South Africa has a complex taxation system that includes income tax, value-added tax (VAT), and various other taxes. This article will provide an overview of how taxation works in South Africa, including double taxation agreements, the main taxes expats need to be aware of, tax breaks, how and when to file a tax return as an expat, and tax exit procedures.
The Taxation System in South Africa
The taxation system in South Africa is based on a progressive income tax system, which means that the more you earn, the higher the tax rate you will pay. The current tax rates for individuals are as follows:
- Up to ZAR 216,200: 18%
- ZAR 216,201 – ZAR 337,800: 26%
- ZAR 337,801 – ZAR 467,500: 31%
- ZAR 467,501 – ZAR 613,600: 36%
- ZAR 613,601 – ZAR 782,200: 39%
- Above ZAR 782,200: 41%
In addition to income tax, there are several other taxes in South Africa, including VAT, capital gains tax, and estate duty.
Double Taxation Agreements
South Africa has entered into double taxation agreements (DTAs) with several countries, including major trading partners such as the United States, Canada, and the United Kingdom. DTAs are agreements between two countries that aim to eliminate double taxation of income earned in both countries. These agreements help to promote cross-border trade and investment and ensure that individuals and businesses are not taxed twice on the same income.
Under DTAs, residents of one country may be eligible for tax benefits, such as reduced withholding tax rates, when receiving income from the other country. Expatriates who are residents of a country that has a DTA with South Africa may be able to take advantage of these benefits.
Main Taxes for Expats in South Africa
As an expat working or doing business in South Africa, there are several taxes that you need to be aware of. These include income tax, VAT, capital gains tax, and estate duty.
Income Tax
Expats are subject to income tax on their worldwide income if they are resident in South Africa. The tax rates are based on a progressive tax system, with higher rates applying to higher levels of income.
Expats may be eligible for certain tax reliefs and allowances, such as deductions for contributions to South African pension funds or health insurance premiums.
Value-Added Tax (VAT)
VAT is a tax on goods and services that is levied at a standard rate of 15%. Certain goods and services, such as healthcare and education, are exempt from VAT.
Capital Gains Tax
Capital gains tax is a tax on the profit that is made from the sale of an asset, such as property or shares. The current capital gains tax rate in South Africa is 18%.
Estate Duty
Estate duty is a tax on the estate of a deceased person. The tax is levied on the net value of the estate and is calculated at a rate of 20%.
Special Tax Breaks for Expats
South Africa offers several tax breaks and incentives for expats. These include:
Foreign Employment Income Exemption
Expats who earn income from foreign employment may be eligible for an exemption from South African income tax on a portion of their income. The exemption is currently set at ZAR 1.25 million per year.
Tax-Free Savings Accounts
South Africa offers tax-free savings accounts to encourage savings and investment. These accounts are exempt from income tax, capital gains tax, and dividends tax.
Filing a Tax Return in South Africa
Expats who are resident in South Africa are required to file a tax return every year, even if they do not have any taxable income. Non-residents who earn income from a South African source may also be required to file a tax return.
The deadline for filing a tax return in South Africa is usually in November of each year, although this can vary depending on individual circumstances. Expats should ensure that they file their tax returns on time to avoid any penalties or interest charges.
Tax Exit Procedures for South Africa to Move Abroad
If you are leaving South Africa to move abroad permanently, you will need to follow certain tax exit procedures. This includes informing the South African Revenue Service (SARS) of your intention to emigrate and obtaining a tax clearance certificate.
To obtain a tax clearance certificate, you will need to ensure that all your tax affairs in South Africa are up to date and that you have paid any outstanding taxes. Once you have obtained a tax clearance certificate, you will need to present it to your bank, employer, and other relevant institutions.
South Africa has a complex taxation system that includes income tax, VAT, capital gains tax, and estate duty. Expats who are resident in South Africa are subject to income tax on their worldwide income, while non-residents are only taxed on income earned in South Africa. South Africa has also entered into double taxation agreements with several countries to eliminate double taxation of income earned in both countries.
Expats in South Africa may be eligible for certain tax reliefs and allowances, as well as tax breaks for foreign employment income and tax-free savings accounts. Filing tax returns on time and following tax exit procedures are important steps to ensure compliance with the law and avoid any potential legal issues. Expats should consult with a tax professional to ensure that they are meeting all tax requirements and taking advantage of any available tax benefits.