Taxes in South Africa can be applicable to worldwide income. This South African tax guide explains the country’s tax system and rates, as well as how to file your South African tax return and pay VAT.
This guide explains the various aspects of taxes in South Africa, including the following:
- The tax system in South Africa
- Federal taxes in South Africa
- Taxes on goods and services (VAT) in South Africa
- Who has to pay tax in South Africa?
- South African tax system for foreigners
- Income tax rates in South Africa
- Tax on property and wealth in South Africa
- Inheritance tax in South Africa
- Company taxes and VAT rates in South Africa
- Import and export taxes in South Africa
- Other indirect taxes
- Tax advice in South Africa
- Useful resources
The tax system in South Africa
South Africa uses a residence-based taxation system whereby residents are taxed on worldwide income and non-residents are taxed on South African-sourced income. With 22.2 million of its 58 million-strong population paying taxes, most of the state’s income comes from personal and corporate tax. Indirect taxes, though, such as Value-Added Tax (VAT) do account for nearly a third of the government’s coffers.
Federal taxes in South Africa
The South African government levies a series of direct taxes on citizens and companies operating in South Africa. These include income and business taxes, capital gains and inheritance taxes.
Indirect taxes such as Value Added Tax (VAT) and Fuel Duty also apply, as well as contributions towards social security in South Africa.
More information on who has to pay is available from the South African Revenue Service.
Taxes on goods and services (VAT) in South Africa
VAT in South Africa is levied on the consumption of goods and services. The VAT rate in South Africa is currently 15% on most goods and services and on imported goods, though there are some exceptions, for example some financial services.
Businesses are responsible for paying VAT to the government but they can pass on this charge to their customers or clients by adding VAT to the cost of invoiced goods and services.
Businesses must register for VAT in South Africa if their annual turnover exceeds R1 million within a 12-month period.
Can you get a refund on VAT?
Tourists and diplomats visiting South Africa can claim a refund of the VAT they paid on goods purchased in the country. To qualify, you’ll need to be a non-resident foreign passport-holder or a South African passport-holder who is now a permanent resident of another country. You can reclaim VAT when leaving the country by declaring the goods in question to a customs official.
The South African government’s guide to VAT refunds for tourists offers further information on how to make a claim.
Who has to pay tax in South Africa?
You must pay taxes in South Africa if you:
- Are a permanent or temporary resident of South Africa – so if you have citizenship or a residence permit you’ll need to pay taxes;
- Have lived in South Africa for more than 91 days in each of the last five tax years, and at least 915 days in total across those five years;
- Are a homeowner in South Africa. All homeowners (even those classed as non-residents) must register with the SARS in the event they are liable to pay capital gains tax on property.
There are exemptions to these rules, for example if you are elderly and/or make under a certain amount annually. However, if you qualify as a tax resident in South Africa, you will need to register as a taxpayer by visiting your local SARS branch to verify your identity, address and bank details. The remainder of the process can be done online.
South African tax system for foreigners
Foreign residents pay the same income tax in South Africa as local citizens. However, those classed as non-resident taxpayers are only taxed on income earned in South Africa and not worldwide. For expats relocating to South Africa, there are a number of countries that have tax treaties with South Africa, including Australia, Japan, Sweden, Thailand, the United Kingdom, and the United States, which can help you to avoid double taxation in your home country.
There is no tax on international pensions in South Africa. Local pensions, though, are taxed at various rates depending on whether it is a lump-sum or an annuity. South Africa is signed up to the Automatic Exchange of Information (AEOI) system, a new global standard which aims to crack down on cross-border tax evasion.
Withholding tax on interest or royalties
These are two taxes charged on interest or royalties paid to or for the benefit of a foreign person outside South Africa. The South African tax rate for this is 15%. The foreign person is liable for the tax, but it must be withheld by the person making the payment. There are certain exemptions, however.
Filing US taxes from South Africa
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so.
Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from South Africa, see our guide to taxes for American expats.
Income tax rates in South Africa
Earnings received from employment income, self-employed trade, rental income, investment income and pension income are subject to income tax. Self-employed people pay income tax at the same levels as employees in South Africa.
South Africa’s income tax bands for the 2020 tax year are as follows:
- Up to R195,850: 18% of taxable income
- R195,851–R305,850: 26% (R35,253 plus 26% of taxable income above R195,850)
- R305,851–R423,300: 31% (R63,853 plus 31% of taxable income above R305,850)
- R423,301–R555,600: 36% (R100,263 plus 36% of taxable income above R423,300)
- R555,601–R708,310: 39% (R147,891 plus 39% of taxable income above R555,600)
- R708,311 – R1,500,000: 41% (R207,448 plus 41% of taxable income above R708,310)
- R1,500,001+: 45% (R532,041 plus 45% of taxable income above R1,500,000)
There are a number of online income tax calculators where you can work out how much you’ll need to pay , including those from:
How to file your income tax return in South Africa
Residents who pay taxes in South Africa have to fill in an annual tax return form and submit it to SARS. The South African tax year runs from 1 March to 28/29 February. The tax season, when people are required to submit their tax return forms, is from July to November. Individuals and businesses taxpayers are required to make the necessary payments along with their South African tax return.
This will be any amount owed that hasn’t been paid through the Pay-as-You-Earn (PAYE) system, where tax contributions are automatically deducted from your wages. If you have to pay more in tax, payments can be made to SARS using any of the following methods
- at a bank;
- via a SARS eFiling; or
- via an electronic funds transfer.
Keep in mind that not filing your tax return can result in a penalty ranging from R250 to R16,000 for each month that you don’t comply!
Self-employed income tax in South Africa
Though self-employed people are subject to income tax at the same levels as employees in South Africa, there are a few deductions you may be able to claim, for example, certain home office expenses. For information that’s more specific to your work and financial situation, be sure to consult a tax specialist.
Tax on property and wealth in South Africa
Any property acquired in a sales transaction is subject to transfer duty. The South African tax rates for transfer duty are progressive at the following rates:
- 0 – R900,000 – 0%
- R900,001 – R1,250,000 – 3% of the value above R900,000
- R1,250,001 – R1,750,000 -R10,500 + 6% of the value above R1,250,000
- R1,750,001 – R2,250,000 – R40,500 + 8% of the value above R 1,750,000
- R2,250,001 – R10,000,000 – R80 500 +11% of the value above R2 250 00
- R10 000 001 and above – R933 000 + 13% of the value exceeding R10 000 000
Transfer duty is payable by the person acquiring the property, and should be paid within six months from the date of acquisition to avoid incurring interest.
Tax on rental income
If you receive income from a rental property, you should declare this on your income tax. Though you will be taxed on this income, be sure to declare your expenses because certain ones – like agent fees, some insurance, and advertising – can be deducted. Check out this link for more information.
Donations tax is a South African property tax payable on the value of any property disposed of as a donation. This is set at 20% of the property value up to R30 million, and 25% on properties valued at more. The tax is payable by the donor. It needs to be paid by the end of the month following the month in which the donation was made.
There are plenty of exemptions, including if the property recipient is a spouse, a segment of the government, or a public benefit organization. A donation is also exempt if the total yearly value of donations does not exceed R100,000 for individuals (R10,000 for businesses).
Capital gains tax
Capital gains tax is not a separate tax in South Africa but instead forms a part of income tax. Thus, any profit made when an asset is sold it is subject to the same rates as South African income tax.
Inheritance tax in South Africa
Estate duty is the name given to inheritance tax in South Africa, which is a property tax payable on all estates with a net worth in excess of R3,500,000. The tax rate in South Africa for estate duty is 20% of properties worth up to R30 million and is 25% of properties worth more than this.
The South African government has agreements to avoid double death duties with Botswana, Lesotho, Swaziland, Sweden, the United Kingdom, the United States, and Zimbabwe.
Those who retire in South Africa will be liable to pay estate duty on property, wherever it is situated, in the event of their death. Properties located outside of South Africa are exempt if they were acquired prior to residency or were inherited from or donated by someone who is not a South African resident.
Company taxes and VAT rates in South Africa
Corporate tax is payable on business income for all businesses and companies registered in South Africa. This includes:
- listed and unlisted public companies;
- private companies;
- close corporations;
- collective investment schemes;
- small businesses;
- share block companies;
- corporate bodies;
- public benefit companies;
- dormant companies.
Corporate tax in South Africa is charged at a flat rate of 28% for all companies. Small business corporations are taxed at lower progressive rates, rising to 28% at income exceeding R550,000.
Skills Development Levy (SDL)
SDL is a tax in South Africa payable by employers to promote learning and development of employees in South Africa. Employers become liable for SDL if their total annual salary bill is more than R500,000.
SDL is charged to employers at a rate of 1% of the total salary bill. It is paid monthly by employers to SARS and the money is used for the skills development of employees.
A tax imposed on dividends payments, the dividends tax rate is 20%. This is a separate tax that is withheld from the dividend payment by the company making the payment, so is not something that needs to be accounted for nor paid by the payment recipient.
Securities transfer tax
Securities transfer tax is levied at 0.25% on every transfer of either a share or depository receipt in a company, or a member’s interest in a close corporation.
Turnover tax in South Africa is an alternate, simplified method of taxation for small businesses with an annual turnover of R1 million or less. It replaces income tax, capital gains, dividends tax and VAT in South Africa, although there is an option to remain in the VAT system.
The turnover tax rates in South Africa are progressive, as follows:
- 0 – R335,000 – 0%
- R335, 001 – R500,000 – 1% of each R1 above R335,000
- R500,001 – R750,000 – R1,650 + 2% of the amount above R500,000
- R750,001 and above – R6,650 + 3% of the amount above R750,000
Import and export taxes in South Africa
Customs duties are taxed on imported goods with the aim of raising revenue and protecting the local market. This tax is paid in addition to VAT, and is usually calculated as a percentage of the value of goods.
Certain food, drink, textile and firearms products may be taxed according to volume.
Excise duties and levies
Excise duties and levies are imposed on high-volume daily consumable products (e.g., petroleum, alcohol, tobacco), as well as some non-essential and luxury items (e.g., electronic equipment, cosmetics).
In addition to raising revenue, this tax exists to discourage consumption of products considered harmful to the environment. The rates of these taxes in South Africa vary from product to product.
Other indirect taxes
Unemployment Insurance Fund (UIF)
UIF is an unemployment benefit fund payable to those who have been in employment for at least 24 hours per week if they become unemployed, sick or take maternity leave.
It is a short-term, contributions-based benefit and is funded through contributions of 2% of the employee’s salary (1% from the employer and 1% from the employee). It is the employer’s responsibility to pay this out of employee salaries each month to SARS.
The fuel tax is levied on petrol and diesel fuels. This tax can vary but, after the most recent fuel hikes, it is currently around 40% and included in the cost that consumers pay for fuel.
Tax advice in South Africa
Taxes can be complicated, especially when you’ve moved to a new country and need to get your head around the system.
The good news is that it’s possible to get professional help. If you’re filing your taxes in South Africa for the first time, it can be a smart move to employ an accountant. Likewise, you should consider taking independent financial advice on your business tax liabilities if you’re setting up a company in South Africa.
You can get professional advice from the South African Institute of Tax Professionals on a range of tax-related issues.