South Africa

5 Chapter Tax Law

    • Overview of Tax Law.

       

      The central government oversees taxes, indirect and direct taxes, the regime is set by the National Treasury and managed by the South African Revenue Services (SARS), this government office is in charge of collecting revenue, regulates and controls customs and ensures compliance with tax laws. Local government authorities also have limited taxing rights.

      The main Tax Laws in South Africa are the following:

      • Income Tax Act, 1962

      • Customs and Excise Act, 1964

      • Value-Added Tax Act, 1991

      • Tax Administration Act, 2011

      • Employment Tax Incentives Act, 2013


      1.1. Law related tax

      1.1.1.     Direct tax.

      Direct taxes in South Africa are levied on Personal Income and Corporate income.


      1.1.2.     Indirect tax.

      This are some examples of indirect taxes in South Africa:

      • VAT.

      • Capital Tax.

      • Real estate tax.

      • Transfer tax.

      • Stamp duty.

      • Customs and excise duties.

      • Environmental taxes.


    • Corporate Income Tax.

       

      2.1.1.    Who is subject to Corporate Income Tax?

      Corporate Income Tax (CIT) is imposed to resident and non-resident companies on their worldwide income deriving from South Africa. The tax rate for tax years ending between 1 April 2018 and 31 March 2019 is a flat 28% rate. According to law CIT is applicable to the following companies:

      • Listed public companies

      • Unlisted public companies

      • Private Companies

      • Close Corporations

      • Co-operatives

      • Collective Investment Schemes

      • Small Business Corporation (s12E)

      • Body Corporates

      • Share Block Companies

      • Dormant Companies

      • Public Benefit Companies.


      2.1.2.    Non-taxable Income.

      Some examples are the following:

      • Dividends received from a South African source.

      • South African interest received by non-resident.


      2.1.3.    Non-deductible expenses.

      Expenses that do not incurred in the production of income.

      2.2. Deductible Expenses.

      This are some deductible expenses:

      • Office equipment

      • Donations

      • Education costs

      • Transport expenses (Depending on the type business)

      • Telephone costs

      • Entertainment (expenses incurred while entertaining clients)


      2.2.1.     Organization expenses.

      There is a special relief for start-up companies on expenditure, that allows a deduction in the year that the business starts. This expense and any loss may be deducted only against income from the trade to the company relates.


      2.2.2.     Bad debt loss.

      Bad debts are tax deductible if the debt is related to an amount included in the taxable income. Bad debts from loaned money is deductible if it was lent in a money lending business.

      2.2.3.     Travel expenses.

      Travel and motor vehicle expenses are deductible, subject to restrictions that exclude non-business use.

      2.3. Real estate

      2.3.1.     Tangible real estate

      [Depreciation cost]

      This are some example from the Income Tax Act of provisions under which capital allowances may be deducted against taxable income:


      -New machinery and equipment used directly in manufacturing may be depreciated over four years, with 40% of the cost of the asset deducted in the first year and 20% in each subsequent three years.

      -Machinery used in farming operations may be depreciated by 50% in the first year, 30% in the second year and 20% in the third year.

      -New industrial buildings may be depreciated on a straight-line basis over 20 years.

      -For new commercial or residential buildings in a designated urban development zone, a write-off over an 11 year period is permitted 20% in the first year and 8% per year for the following 10 years.


      2.3.2.   Intangible property
      [Depreciation cost]

      Any person who pays an amount to a non-resident for the sale of immovable property must withhold from the amount payable an amount equal to:

      • 7.5% if the non-resident seller is an individual

      • 10% if the non-resident seller is a company, or

      • 15% if the non-resident seller is a trust.

      No WHT is levied if the amount is less than ZAR 2 million.

      2.4. Calculation.

      Small business corporations (with gross income less than 20 million ZAR) are taxed as follows:

      • 0% on the first 78,150 ZAR of taxable income.

      • 7% on taxable income above 78,150 ZAR (but not exceeding 365,000 ZAR).

      • 21% on taxable income above 365,000 ZAR (but not exceeding 550,000 ZAR).

      • 28% on taxable income exceeding 550,000 ZAR.


      CIT for long term Insurance companies have different rates, 30% for individual policyholder funds, 0% for untaxed policyholder funds, and 28% for company policyholder funds, risk policy funds, and corporate funds. For mining companies there are special rates depending of the type of mining company.  

      2.5. Filing of Return/Payment and Refund.

      The tax year is the same as the corporation's accounting year, and companies are required to file their income tax returns every year, the period is indicated by the SARS, within 12 months of the company's financial year end. Payments are made with provisional returns filed at six-month intervals from the tax year-end based on an estimate of taxable income for the year. Interest is charged on any underpayment outstanding for more than six months after the tax year-end, except in the case of February year-ends, in which case it is seven months. If companies do not comply with their tax obligations, penalties and interest may be imposed.


    • Personal Income Tax.

       

      3.1. Resident/non-resident definition.

      A resident is someone who is ordinarily resident in South Africa or is present in the country for more than 91 days during the current year and for the following 5 years. They are taxed on their worldwide income and capital gains with a foreign tax credit for taxes paid in the country of source. Nonresidents are taxed on all income derived from South Africa or deemed to have a South African source.

      3.2. Taxable Income.

      • Remuneration (income from employment), such as, salaries, wages, bonuses, overtime pay, taxable (fringe) benefits, allowances and certain lump sum benefits

      • Profits or losses from a business or trade

      • Income or profits arising from an individual being a beneficiary of a trust

      • Director’s fees

      • Investment income, such as interest and foreign dividends

      • Rental income or losses

      • Income from royalties

      • Annuities

      • Pension income

      • Certain capital gains

      3.3. Non-taxable Income.

      This are some examples:

      • Workmen’s compensation benefits

      • Unemployment (UIF) benefits

      • Alimony and Maintenance benefits

      • Uniform Allowance

      3.4. Non-deductible Income.

      Expenses that do not incurred in the production of income.

      3.5. Calculation.


      Income (ZAR)

      Tax on column 1 (ZAR)

      Tax on excess (%)

      0 to 195,850

      0

      18

      195,851 to 305,850

      35,253

      26

      305,851 to 423,300

      63,853

      31

      423,301 to 555,600

      100,263

      36

      555,601 to 708,310

      147,891

      39

      708,311 to 1,500,000

      207,448

      41

      1,500,001 and above

      532,041

      45

      3.6. Filing of Return/Payment and Refund.

      The tax year for individuals ends on February 28th. The return must be filed by a date published by the SARS. There are penalties and interest if you fail to comply with certain obligations.


    • Value Added Tax.

       

      4.1. Who is subject to VAT?

      The standard rate is 15%, but some transactions are zero rated or exempt. VAT is charged on the supply of goods or services made by a vendor when conducting any business, importation of goods and services is included as well. All suppliers of goods and services with an annual turnover of more than 1 million ZAR must register as VAT vendors and must charge output VAT. Vendors normally pay VAT on expenses, this is called input tax, and charge VAT on supplies made, this is known as output tax.  


       

      4.2. Filing of Return/Payment and Refund.

      VAT returns must be submitted every two months, but businesses with an annual turnover more than 30 million ZAR must submit monthly returns. This return must be submitted by the 25th day of the last business day of the month after the end of the tax period. The return must include payments in full.


    • Other taxes.

       

      Real Property Tax: There is a municipal tax rate on the occupation of real property. The rates are based on a percentage of the municipal valuation of land and improvements and vary from municipalities.

      Payroll Tax: Known as PAYE (pay as you earn), must be paid by employers on behalf of their employees, it is payable to SARS every month and is calculated on the remuneration paid to an employee.

      Social Security Tax:  About Social Security we can find different types of taxes, such as:


      1-Skills Development Levy (SDL): A compulsory levy to fund education and training, is payable by an employer and it can´t be deducted from the employee's remuneration. (Companies with annual payroll costs below 500,000 ZAR are exempt).


      2-Unemployment Insurance Fund (UIF) Contributions.

      Employers are required to contribute on behalf of their employees the equivalent of 1% of gross income, with a monthly cap of 148.72 ZAR per employee. There is a similar deduction from the employee, subject to the same cap and is payable by the employee and withheld by the employer.


      3-Compensation for Occupational Injuries and Diseases Act fund (COIDA): Employers must make annual contributions to the COIDA fund, this is a payroll cost that can´t be deducted from the employee’s salary, the maximum salary cap per employee of 430,044 ZAR per annum (Rates vary from industry).


      Transfer Tax: Rates progressive and up to 13% payable on the acquisition of immovable property, where the transaction is not subject to VAT.


      Securities transfer tax: Known as STT, the rate is 0.25% of the taxable amount in a security transfer. The amount to be taxed is considered by the amount purchased or the market value of the security declared, if it is less than the market value or if no consideration was paid.  The STT is payable by the company issuing the securities, but the company can get tax back from the person that acquired the shares.


      Donations tax: is payable by resident companies at a rate of 20% of the value of property donated to the extent that this value does not exceed 30 million ZAR, if the rate is 25% of the value of property disposed the amount must exceed 30 million ZAR. Public companies, certain charities and other non-profit organizations are exempt from this tax.

      Environmental tax: Is levied on new passenger motor vehicles at a rate of 110 ZAR per gram of CO2 produced per kilometer over the first 120g of CO2 per kilometer, and at a rate of 150 ZAR per gram of CO2 produced per kilometer over the first 175g of CO2 per kilometer.


    • Custom Tax

       

      6.1. Overview of Custom Tax.

      Most Goods imported or exported are subject to South African Customs Duties, and a import o export declaration must be filled. Customs duties rates on the importation of goods are between 3% and 45% and may also include anti-dumping and countervailing duties of up to 150%. There are no custom duties charged on trade between South Africa and Botswana, Lesotho, Namibia, and Swaziland, as these five countries constitute the Southern African Customs Union.

      6.2. Export tax.

      To be able to export documentation is needed, the original copy of each export declaration is processed by Customs and kept for record and trade statistics purposes. Tax rates may vary depending to the type of product to export.

      6.3. Import tax.

      In South Africa services imported by a vendor and used or consumed to make taxable supplies are not subject to VAT.

      There are 3 kinds of duties levied on imported goods:

      • Customs duties (including additional ad valorem duties on certain luxury or non-essential items)

      • Anti-dumping and countervailing duties

      • VAT (which is also collected on goods imported and cleared for home consumption).


      The calculation of VAT according to law on imported goods is done as follows:

      [(Customs Value + 10% thereof) + (any non-rebated duties levied on the goods)] x 15%

      = [VAT] x 15%

      = VAT payable.


    • Tax related PE.

       

      7.1. Overview of tax related PE.

      By Law in South Africa a Permanent establishment is considered to be a fixed place of business through which the business of an enterprise is wholly or partly carried on. The assets of any permanent establishment of a non-resident in South Africa are subject to capital gains tax.


    • Withholding Tax.

       

      8.1. Overview of Withholding Tax.

      Dividends: The withholding tax is 20% if tis paid to individuals, trusts and foreign, the tax might change depending on any applicable tax treaty.

      Interest: The withholding tax is 15% for any interest paid to or for nonresidents benefits. Tax treaties may apply as well.

      Royalties: The withholding tax is 15% and tax treaties may apply as well.

      Technical service fee: 0%

      Branch remittance tax: 0%


    • Transfer Pricing tax.

       

      9.1. Overview of Transfer Pricing Tax.

      The country has adapted to the OECD transfer pricing guidelines, the transfer pricing rules follow the arm's length principles in transactions with connected to people in South Africa and outsiders.  For transfer pricing the methods recommended by the OECD are the comparable uncontrolled price method, the resale price method, the cost-plus method, profit split method and transactional net margin method.  Documentation is mandatory for all taxpayers since 2016, there are no advance pricing agreements.