South African tax for investors
South Africa has a well-developed and regulated taxation regime based on international best practice. Here are the tax basics for foreigners investing or working in SA.
The tax regime is set by the National Treasury and managed by the South African Revenue Service (Sars). Some key points:
- Business profits are taxable in South Africa if the business is conducted in SA.
- Income from services is taxable in South Africa if the services are rendered in SA.
- Businesses must file annual income tax returns with Sars.
- Businesses may select their own financial year-end.
- For individuals, the tax year runs from 1 March to 28 February.
- Two provisional tax payments based on an estimate of annual income are made during each financial year, the first after six months, the second at the end of the financial year.
The principal source of direct taxation revenue in South Africa is income tax. Individuals are taxed on a progressive basis up to a maximum rate of 42% on taxable income exceeding R215 000 per annum. A uniform rate of tax is applied to all individuals, irrespective of gender or marital status, and without child rebates.
Tax on the income of non-South African residents is source-based, meaning that all income arising from a source within (or deemed to be within) South Africa is taxed, irrespective of the residence of the recipient of the income.
Domestic companies are taxed at a flat rate of 30%. However, branches and agencies of foreign companies which have their effective management outside South Africa are subject to taxation on South African-sourced profits at a rate of 35%.
Trusts (other than special trusts) are also taxed on a progressive basis up to a maximum rate of 42% on taxable income exceeding R100 000.
Value Added Tax (VAT)
The principal source of indirect taxation revenue in South Africa is Value Added Tax (VAT). If a subsidiary or branch of a foreign-owned company sells goods or provides services, it must register as a vendor with Sars and charge and pay over VAT.
The standard rate of VAT is 14%. Exports, certain foodstuffs and other supplies are zero-rated, and certain supplies are exempt (mainly certain financial services, residential accommodation and public transport).
Capital gains tax
Capital gains tax is levied on non-residents to the extent that they dispose of immovable property situated in South Africa, or have a permanent establishment in SA and dispose of an asset of that establishment.
Double taxation agreements
South Africa has entered into double taxation agreements with most of its trading partners,
including: Austria, Belgium, Canada, Cyprus, Denmark, France, Germany, India, Ireland, Israel, Italy, Japan, Korea, Malta, Mauritius, the Netherlands, Norway, Singapore, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and the United States.
Other taxes
Other taxes affecting subsidiaries or branches of foreign-owned companies:
- If a firm employs personnel, it must register as an employer with Sars and deduct tax (PAYE) from its employees' salaries.
- Regional service council levies on gross revenue and salaries. Rates vary between regions but approximate 0.14% and 0.35% respectively, to which VAT must be added.
- A skills development levy at the rate of 0.5% of payroll is payable.
- Transfer duty is payable on land and buildings (10% in the case of a corporate purchaser, but exempt if VAT is charged).
- Stamp duty at 0.25% is payable on transfer and issue of shares. Stamp duty is also payable
on certain other agreements, such as leases and mortgage bonds.
- Customs and excise taxes.
- Compulsory workmen's compensation, assurance and unemployment insurance fund premiums are payable, although these are relatively insignificant. There are no other social security payments.
