South African investors, business owners and retirees are taking steps to hedge the impact of the country’s likely ‘grey listing’ early next year, with many businesses and individuals looking at offshore options, says business development consultant at Sovereign Trust, Dani van Vuuren.
Despite efforts by the South African government, it seems likely that the country will be ‘grey listed’ early next year by the Financial Action Task Force (FATF) because of deficiencies in its Anti-money Laundering and Counter-terrorism Financing (AML/CFT) framework. Apart from impacting the country’s GDP, the grey listing will see South African investors and businesses come under far more frequent assessments and scrutiny from global authorities.
Van Vuuren, says the company has seen a marked increase in enquiries relating to offshore pensions for individuals and for companies looking to provide employees with exposure to foreign pension investments in hard currencies.
“Diversification is one of the antidotes to risk, and it’s high on the agenda for numerous individuals, retirees and businesses who are looking to mitigate the impact of the grey listing on retirement returns, wealth preservation, and the profitability of doing business in South Africa,” said Van Vuuren.
This has seen growing numbers of individuals investigating their options for relocating their families and assets to countries like Mauritius, Malta, Portugal and Cyprus – which will impact South Africa’s fiscus in the medium to long term.
By the same token, many businesses are considering the viability of incorporating a business offshore in jurisdictions that are seen as a lower risk by the FATF, while also being economically robust, like Singapore, Mauritius, and the UK among others.
The looming grey listing is also accelerating the trend of ‘digital nomads’. Digital nomad visas are being offered by a range of countries, including Mauritius, Spain, Cyprus and most recently Portugal. These visas legally allow visitors to live and work in the country while earning their income from foreign sources.
South African companies and entrepreneurs are considering relocating and expanding their businesses in other countries. They face no shortage of options, with foreign incorporated companies being well positioned to service their international clients and which further allows for future international expansion.
The long-term impact of the grey listing on South Africa’s GDP will be potentially severe, warns Van Vuuren.
“The impact of grey listing on cross-border business transactions and activities, is likely to be absorbed by South African individuals and business alike for longer than anticipated. This will likely see many international companies reconsider doing business in South Africa , which can influence tax revenues. In turn, this could impact SARS’ approach to taxation of wealth and income at a time when South Africans are already nervous about potential increased tax rates,” said Van Vuuren.