South Africa is the largest, diversified economy in Africa with lots of potential to uncover for any entrepreneur willing to give it a chance. It is a country with vast land and large population, and currently it is still recovering after a hit it has received from COVID-19 pandemics. It is a developing nation with a lot of issues, which may provide an opportunity for adventurous entrepreneur. There are many advantages and disadvantages to making an entrepreneurial adventure in South African territory, but there is no drawback to getting familiar with South African tax system and local income taxes you are likely to meet. This article will focus on information concerning the 2023-2024 tax year or period from 1st March 2023 to 28th February 2024.
Background
South Africa has a history of tiding over tremendous difficulties, such as infamous apartheid, Covid pandemics and the still appearing problem – high crime rate. Nonetheless, it is a country with a high potential for entrepreneurs and South African Government is striving to fix the issues plaguing the nation and their efforts can be seen through the projections of total tax revenue. Projected tax-to-GDP ratio of South Africa is expected to improve to 25,4%.
Basics
South African taxes are calculated according to residence-based tax system, which means that South African residents are liable for their worldwide income, while non-residents are only liable for their South African sourced income. South African tax year starts on 1st March and ends on 28th February of the next year. As far as taxes are concerned South African Revenue Service’s (SARS) are the authority you are going to be dealing with, on their site one can find reliable information about taxation in South Africa as well as complete your tax obligations online.
Like in every country, as a foreign person it is worthwhile to familiarize oneself with the rules pertaining double taxation and established double taxation agreements in order not to be taken by surprise, if special rules are applicable in your case – be cautious, as foreign tax credits are at stake here and you would definitely want to avoid as much tax burden as possible.
Companies in South Africa are obliged to follow transfer pricing legislation, which essentially means that South African taxpayers are required to abide by the arm’s length principles in transactions with connected entities outside South Africa. Tax authorities are allowed to adjust prices to the range that would have been charged, when independent parties are dealing at arm’s length.
Residency
Residency in South Africa for the tax purposes is regulated in two ways – being ordinarily resident in South Africa or being considered a resident after certain conditions are met. These conditions involve physical presence in South Africa:
- 91 days in total in relevant tax year and in each of previous five tax years
- 915 days in total in last five tax years
Loss of status of resident of South Africa for the tax purposes occurs upon spending a period of 330 consecutive days outside South Africa. Caution is advised, as upon losing status of South African tax resident, additional tax return filing requirements are imposed on entity.
Taxes
Some people say that there are two things that cannot be avoided in life – death and taxes. Thankfully, most of the troubles with the taxes can be solved through compliance with the established rules. The taxes you are most likely to encounter are:
- Personal income tax – the standard income tax, applied at the rate depending on the bracket, with the rates applying only to the income within their bracket, as such it is not the total income that falls under the highest rate but only the amount of taxable income exceeding the previous brackets. In tax year 2023-2024 income taxes are applied at rate:
- 18% for income up to 237.100,00 R (South African Rand, currency code ZAR)
- 26% for income within 237.101,00 R to 370.500,00 R
- 31% for income within 370.501,00 R to 512.800,00 R
- 36% for income within 512.801,00 R to 673.000,00 R
- 39% for income within 673.001,00 R to 857.900,00 R
- 41% for income within 857.901,00 R to 1.817.000,00 R
- 45% for income above 1.817.001,00 R
It is important to know that income taxpayers who pay the medical scheme contributions can receive a tax credit in amount of:
- 364,00 R for themselves and first dependent
- 246,00 R for each additional dependent
For those interested in detailed regulations it is recommended to direct their attention to Income Tax Act, which is the basis for all the binding rulings.
As far as individual income is concerned, it is impossible to forget about contributions deducted from employment income. It is obligatory to pay UIF (unemployment insurance fund), while employers are obliged to pay workmen’s compensation fund. In South Africa it is required to use PAYE (Pay-As-You-Earn) system, when hiring an employee, which is essentially withholding tax from employee remuneration. Another interesting tax associated with employment is skills development levy, paid in amount of 1% of total salary (with all additional elements) to SARS, which can then be used for vocational training through SETA (Skills Education Training Authorities in South Africa).
- Dividends tax and secondary tax on companies – first tax is levied on shareholders, while the second on companies on declaration of dividends. It applies to companies that are resident in South Africa or are foreign, however their shares are listed at the Johannesburg Stock Exchange (JSE). Dividends tax is applied at the rate of 20%, while foreign dividends may be levied at rate of up to 20%.
- Donations tax – tax levied at flat rate of 20% until cumulative value of 30.000.000,00 R and 25% on cumulative value above that. In each year first donation of 100.000,00 R by individual is exempt from this tax, exemption also applies to donations to spouses and specified public benefit organisations. Non-residents are exempt from tax on donations.
- Estate duty – tax levied on worldwide property of a deceased resident and South African property for deceased non-residents. Tax liability accrued before death of previous owner are administered by the executor or administrator acting as representative taxpayer of the deceased. The rate is applied on similar rules as donations tax – 20% on the first 30.000.000,00 R and 25% for the value above that.
- Capital gains tax – tax applied to individuals, trusts and companies on immovable properties. Non-residents are liable only for South African immovable property, while residents on worldwide. Capital gains tax is applied at the rate of 18% for individuals, 21,6% for Companies and 36% for trust on the gains from sale after all exclusions are applied.
- Corporate income tax (CIT) – tax levied on companies, trusts and corporations at the rate of:
- 27% for companies, was lowered from 28%
- 45% for trusts (excluding special trusts)
- Small Business Corporations pay tax depending on their taxable income, but they can qualify as SBC only if their annual turnover does not exceed 20.000.000,00 R
- 0% for up to 95.750 R
- 7% for income within 95.751,00 to 365.000,00 R bracket
- 21% for income within 365.001,00 to 550.000,00 R bracket
- 27% for income above 550.000,00 R
Small Business Corporations tax is calculated on similar rules as personal income tax, with only income within the bracket falling under certain rate, as such income of 550.000,00 R would be taxed 57.698,00 R (0 for first bracket, 18.848 R for income within 2nd bracket and 38850 R for 3rd bracket).
Companies in South Africa are obliged to submit annual income tax returns and provisional tax returns. Provisional tax returns are to be submitted every twice a year, with the first one after 6 months from start of the year and the second at the end of the year.
- Value added tax (VAT) – main type of indirect taxes in South Africa, applied at the standard rate of 15%, with zero rate and exemption available for certain kinds of goods and services.
- Securities transfer tax – tax levied on every transfer of security at the rate of 0,25%, where securities mean:
- Share or depository in a company
- Member’s interest in a close corporation
- Etc.
Assistance
Topics involving taxes are never simple ones, with many aspects being considered on individual basis due to their complexity. If you are worried about matters involving taxation, the simplest solution is to contact experts, who offer their aid in form of not only consultation but also completing many of the obligations in your stead. If you are troubled by tax obligations, you could consider employing aid of an accounting firm offering services in the area you are concerned with.