The income tax system in South Africa
South African taxes differ depending on your status and how long you've lived in South Africa. Read this guide to taxation for expats in South Africa.
If you're living and working in South Africa, you'll be subject to taxation in South Africa. The South African Revenue Service (SARS) is the body in charge of administering the income tax system in South Africa. Income tax is the government's main source of income and is levied in terms of the Income Tax Act, 1962.
Income tax in South Africa
Income tax is levied on residents' worldwide income, with appropriate relief to avoid double taxation. Non-residents are taxed on their income from a South African source. Tax is levied on taxable income that, in essence, consists of gross income less exemptions and allowable deductions as per the Act.
Company taxes in South Africa
In respect of the 2011 year of assessment, companies are taxed at a rate of 28 percent. In addition to this, secondary tax (STC) is levied on companies at a rate of 10 percent on all income distributed by way of dividends. A formula tax applies to gold-mining companies.
Small-business corporations (those with an annual turnover of less than R14-million) benefit from a graduated tax rate of 0 percent on the first ZAR57 000 taxable income, 10 percent from ZAR57 001 to R300 000 taxable income and R24 300 + 28 percent in excess of R300 000 taxable income, and can write off certain investment expenditure in the year in which it is incurred.
Taxes for temporary residents in South Africa
Non-residents are taxed on their South African earnings only and not their worldwide income. It can therefore be advantageous to remain a non-resident.
You are deemed to be a temporary resident for tax purposes if you normally live in the country or if you spend more than 183 days there per tax year. However, after roughly three years you will be deemed a full resident for tax purposes and will be required to pay taxes on your worldwide income. Credit is allocated, however, for doubling of foreign taxes and certain types of income are exempt from this taxation.
Provisional tax payers
A provisional taxpayer is any person who earns income other than remuneration or an allowance or advance payable by the person’s principal. The following individuals are exempt from the payment of provisional tax:
- individuals below the age of 65 who do not carry on a business and whose taxable income;
- will not exceed the tax threshold for the tax year; or
- from interest, dividends and rental will be ZAR 20,000 or less for the tax year.
- individuals age 65 and older if their taxable income for the tax year
- consists exclusively of remuneration, interest, dividends or rent from the letting of fixed property; and
- is ZAR120,000 or less.
The provisional tax system permits taxpayers (usually companies, close corporations, and directors of companies and members of close corporations) to pay two amounts in the course of the tax year. These payments are made six months after the beginning of a year of assessment and then again at the end of it and they represent tax on anticipated income. These provisional estimates and payments are made in IRP6 forms.
Submitting your annual tax return in South Africa
For individual residents and citizens, the tax year runs from March 1 to February 28/29 each year. For businesses, the year of assessment is the applicable financial year. The 'tax season' proper starts on 1 July every year and the deadlines for submitting your income tax returns are as follows:
The 'tax season' commences 1 July each year, and the deadlines for the submission of returns are:
- Individual (ITR12) and Trust (IT12TR) returns (non-provisional taxpayers): Last working day of September for postal submission (the paper version) that can be posted or submitted at your local SARS branch in the designated drop box; or
- The last working day in November for eFiling via your PC or laptop or done electronically by a SARS consultant at a SARS branch. Please note that for the 2009/2010 year of assessment, SARS has announced the 26th November 2010 as the deadline for electronic submissions of Income Tax Returns.
- Individual (ITR12) and Trust (IT12TR) returns (provisional taxpayers): Provisional taxpayers have until the 31 January 2011 to submit their completed ITR12 income return to SARS.
- Company/CC (IT14) returns: Must be completed and submitted within 12 months after the financial year end of the company/close corporation.
The government requires that all persons receiving any form of employment income, including those below the tax threshold, be registered with SARS to help reduce the scope for non-compliance. However, in cases where those registered receive remuneration less than ZAR 120,000, they can choose not to submit an income tax return provided that:
- Remuneration is from a single employer;
- Remuneration is for a full year of assessment (1 March – 28/29 February); and
- No allowance was paid, from which PAYE (the pay-as-you-earn system of taxation, see below) was not deducted in full with regards to travel allowance.
Payment methods for taxes in South Africa
Standard Income Tax on Employees (SITE)
Standard income tax on employees, or SITE, is a method of deducting taxes from the income of employees who earn less than a certain amount. This deduction represents the full and final liability and generally applies to individuals:
- whose net remuneration does not exceed R120 000 annually;
- who do not receive a traveling allowance; and
- who do not receive any other income.
Pay-as-you-earn, or PAYE, is the most common method of taxing employee income and it ensures that an employee’s income tax liability is settled in an ongoing fashion. An employee’s tax liability is thus settled over the course of a year.
Calculation of tax liability
Very briefly, these are the steps in determining a taxpayer’s taxable income:
- Determine of gross income
- Deduct exempt income
- Deduct of allowable incomes
- Multiply taxable income by tax rate
- Subtract rebates
Need advice? Post your question on Expatica's free Ask the Expert service to see if we can help.
Comment here on the article, or if you have a suggestion to improve this article, please click here.