South Africa is the largest economy on the continent. It has enormous potential and therefore represents an opportunity for many companies to expand their operations. It is a country with a large population, still developing and overcoming all sorts of problems. Starting a company in South Africa involves learning about the tax system. What taxes do you have to pay in this country?
Residence for tax purposes
Taxes in South Africa are calculated on the basis of residence. This means that residents are responsible for income earned worldwide, while for non-residents, taxes are only levied on income originating in South Africa. The tax year begins on 1 March and ends on 28 February. The conditions for an entity to be considered a tax resident are that it must be physically present in South Africa. For this to be possible, one must have been active for 91 days in the tax year in question and in each of the preceding five years, and for 915 days total in the last five tax years. Loss of resident status occurs after 330 consecutive days of activity outside South Africa. In this case, additional tax filing obligations are imposed.
Personal income tax in South Africa
Personal income tax is applicable in South Africa. It is applied at a rate of between 18% and 45%, depending on the income earned. It is worth noting that the rates are only used for income that fits into particular brackets, so a higher tax is applied to the amount of income that exceeds a particular bracket. For example, a rate of 18% is applied to income of 237,100 South African Rand (ZAR) and a rate of 45% applies to income above 1,817,001 R. This non-standard tax regime can therefore be beneficial to many entrepreneurs with diverse activities in South Africa.
Obligations relating to employees
When employees are hired, a Pay-As-You-Earn system is used, which means that tax is deducted from the salary paid. Another employment-related tax in South Africa is the Skills Development Levy, which is 1% of full salary. This can be used for employee training purposes under the Skills Education and Training Authority, a professional skills’ development organization. Income tax returns must be filed by companies on an annual basis. In addition, interim tax returns must be filed every 2 years: the first after the 6-month start of the tax year and the second at the end of the year.
VAT and other tax regulations
VAT, or value added tax in South Africa is also applicable. Its standard rate is 15%, and it is possible to obtain an exemption or zero rate for certain products. Estate tax is levied on the estate of a deceased resident in all countries. For non-residents, only assets present in South Africa are taken into account. Tax liabilities that arose before the death of the owner are administered by an administrator. A rate similar to gift tax applies and is 20% on a value not exceeding 30,000,000 R and 25% on the cumulative value above that amount. Non-residents are exempt from gift tax. In addition, tax is not levied on the first donation received from an individual in any year that does not exceed 100,000 R.
The tax system in each country can seem complicated, so it is a good idea to use the services of specialized accounting firms. They can act in an advisory role or manage the affairs of our company and carry out tax duties. In this way, we can be sure that doing business will always be fully compliant with the changing laws in South Africa.
