n Business Tax and Company Law Quarterly - Offshore trusts - many dragons wait in ambush!

Volume 1, Issue 3
  • ISSN : 2219-1585


There are many advantages to establishing an offshore trust, not only tax or exchange control. However, there are a number of pitfalls that you must be aware of. The first thing one needs to do is to ensure that the offshore trust is valid - it should at the least meet the requirements of a valid trust under South African law. Secondly, unless it is possible to establish the trust's 'place of effective management' outside South Africa, the trust will be tax resident in South Africa and be taxable in South Africa on its worldwide income and capital. It is submitted that the test to be applied in determining the trust's place of effective management, is : who exercises the real authority to take the decisions necessary to conduct the ongoing business of the trust? Finally, the income tax and capital gains tax attribution rules that apply if a resident makes any 'donation, settlement or other disposition' to a non-resident must be taken into account when structuring the funding of the offshore trust.

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