Wealthy foreigners living in South Africa are paying too much tax

High-net-worth foreign nationals living or investing in South Africa could face unnecessary tax liabilities if they fail to consider international tax treaties.

South Africa continues to attract high-net-worth foreign nationals seeking an exceptional lifestyle, attractive investment opportunities, and a favourable climate in which to live or retire.

However, Tax Consulting South Africa’s Legal Manager of Cross-Border Taxation, Delano Abdoll, said many foreigners are surprised to discover that South Africa is also a high-tax jurisdiction.

Currently, South Africa has a top marginal personal income tax rate of 45%. But, for internationally mobile individuals, the risk is not simply paying South African tax.

It is paying more South African tax than the law requires because opportunities under international tax treaties have not been properly considered, Abdoll warned.

Global wealth migration is accelerating, with an estimated 165,000 millionaires expected to relocate across borders during 2026.

This means that the interaction between domestic tax laws and South Africa’s network of Double Taxation Agreements has never been more important.

High-net-worth foreign nationals are also increasingly relocating to, investing in, or simply spending more time in South Africa.

What many do not realise is that this may expose them to one of the world’s higher personal income tax regimes, Abdoll noted.

While South Africa offers plenty of lifestyle and investment opportunities, its tax system also requires careful international planning. “International tax has its own magical formula,” he said.

“If you are paying high South African personal income tax without properly considering the application of South Africa’s Double Taxation Agreements, you may simply be paying more tax than the law requires.”

Abdoll stressed that being smart about tax-efficient opportunities available to foreign nationals, while remaining fully compliant with local and international tax laws, is the only answer.

Under South African law, international tax obligations override conflicting domestic tax legislation. Neither the South African Revenue Service (SARS) nor even Parliament can simply change international tax law.

Who is at risk

For those who fall within that high tax bracket, Abdoll explained that careful international tax planning becomes essential. He recommended that the following individuals seek specialist advice:

• International executives or foreign entrepreneurs relocating to South Africa
• Retirees purchasing a home and spending increasing amounts of time in South Africa
• Investors with substantial offshore assets who are considering South Africa as a second base
• South Africans returning after years abroad with significant international wealth
• Business owners managing overseas companies while living in South Africa

A useful illustration, Abdoll said, is that of a European couple who have spent many years living and building wealth abroad before deciding to make South Africa their alternative retirement home.

After buying property here and dividing their time between South Africa and another country, one spouse passed away.

The surviving partner consequently spent more time in South Africa, unknowingly triggering South African tax residency and exposing her personal income and potentially her worldwide assets to the South African tax net.

At the same time, selling all her assets in her country of birth may trigger capital gains and an exit tax and could materially affect estate or inheritance planning.

To avoid unnecessary tax risks, Abdoll stressed that all of these factors should be considered and planned well before retirement.

This is not uncommon among many Europeans and others from the Northern Hemisphere who spend the northern winter months in South Africa. They are known as swallows.

Expatriates who continue working for an employer abroad after returning home may create Permanent Establishment risks or Place of Effective Management implications.

This risk is even greater if they continue managing offshore companies from South Africa. Again, significant South African tax obligations may arise.

In cases such as these, Abdoll cautioned that Controlled Foreign Company rules could apply, resulting in added tax exposure.

“Protecting an international fortune requires transitioning from a defensive mindset to a proactive, multi-jurisdictional strategy. And this should be done timeously.”

Why wealthy foreigners face a greater risk

Abdoll explained that tax complexity arises from the interaction among multiple jurisdictions, multiple tax systems, and a taxpayer profile that was not correctly established from the outset.

“These issues become considerably more significant where foreign nationals have substantial wealth or international business interests.”

“The wealthier the taxpayer, the greater the consequences of getting the first step wrong. The cost of this increases exponentially as the taxpayer’s international footprint becomes more complex.”

Adding to the risk is the fact that high-net-worth individuals tend to have more assets, which can complicate matters. They frequently have:

• Homes in multiple jurisdictions
• International investment portfolios
• Businesses operating across several countries
• Family trusts and succession structures
• Retirement interests in more than one jurisdiction
• Evolving immigration status
• Global mobility

“Each additional jurisdiction introduces another layer of complexity and requires an objective evaluation of the taxpayer’s entire factual matrix,” Abdoll said.