Globally, South Africa is one of the most sophisticated, diverse and promising emerging markets.
Its location at the tip of the African continent makes it a key investment location, both for opportunities within the borders of the Republic, but also as a gateway to the rest of the continent – a potential market of approximately one billion people. The World Bank Annual Ratings ranks South Africa at number 82 among 190 economies in the ease of doing business.
South Africa’s taxation system is a mixture of direct and indirect taxation. Direct taxes are imposed on individuals, trusts and companies whereas indirect taxes are levied on transactions rather than persons.
- Income tax is an annual tax imposed on all persons who earn a taxable income. Pre-determined rates are applied to the taxable income of both natural and juristic persons for the period March to February. Natural persons, or individuals, are taxed between 18% and 45% based on a progressive tax table. Juristic persons, or companies, are taxed at 28%. South African branches of a foreign company are also taxed at 28% and trusts are taxed at 45%.
- Capital gains tax is levied on capital gains arising from the disposal of assets. A capital gain arises when the proceeds from the disposal of an asset exceed the cost of that asset. Non-residents are liable for capital gains tax on immovable property situated in South Africa, however relief from double taxation may be granted by an applicable Double Taxation Agreement.
- Donations tax is levied of at a fixed rate of 20% of the value of the donation, but is not applicable to donations made by non-residents, even when South African assets are donated.
- Value-added tax was increased from 14% to 15% on 1 April 2018. Most business transactions carried out in South Africa are subject to VAT, a tax collected by businesses that are registered as vendors with SARS. Certain basic foodstuffs and services are exempt from VAT or carry a rate of 0%. Entities are required to register for VAT if their turnover for any 12 month period exceeds R1 million.
TAX DEVELOPMENTS IN SOUTH AFRICA
Tax Season 2018:
The South African Revenue Service (“SARS”) has announced on Monday, 4 June 2018 that they will shorten the tax season by three weeks, running from 1 July 2018 to 31 October 2018. The rationale behind this decision is that a shorter filing season will allow additional time for SARS and taxpayers to deal with return verifications before most taxpayers on the December holiday break. Historically the most returns were also received during the first three months, so removing the quiet period results in a more efficient use of resources.
SARS applies their standard income tax rules to cryptocurrencies and expect affected taxpayers to declare cryptocurrency gains and losses as part of their taxable income. The onus is on taxpayers to declare all cryptocurrency-related income in the tax year in which it is received or accrues. Failure to do so could result in interest and penalties to be levied. Cryptocurrency (typified by Bitcoin) is an internet-based digital currency that exists almost wholly in the virtual realm. A growing number of individuals support its use as an alternative currency that can pay for goods and services much like conventional currencies.
The Minister of Finance announced in February 2018 that the Value-added taxes (“VAT”) rate will increase from 14% to 15% as from 1 April 2018. This is the first increase in the VAT rate since the increase from 10% to 14% in 1993. VAT is an indirect tax charged by vendors on the supply of goods and services. In South Africa it is compulsory for a business to register for VAT when the value of taxable supplies exceeds R1 million in a 12 month period. The 2018 annual budget review indicates that the VAT treatment of cryptocurrencies will be reviewed. Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.
BUSINESS DEVELOPMENTS IN SOUTH AFRICA
In early 2017 the South African government launched a new investment facilitation service dubbed InvestSA. The aim is to reduce red tape for foreign business seeking to invest in the country. The offices offer specialist advisory services to potential investors regarding South Africa’s economic, regulatory and legislative environment while showcasing the financing incentives available.
A number of South African government departments offer an array of incentive schemes to stimulate and facilitate the development of sustainable, competitive enterprises. Broadly classified, they comprise of Concept and Research and Development Incentives (CRD), Capital Expenditure Incentives (CEI) and Competitiveness Enhancement Incentives (CEI).
Notably, the Foreign Investment Grant seeks to compensate qualifying foreign investors for the cost of moving machinery and equipment from abroad to South Africa. The Business Process Services incentive aims to attract investment in the BPS sector that creates employment opportunities through offshore activities.
For a comprehensive overview of the social, regulatory and economic environment please consult South Africa: Investor’s Handbook prepared by the Department of Trade and Industry, available at http://www.thedti.gov.za/DownloadFileAction?id=1004
Note that tax laws are amended from time to time and therefor it would be advisable to consult with Emma Pardoe Chartered Accountants (SA) before any investment decisions are made in order that we can customise to your specific requirements.