South Africa: Tax System

Tax Rate For Foreign Companies

South African resident companies are taxed on worldwide income, while non-resident companies are taxed on locally-sourced income only, as well as on capital gains arising from the disposal of immovable property and assets of a permanent establishment in the country. The general rule is that taxes paid on income earned abroad can be offset as a credit against the tax owed in South Africa.

Capital Gains Taxation

While gains realized by companies are taxed at the standard corporate income tax (CIT) rate, only 80% of these gains are included in taxable income. This results in an effective capital gains tax rate of 22.4% for companies for tax years ending before March 31, 2023, and 21.6% for tax years ending on or after March 31, 2023. A resident is liable for the capital tax on assets located both in and outside South Africa, while a non-resident is liable to capital tax only on immovable property in South Africa or assets of a permanent establishment in the country. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.

Main Allowable Deductions and Tax Credits

In general, expenses incurred for the purposes of income generation are deductible.
The majority of taxes (with the exception of income taxes, donations tax, withholding taxes on interest, and dividends tax) are deductible from a company’s taxable income, provided they qualify for deduction under general rules. Assessed losses can be carried forward indefinitely, as long as a similar trade or business remains active without interruption. For tax years ending on or after March 31, 2023, companies with assessed losses can offset the balance of these losses carried forward, but the offset amount must not exceed the greater of ZAR 1 million or 80% of the taxable income for that year. Loss carrybacks are not permitted in South Africa.
Special relief is available for start-up (including pre-trade) expenditures, allowing them to be deducted in the year trade begins. These expenses are deductible only if they would have been eligible for deduction had they been incurred after the commencement of trade. Both these expenses and any resulting losses are ring-fenced and can only be deducted against income from the trade to which the start-up costs pertain.
Charitable contributions to certain approved public benefit organisations are tax-deductible (capped at 10% of taxable income).
Bad debts are tax deductible if the debt pertains to an amount that has been included in the taxpayer’s taxable income in any tax year and remains due at the end of the assessment year. Additionally, a tax allowance is provided for doubtful debts. Any bad debts from money lent are deductible if the loans were made in the course of a money-lending business.
Deductions can be claimed for royalties, managerial service fees, and interest charges paid to foreign affiliates, as long as these amounts are comparable to those that would be paid to an unrelated party in an arm’s-length transaction.
The cost of inventory is, in principle, deductible as soon as the inventory is acquired. However, at the end of each year, the cost of the inventory still on hand must be added back to the company’s income and then can be deducted again in the following year. This effectively times the deduction of inventory costs to align with their realization.
Generally, interest expenses incurred in the production of non-exempt income and for trade purposes are deductible. However, interest incurred to produce tax-exempt income is not deductible. A special dispensation allows for the deduction of interest on debt used to acquire shares in a company, provided certain requirements are met.
The sale and purchase of goodwill is typically considered a transaction on the capital account, and the buyer usually cannot claim a deduction for the payment. No capital allowances are available for goodwill.
Tax incentives are also provided for small business corporations, R&D, urban development, infrastructure development, public-private partnership grants, environmental expenditure deductions, energy efficiency savings, companies located in Special Economic Zones, etc.

Other Corporate Taxes

Micro-businesses with annual turnovers under ZAR 1 million may elect to be taxed under a micro-business tax system instead of the ordinary income tax, provisional tax, capital gains tax and VAT systems (at rates varying between 0% and 3% of turnover). Micro-businesses that qualify for the scheme can voluntarily exit the system at the end of any year of assessment. However, once out of it, they will not be permitted to re-enter.
Other special taxes include a 20% withholding tax on payments made to non-residents, individuals, and trusts for services provided, a 15% withholding tax on foreign entertainers and sportspersons, as well as a withholding tax on the acquisition of South African property by a non-resident. A tax on dividends applies to all South African resident companies as well as non-resident companies listed on the JSE at a rate of 20%. Dividends are tax-exempt if the beneficial owner of the dividend is a South African resident company, a South African retirement fund, or another prescribed exempt person.

Municipal taxes, a transfer tax on securities (0.25%), environmental taxes, financial transaction taxes, electricity and fuel levies, and donations taxes also apply (20% of the property with a value up to ZAR 30 million, 25% above this threshold; an annual exemption of ZAR 10,000 is available for companies; public companies are exempt from the donations tax; public companies, consisting of listed companies, are exempt from donations tax.). A skills development levy is payable monthly by the employers at the rate of 1% of payroll (companies with an annual payroll of less than ZAR 500,000 are exempt). Employers also contribute to the Unemployment Insurance Fund (1% of the employee’s gross remuneration, capped at ZAR 177.12 monthly) and to the fund for compensation for occupational injuries and diseases (rates vary depending on the sector of activity, salary capped at ZAR 506,473 per year/employee).

Local municipalities levy rates on land based on a percentage of the municipal valuation of land and improvements, which vary from municipality to municipality. Properties zoned for business use are generally taxed at a higher rate.
Transfer duty levied on the sale of immovable property is payable by the person acquiring the property within six months from the date of acquisition. Transfers of immovable property subject to VAT are exempt from transfer duty. Rates vary between 0% and 13% of the purchase price, at the following rates:

• property value of up to 1,100,000 ZAR: No transfer duty.
• 1,100,001 to 1,512,500 ZAR: 3% on amount exceeding 1,100,000 ZAR.
• 1,512,501 to 2,117,500 ZAR: 12,375 ZAR plus 6% on amount exceeding 1,512,500 ZAR.
• 2,117,501 to 2,722,500 ZAR: 48,675 ZAR plus 8% on amount exceeding 2,117,500 ZAR.
• 2,722,501 to 12,100,000 ZAR: 97,075 ZAR plus 11% on amount exceeding 2,722,500 ZAR.
• Over 12,100,001 ZAR: 1,128,600 ZAR plus 13% on amount exceeding 12,100,000 ZAR.

Several environmental taxes apply, including a vehicle emissions tax, a fuel levy, a tyre levy and an electricity levy.

Other Domestic Resources

South African Revenue Service (SARS)

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

IFRS apply to all domestic and foreign companies. SMEs have the option to choose between IFRS Standards for SMEs and full IFRS. SMEs that have a public interest score under 100 points (under the Companies Act) and whose financial statements are internally compiled can use their own accounting policies if they are not required to comply with any other financial reporting standards.

Accounting Regulation Bodies

ASB, Accounting Standards Board
SAICA, South African Institute of Chartered Accountants

Accounting Law

The Companies Act of 2008 and the Auditing Profession Act of 2005

Difference Between National and International Standards (IAS/IFRS)

South Africa's accounting standards have been harmonised with international standards since 2001. For more details, visit Saica as well as the website of the Accounting Standard Board. This board develops and issues local accounting standards.

Accounting Practices

Tax Year

For companies, the tax year is the same as the accounting year. For individuals, the tax year begins on 1 March and ends on the last day of February of the following year.

Accounting Reports

In accordance with international accounting rules, annual accounts must provide the following information: the balance sheet, the profit and loss account and the notes to the accounts.

Publication Requirements

All companies must keep their accounts in English. Records must include the company's assets and liabilities, the fixed assets register, the company's income, the annual stock report, a summary of goods that were bought and sold. Moreover, they have to produce their annual financial statement, which must contain the balance sheet and annexes, a report on income with annexes, a report certified by the director, a report certified by the executives and a profit and loss account.

Accountancy Profession

Accountants

A Chartered Accountant provides services related to accounting & financial analysis, auditing, taxation, cost accountancy, etc. In order to become a certified Chartered Accountant (CA), one needs to pass an examination conducted by the College of Chartered Accountants .

The accountant is responsible for the legal obligations of the company in regards to accounting. As one of South Africa's foremost accountancy institutes, the SAIPA plays a very important role in ensuring that its members are able to optimize their accountancy practices or add value to their employers in the corporate world. To find an accountant in South Africa, visit Findanaccountant.

Professional Accountancy Bodies

SAICA, South African Institute of Chartered Accountants
SAIPA, South African Institute of Professional Accountants

Member of the International Federation of Accountants (IFAC)

Both SAICA and SAIPA are member of the International Federation of Accountants (IFAC).

Member of Other Federation of Accountants

South Africa is a member of the Pan African Federation of Accountants (PAFA).

Audit Bodies

Financial statements must be prepared annually, according to the International Financial Reporting  Standards (IFRS). Certain companies are required to have audited financial statements and other companies must have their financial statements independently reviewed (Companies Act requirements).
External auditors can be found at Independent Regulatory Board for Auditors (IRBA); ERNST & YOUNG in South Africa; KPMG in South Africa; PriceWaterhouseCoopers in South Africa.

Allowable Deductions and Tax Credits

Individual deductions include qualifying contributions to an approved pension, provident, or retirement annuity fund; charitable donations (up to a maximum of 10% of taxable income); and qualifying expenses for travel, motor vehicles and entertainment (limited to the travel allowance or fringe benefit). Deductions for medical expenses are converted to a medical tax rebate.
Employees can deduct certain limited expenses from their employment income, including business-related travel, automobile, and entertainment expenses. The deductible amount is restricted to the allowance provided by the employer. A capital depreciation deduction is available for assets used for employment purposes. Legal fees related to employment income are also deductible. Employees earning predominantly through commissions may deduct home office expenses, subject to conditions. Allowances provided by employers to cover business expenses are generally taxable, except when fully utilized for business purposes or within the deductible limit. Allowances for personal expenses, like living costs, are taxable.
If an individual carries on a business, the deduction of business expenditure or losses applies on the same basis as to companies.
Please refer to the SARS website for more information.

Special Expatriate Tax Regime

There is no special expatriate tax regime in South Africa. Expatriates are taxed at the same rates as locals, but only on their South African-sourced income.
Non-residents are taxed on all income derived from a South African source or deemed to have a South African source and on capital gains on the disposal of immovable property situated in the country. The source of income is determined by the location of the originating cause of the income, and not by the location of the payer.
Non-residents engaging in entertainment or sports activities in South Africa are subject to a final tax rate of 15% on gross amounts payable to them.

Capital Tax Rate

Individuals are charged a 0.25% securities transfer tax, and an inheritance duty on worldwide net estate (at a rate of 20% on the value of the estate to the limit of ZAR 30 million or 25% if the value of the estate is above ZAR 30 million, after abatement of ZAR 3.5 million from the net value of the estate).
A transfer tax applies to the sale of immovable property. It is payable by the buyer, with rates ranging from 0 to 13%. However, the transfers of immovable properties subject to VAT are exempt from transfer duty. The rates are as follows:

• property value of up to 1,100,000 ZAR: No transfer duty.
• 1,100,001 to 1,512,500 ZAR: 3% on amount exceeding 1,100,000 ZAR.
• 1,512,501 to 2,117,500 ZAR: 12,375 ZAR plus 6% on amount exceeding 1,512,500 ZAR.
• 2,117,501 to 2,722,500 ZAR: 48,675 ZAR plus 8% on amount exceeding 2,117,500 ZAR.
• 2,722,501 to 12,100,000 ZAR: 97,075 ZAR plus 11% on amount exceeding 2,722,500 ZAR.
• Over 12,100,001 ZAR: 1,128,600 ZAR plus 13% on amount exceeding 12,100,000 ZAR.

Local municipalities levy rates on land, which vary according to the municipality.
The maximum effective tax rate on capital gains is 18%. Of the net capital gains realized, 40% is taxed at normal income tax rates. Individuals are eligible for an annual exclusion of ZAR 40,000 when calculating their net capital gain for a year. Upon the taxpayer's death, this annual exclusion increases to ZAR 300,000.
Finally, South Africa does not have a comprehensive social security system or national healthcare program, leading to minimal social security taxes. Both employers and employees are required to contribute to an unemployment insurance fund at a rate of 1% of gross remuneration, with the employee's contribution withheld by the employer. However, contributions from both parties are capped at ZAR 212,544 per annum per employee.
For further information, consult the SARS website.