Tax Considerations for Relocating Africans

One question on the list for everyone relocating from anywhere to anywhere else is always what impact that move will have on how much tax they need to pay, as differing tax rates and systems will always give a different answer. For those relocating from countries in Africa towards more open economies, an additional question comes into play – what do you actually get in exchange for your tax money?

In today’s world, it’s easy to overlook that tax is what pays for public services, and any debate that laments the declining quality of public services while requesting lower taxes is a paradox. The lack of certainty that higher taxes will lead to better services may well explain some of this.

But for people relocating from African countries with uncertain infrastructure, the link is often easier understood. Countries in Africa often have higher tax rates, but on top of that, unreliable public services may mean that education or healthcare is paid for out of after-tax income. Moving to somewhere that has taxpayer-funded services can make a big difference.

Several countries go further and have low rates of income tax, or a preferential tax status for newly arriving foreign nationals that may last up to 10 years. Where these countries also have decent public services, they can be very attractive destinations to relocate to.

Tax residence status and conditions

The right to residence or citizenship in another country does not automatically lead to someone moving their tax residence. For that to happen, it is usual for a country to treat anyone who has been in that country for more than 183 days in the tax year as a tax resident, and subject to tax on their worldwide income. Someone who is not there that long is a non-resident, and therefore only subject to tax on sources within that country, unless they have moved their permanent home there.

Tax residence only moves when the taxpayer does, and so the popularity of a second or third residence for wealthy Africans is in many ways just the first step – the option to leave the country should changes come too rapidly or in the wrong direction. Only once that move happens does the tax consequence occur, but it’s important to know what that net consequence will be. Fortunately, for many popular investment migration programs, the outcome would be a lower tax rate than remaining at home in Africa.

How different countries treat tax

However, that’s only part of the story, and anyone choosing to migrate must also be sure how their home country tax authorities view that migration. Some, such as South Africa, look to levy an ‘exit charge’ so that any accumulated but untaxed gains are taxed at the point of exit as if the asset had been sold on the day of departure. 

That scenario can seriously compromise any idea of tax-driven emigration where there is a significant asset base – especially if that is in illiquid form such as shares of a family company or a tech start-up, where the cash to pay the tax just may not exist.

Once free of the tax net, countries like Singapore and the UAE might allow significant tax-free wealth accumulation during periods of residence. And places like Greece and Italy with a flat, maximum tax provide the clarity and certainty that families and investors are looking for. This creates long-term flexibility and opportunities to pay for the next generation to study abroad or to retire elsewhere later.

Some of the Caribbean countries that have favorable tax regimes for foreign investors have used citizenship by investment to attract international funding for emerging industries, whether tourism or technology. In the longer term, as African countries look to expand their economies from natural resources and pockets of tourism, they may also become magnets for investment migration to fund that infrastructure. This kind of venture would require an investor-friendly tax system for optimum effectiveness.