa said.
Although many South Africans are eager to leave the country, some are unaware that their tax obligations in South Africa do not disappear when they leave the nation’s borders.
In the US, these emigrants must pay taxes under South Africa’s residency-based tax system.
They will need to formally cease tax residency by notifying SARS and providing it with evidence that they will reside in another country.
Failing this, they can rely on the double tax agreement (DTA) to protect their foreign wealth from being taxed twice. The DTA will require a formal application during each year’s tax return.
“Such concerns need to be addressed in the planning phase because, after landing on US soil, it may be too late to revise your tax strategy,” Lobban said.
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