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DUE  TO  the change to the foreign employment exemption coming into effect, 1 March 2020, there has been a spurt of expatriates approaching the South Africa Revenue Service {SARS} and the South African Reserve Bank {SARB} to formalize their permanent exit from   South Africa, in order to not have to pay tax in South Africa on their foreign employment income.
 

Some advisers have been encouraging expats to emigrate financially through the  SARB as a way to break tax residency.
 
However, this is only one of the factors that are considered when determining whether a person has broken tax residency. The government wants to encourage all South Africans working abroad to maintain their ties to the country.
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The  tax  rules  governing  tax  residency  will remain  unchanged, with  the concept  of either  being  ordinarily  resident  or resident  in terms  of  the  physical presence test.  SARS  will rely on  the co-operative  practices  of sharing  of  financial  information  between  South Africa and other  offshore jurisdictions.
 
SARS  is going to become  more stringent  in  their  verification process  when a  person  wants  to remit  capital  amounts  of more than R10 million a year  offshore.
 
When  making  application to  SARS ,  an  individual  will be   subject  to a vigorous  verification  process, triggering risk  management  practices  to  verify  the  source  of  the  funds  to  be remitted  and to confirm  that all taxes  have  been  paid  to  SARS, in line  with any  anti-money laundering  and counterterror  financing requirements prescribed  in the  Financial  Intelligence  Center  Act.
 
Restrictions  imposed  by  SARB on emigrants  in relation to making  investments, operating  blocked  accounts   and  borrowing  funds  in  South Africa  will  be  abolished, and the concept  of  emigration  from an exchange  control  perspective will be phased  out  and  replaced  with  this more stringent  verification process.
 
South Africa signed the Multilateral Competent Authority Agreement on automatic  exchange of  financial information in September 2017, and is  sharing financial information with 105 countries {as of  April 25, 2019}.
 
These countries include  Mauritius, Panama and the United Arab Emirates. Per this exchange of information agreement, SARS  will be provided with the financial account information of foreign accounts where the reportable person on record is as a South African tax resident.  From a recent televised interview with the SARS Commissioner, Edward Kieswetter,  SARS  now has systems in place to start analyzing this information and to start identifying those taxpayers who have been reported on and who have not disclosed similar information to SARS.
 
The  Proposed relaxation of the exchange control restrictions  for  emigrants is welcome,  and we look  forward  to seeing the detailed  changes to be published  by SARB.
 
South African residents  wishing to  externalize  large  amounts  of  funds should ensure  their  affairs  are  in order  before starting this process.

Gone are the days when the effects of Brexit and load-shedding made for the most prominent watercooler conversations. Welcome the COVID-19 media era, where ‘watercooler conversations’ happen online, and crisis and fear-gripping headlines are the new order of the day. Indeed, we live in remarkable times where a new chapter in history is unfolding before our eyes, bringing with it a unique set of challenges. 

Two topics that have gripped the local media of late (and rightly so) are, of course, the reaction of the markets to the (what would seem endless) ripple effect of the Coronavirus as well as the floundering oil price. 

Markets keep moving up and down, and so too do investor’s emotions. This is understandable – it is, after all, our hard-earned money we’re talking about. It’s only natural that many investors have now grown tired of stomaching this unpredictable rollercoaster ride and would much rather prefer to place their feet on solid ground. In the world of investments, the rollercoaster ride is equities and cash is seen as the solid ground. 

During volatile times, people find comfort in cash – a natural reaction – even if (more often than not) it is detrimental, as investors panic-sell assets to raise cash after a period of losses.

To steal from Warren Buffett, we want to “be greedy when others are fearful and fearful when others are greedy”. 

The graph above – showing the daily moves in the South African equity market – illustrates exactly this point. The biggest up days normally follow some of the largest negative days. The circles above indicate some of the highest up days on the market. The first circle was after the emerging market crisis and the second circle was during the 2008 global financial market crisis – both events also having some of the biggest negative days in the history of the South African equity market. 

South African equities have experienced four of the largest one-day losses over the last couple of weeks. The following graph shows the 10 worst days on the JSE (the blue bars) since the end of June 1995 and how the local market reacted after the drawdown. The red bars show the 12-month returns investors experienced after the worst day and the grey bars show the five-year annualised returns after the drawdown. 

As an example, during the 2008 global financial crisis on 06/10/2008, there was a loss of -7.12% for the day but the subsequent one-year return amounted to 22.41% and the annualised five-year return was 19.24%. 

So, where to from here, following the severe sell-off that we have seen in markets and in this case, no one has been spared. It feels like an awful time to buy equities. This brings us to a crucial aspect of wealth creation and preservation – we need to be a step ahead of our own emotions. Ultimately, we are dealing with our own ‘animal spirits’ when we invest – a concept famously referred to by the legendary economist John Maynard Keynes. So yes, cash may feel like the best place in the darkest moments (many people use the term “cash is king”), but it is a poor choice when considered as a long-term pursuit. 

Remember: time in the market is superior to timing the market

At this stage, the best thing investors can do is to remain patient. Investing in the equity market is a long-term pursuit and is best used to reach long-term goals such as retirement. As the saying goes – a river cuts through a rock, not because if its power, but its persistence. 

While noise and speculation can act as an emotional rollercoaster, your goals are unlikely to have materially changed and, therefore, your plan shouldn’t either. This is where we need to be balanced. A big part of wealth creation is avoiding the biggest mistakes and disinvesting into cash now is one of the most well-known actions to avoid. 

Morningstar Investment Management South Africa, March 2020 

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The coronavirus is highly infectious, and whilst a lot less lethal than SARS, it is more deadly than the common flu. That, and the speed at which it has spread, has got people very worried. In addition, it has been significantly hyped by the media, as is often the case. Fortunately, whilst not pleasant, getting sick with the virus is manageable, and the good news is that 99% of people will recover. The risk is to the elderly and the medically compromised, so health-wise, even if you get it, you should be fine. 

Given that it has disrupted goods production, the economic knock-on effects can be far-reaching. China is the workshop of the world. If they can’t produce goods, companies can’t sell them. What does that do to earnings, share prices and sentiment? 

At this stage, most analysts are suggesting the disruption as a result of Corona can last anywhere between three months and a year. So what we can expect is for the analyst community to assume zero product sales/revenues for the period they estimate it to last, and accordingly calculate what the fair value is for equities. The good news is that most equities have already fallen past that point. 

If word has now spread across China that eating wild animals is dangerous, and if that rule can stick, it would be hugely beneficial to the planet, and Africa in particular – it may even finally bring some relief to our rhinos. 

And finally, with air travel significantly curtailed, carbon emissions will reduce substantially. If that somehow induces long-term behavioural changes skewed towards more online meetings and events rather than physical travel, it can only be a good thing. 

It almost feels as though the planet said: “You humans aren’t going to change your behaviour in time, let me do it for you.” 

Just as Davos focused on the top five risks to the world being environmental with no clear solution, the planet delivered its own, slightly brutal, but probably effective solution. 
 

JEREMY GARDINER - INVESTEC Viewpoint, 11 March 2020 

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