Should I live in Dubai to save tax?
The guy I was talking to on Zoom lives in Cape Town, works remotely for a Dubai company and earns a good income.
He and his wife are thinking of living in Dubai for half of every year so that they will not be deemed to be South African residents. They figured they would save 45% tax because he’s on the maximum marginal tax rate.
It seemed like a good idea as Income Tax in Dubai is zero.
There are a number of factors that he missed. I didn’t ask what his income is, so let’s work on R2m a year gross.
- His tax in South Africa is 36,7%, not 45%, because only the last bit is taxed at 45%.
- Non-residents are taxed in South Africa on the source basis. Half his income, or R1m, will be from a South African source and will be taxed here.
- The cost of living in the two cities affect the buying power of his net income.
I suggested that we did the Big Mac cost of living comparison.
A Big Mac costs R31 in South Africa and R88 in Dubai.
I suggested that he should compare the rental cost of accommodation and the cost of food to get a more accurate comparison.
Of course, he could simply Google “Compare cost of living in Cape Town with Dubai”. The answer that comes up indicates that Dubai cost of living is about double that of Cape Town. This indicates that his cost of living for a full year spent 1/2 in each city would increase significantly. But the trouble with that is that someone else determined the shopping basket with which to make the comparison.
However, using this data the comparison works out like this –
So, don’t live in Dubai just to save tax!