Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.
It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.
This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.
We cannot accept responsibility for its interpretation or any future changes to law.
Introduction
Taxation in South Africa is at a national level. South Africa's tax regime is dictated by the National Treasury, while taxes are collected and managed by the South African Revenue Service.
Tax Year
1st March to last day of February.
Assessment Basis
South Africa has a residence-based tax system, which means that residents are taxed on their worldwide income, subject to certain exemptions. Taxes paid abroad on foreign income are generally credited against South African tax paid on the foreign income. Non-residents are taxed only on South African sourced income.
Married couples are taxed separately, and must submit separate tax returns.
Income Tax
Income tax is levied on residents' worldwide income (including salary, benefits in kind, pension income, professional income and investment income). Taxable income consists of gross income less exempt income, deductions and allowances. Tax relief is usually granted on taxes paid abroad to avoid double taxation. Tax is levied on income at progressive rates which range between 18% and 40% (2007/2008). In addition, 25% of capital gains are included within taxable income.
Taxation of Investment Income
No withholding tax is levied on interest or dividends. In general, South African residents are not taxed on dividends from South African companies (some exemptions include certain dividends from collective investment schemes). However, residents are taxed on all foreign dividends and on their worldwide interest. The following exemptions apply to interest and dividends:
• For persons 65 years of age and older, the first ZAR 26,000 of taxable interest and dividend per annum is exempt.
• For other individuals, the first ZAR1 8,000 is exempt.
• Foreign dividends and interest are only exempt up to ZAR 3,000. This amount is included in the above exemptions.
Royalties are included in taxable income and subject to income tax at progressive rates.
Tax on Property Rental Income
Rental income forms part of taxable income and is subject to income tax at progressive rates.
Wealth Taxes
There is no wealth tax in South Africa
Capital Gains Tax
Capital Gains Tax (CGT) was introduced in South Africa in October 2001. A South African resident is liable to CGT on the disposal of worldwide assets. CGT is levied on the first 25% of the total gains with an annual exemption of ZAR 15,000. Taxable capital gains are included in taxable income and subject to normal income tax rates.
The first ZAR1.5 million of gain on disposal of a primary residence is also exempt from CGT. This concession, known as the primary residence exclusion, means that most individuals will not be subject to CGT on the sale of their homes.
Estate Duty and Donations Tax
For the purposes of estate duty, an estate consists of all property of the deceased, including deemed property, such as life-insurance policies and payments from pension funds, wherever situated. However, the estate of a deceased non-resident consists only of their South African assets.
Inheritance tax is levied at a rate of 20% on the dutiable amount of the estate. Certain admissible deductions from the total value of the estate are allowed. Estates left to surviving spouses and the first ZAR3.5 million of taxable estates are exempt from estate duty. South Africa has signed a series of double taxation treaties to avoid double inheritance tax duties.
Donations tax (subject to certain exemptions) is also levied at a rate of 20% on the value of property (including any right in or to property) disposed of by a South African resident.
Regional and Municipal Taxes
There are no further taxes levied at a regional or municipal level.
Property Taxes
Municipalities in South Africa raise revenue for their own account. This revenue is raised by the levy of property tax (based on the value of land) on properties within the particular municipal jurisdiction.
Stamp Duty/Transfer Tax
Stamp duty is levied on leases of immovable property. The duty is calculated at 0.5% of the quantifiable amount of the lease:
Stamp duty is also payable, in the case of marketable securities:
- on the registration of transfer
- on the cancellation or redemption, and
- on the acquisition by a transferor from a transferee.
Stamp duty is generally payable at a rate of -0.25% of the market value of the marketable security.
Transfer duty is payable by individuals on the acquisition of property at rates between 0% and 8%. When property is acquired by a person other than an individual, such as a company or trust, transfer duty is payable at a rate of 8%. All transactions subject to VAT are exempt from transfer duty.
Uncertified Securities Tax (UST) is payable in respect of a change in beneficial ownership of any securities that are transferable without a written instrument and are not evidenced by a certificate. UST is levied at a rate of 0.25%.
Value Added Tax (“VAT”)
VAT is generally levied at a standard rate of 14% on the value of any taxable supply of goods and services in South Africa, by a vendor in the course of carrying on a business, or on the importation of goods in South Africa. Certain exemptions apply.
Social Security Contributions
Employees have to contribute to the state Unemployment Insurance Fund (UIF). UIF provides short-term relief to workers when they become unemployed or are unable to work because of maternity or adoption leave, or illness. It also provides relief to the dependants of a deceased contributor.
The UIF is calculated as 1% of the individual’s total annual earnings and is paid monthly, subject to a maximum remuneration ceiling. Generally, temporary workers, public servants and expatriates working on contract are exempt from this tax.
Taxation of Expatriates Living in South Africa
Residence for tax purposes in South Africa is determined by reference to two tests:
1. Ordinarily Resident Test. A person’s ordinary place of residence will be regarded as the country to which he or she would naturally and as a matter of course return from his or her wanderings, i.e. usual, principle place of residence.
2. Physical Presence Test. For persons not deemed ordinarily resident in South Africa, the Physical Presence Test applies. Individuals are deemed to be residents if they are physically present in South Africa:
a) More than 91 days in total during the relevant tax year
b) More than 91 days in aggregate during each of the preceding 5 tax years to the year of assessment under consideration
c) More than 915 days in total during the 5 preceeding tax years.
Only one of these tests needs to be met in order for an expatriate to qualify as a South African resident for tax purposes. Foreign nationals deemed resident in South Africa are subject to the same taxation and qualify for the same allowances, credits and deductions as local residents.
South Africa has an extensive network of double taxation treaties. Relief from double taxation is granted under tax agreements as well as unilaterally in terms of tax credit provisions contained in the South African Income Tax Act.
Taxation of ‘Non-Residents’ Living in South Africa
In general, foreign workers rendering services in South Africa on short- term contracts would not become ordinarily resident and depending on the period of the assignment, may also avoid becoming residents under the physical presence test.
Individuals deemed to be non-residents of South Africa for tax purposes, will only be taxed on their South African sourced income, and are entitled to limited deductions. Employment income earned by non-residents from offering their services in South Africa is taxable in South Africa irrespective of where, when and by whom it is paid. In contrast, earnings from services offered outside South
Africa will not be taxable, even if paid by a South African employer.
South African sourced dividend income in the hands of non-resident individuals is exempt from tax. Interest derived by a non-resident
is also exempt if they do not have a permanent establishment in the country and were not in the country for at least 183 days during the tax year. Non-residents are subject to a final withholding tax of 12% of the gross amount of royalties arising from intellectual property in South Africa. Rental income is generally fully taxable if derived from a property located in South Africa.
In general, non- residents are only taxed on capital gains in the disposal or deemed disposal of immovable property or rights in immovable property situated in South Africa. CGT is levied at normal income tax rates on the first 25% of the gain realised by the individual.
Only property or deemed property situated in South Africa belonging to a deceased non-resident person is subject to inheritance tax.
