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South Africa

General Information

Country Name: Republic of South Africa
Currency: South African Rand (ZAR)
Primary Tax Authority: South African Revenue Service (SARS)

Key Legislation

  • Constitution of South Africa (1996): Establishes the fundamental principles of taxation, including the powers of different levels of government.
  • Income Tax Act, 1962: Governs personal and corporate income tax.
  • Value-Added Tax Act, 1991: Regulates VAT in South Africa.
  • Tax Administration Act, 2011: Provides rules for tax administration and compliance.
  • Customs and Excise Act, 1964: Governs customs duties and excise taxes.

Fiscal Authority Allocation

South Africa has a centralized tax system with the South African Revenue Service (SARS) responsible for the administration and collection of most taxes.

Taxes Collected by Central Authorities:

  • Personal income tax (PIT)
  • Corporate income tax (CIT)
  • Value-added tax (VAT)
  • Customs duties
  • Excise duties

Taxes Collected by Local Authorities:

  • Property rates (levied by municipalities)
  • Local business taxes (if applicable, depending on municipal regulations)

Revenue Sharing Mechanisms:

Local governments receive a portion of national revenue through various transfers, including the Local Government Equitable Share and conditional grants.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 28% on corporate profits.
  • Reduced CIT Rate: 27% for small businesses (with turnover below a specified threshold).
  • Tax Incentives: Various incentives are available, including for research and development (R&D) and investment in certain sectors.
  • Loss Carryforwards: Losses can be carried forward indefinitely, subject to specific limitations.
  • Loss Carrybacks: Loss carrybacks are not permitted.

Value-Added Tax (VAT)

  • Standard VAT Rate: 15% on most goods and services.
  • Reduced Rate: 0% for exports and certain basic foodstuffs.
  • Exemptions: Certain goods and services, including educational services and financial services, are exempt from VAT.
  • Refunds: VAT refunds are available for certain businesses and for exporters.

Personal Income Tax (PIT)

  • Progressive Tax Rates: Rates range from 18% to 45%. The top rate applies to income exceeding ZAR 1,731,600 annually.
  • Tax-Free Threshold: Income up to ZAR 95,750 annually for individuals below 65 years is tax-free.
  • Allowances: Various personal allowances are available, including for retirement contributions and medical expenses.
  • Dividends: 20% withholding tax on dividends.
  • Capital Gains: Capital gains are taxed at 22.4% (effective rate for individuals, considering inclusion rate and marginal tax rate).

Additional Mandatory Contributions

Social Security Contributions:

South Africa has a comprehensive social security system, including the Unemployment Insurance Fund (UIF) and the Compensation Fund for occupational injuries.

  • UIF Contribution Rate: 1% of gross earnings each from the employer and employee, up to a certain ceiling.
  • Compensation Fund: Contributions are made by employers for workers’ compensation, with rates varying based on industry risk.

Contribution Thresholds:

Contributions are subject to annual ceilings.

Tax Deductibility:

Social security contributions are generally not deductible for income tax purposes.

Withholding Taxes

  • Dividends: 20% withholding tax on dividends.
  • Interest: 15% withholding tax on interest payments.
  • Royalties: 15% withholding tax on royalties paid to non-residents.
  • Service Fees: Payments for services provided by non-residents are subject to withholding tax, generally at 15%.

Transfer Pricing Rules

South Africa follows the OECD guidelines for transfer pricing. Companies must maintain documentation for related-party transactions and adhere to the arm’s length principle.

Special Tax Regimes

  • Special Economic Zones (SEZs): Offer various tax incentives, including reduced CIT rates and VAT exemptions.
  • Investment Incentives: Tax incentives for investments in specific sectors and regions, including tax allowances for manufacturing and industrial activities.

Other Taxes

  • Customs Duties: Applied to imported goods, with rates varying based on the product.
  • Excise Duties: Levied on certain goods, including alcohol, tobacco, and petroleum products.
  • Property Rates: Levied by municipalities based on property value.

Double Taxation Agreements (DTAs)

South Africa has signed 77 DTAs to avoid double taxation and provide reduced withholding tax rates on dividends, interest, and royalties.

Compliance and Reporting

  • Corporate Tax Filing Deadline: Corporate tax returns must be filed within 12 months of the end of the financial year.
  • VAT Filing: VAT returns are filed monthly or bi-monthly, depending on turnover.
  • Personal Income Tax Filing: PIT returns are due annually.
  • Penalties for Non-Compliance: Penalties for late filing or underpayment of taxes include fines and interest on unpaid amounts.

Recent Developments

  • Tax Reform Initiatives: South Africa continues to implement tax reforms to improve compliance and simplify the tax system.
  • Digital Taxation: Efforts are ongoing to enhance digital tax collection, particularly in e-commerce and digital services.
  • Fiscal Consolidation: The government is working on measures to improve fiscal stability and revenue collection amid economic challenges.

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