How global structures create wealth

How do you create wealth? It’s not a new question and still it remains complex, even for people in the financial industry. As global investment specialists, we assist entrepreneurs in making better asset allocation decisions about their estates. Our job is to grow wealth and to protect it.

Creating wealth is another matter altogether. Our clients are the experts when it comes to creating wealth. They do this by combining seemingly unrelated elements in a way that produces value to enough people to cover the cost and effort of doing so. But research into some of the world’s most successful companies showed us that there is another way to create wealth ─ a way that most South African entrepreneurs are not applying.

According to the Institute on Taxation and Economic Policy, the global and gigantic company Amazon had a total pre-tax income of $78,6 billion between 2018 and 2021 in the USA. Although the corporate tax rate in the USA was around 21%, Amazon’s effective tax rate was only 5.1%. To a certain extent, tax credits helped them, but Amazon largely reduced its tax burden by using global structures to shift its profits to countries with more favourable tax regimes.

In South Africa, entrepreneurs use clever accounting techniques and black economic empowerment structures, they lend money to their enterprises or trusts, they load expenses, and they shift profits between companies ─ all to reduce their tax burden. The aim is of course to create wealth for their stakeholders, which is the primary mandate of a business. The consequence of creating value is that entrepreneurs end up creating the scarcest resource in the country, namely jobs. But local entrepreneurs have yet to make use of global structures in the way that entrepreneurs around the world are doing. Successful SA entrepreneurs can only avoid taxes for so long before their marginal tax rate approaches the top of SARS’s tables.

Nevertheless, the lessons from the likes of Amazon have stuck with us. What if South African entrepreneurs could also shift their tax burden to countries with a more tax-friendly environment? It seems that we were not the only ones who thought this would be a clever idea ─ even the South African Reserve Bank changed the policy on looping in 2021 to allow South Africans to own assets in South Africa from abroad. Now, despite all the difficulties that plague wealth creation in our country, entrepreneurs with the correct global structuring advice can continue to flourish and create the jobs we so desperately need.

Speak to the Efficient Global Investing* team today. Our credentials and results are clear and categorical.