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.

Capital Gains Taxation

Only 80% of capital gains are included in taxable income and taxed at the normal income tax rate (thus the resulting effective tax rate stands at 22.4% for tax years ending before 31 March 2023 and 21.6% for tax years ending on or after that date). 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.

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. Losses may be carried forward indefinitely, as long as an active trade or business of a similar nature is carried on without interruption. For tax years ending on or after 31 March 2023, companies with assessed losses will be entitled to set off a maximum of 80% of such losses (subject to a minimum of ZAR 1 million) against taxable income in a specific year. Loss carrybacks are not allowed.
Special relief is provided for start-up expenditure: when expenses would have been deductible had they been incurred after the commencement of trade, they are ring-fenced and may only be deducted against income from the trade to which the start-up costs relate. In general, interest expenditure incurred in the production of non-exempt income and for the purposes of trade is deductible.
Charitable contributions to certain approved public benefit organisations are tax-deductible (capped at 10% of taxable income).
If a taxpayer has included a certain amount in their taxable income in any tax year, and that amount becomes a bad debt at the end of the year of assessment, it may be tax deductible. Additionally, there is a tax allowance for doubtful debts. In the case of bad debts arising from loaned money, it is deductible only if it was lent as part of a money-lending business. Taxpayers may claim tax deductions for donations made to public benefit organisations that have been approved as charitable organisations, subject to a limit of 10% of their taxable income.
Foreign tax paid on foreign-source income may be credited against South African tax on the same profits, limited to the amount of South African tax payable on the foreign income.
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%.

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). 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. Rates vary between 0% and 13% of the purchase price (the first ZAR 1.1 million is exempt). Transfers of immovable property subject to VAT are exempt from transfer duty.
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

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.
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.

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. Local municipalities levy rates on land, which vary according to the municipality.
For capital gains tax purposes, 40% of the gain is included in the individual’s taxable income and taxed at the applicable marginal tax rate (the general annual capital gains tax exemption for individuals is ZAR 40,000; various exclusions apply). For further information, consult the SARS website.