Introduction

South Africa has a well-developed and regulated tax system based on international best practice. The tax regime is set by the National Treasury www.treasury.gov.za and managed by the South African Revenue Service (SARS) www.sars.gov.za.

Since South Africa became a democracy in 1994, the tax base has grown by leaps and bounds, with more people being tax compliant now than in any other time in South African history.

South Africa has a variety of taxes aimed at corporates and individuals. These include:

Income tax

The principal source of direct taxation revenue in South Africa is income tax.

Tax on businesses

Business profits are taxable in South Africa if the business is conducted in the country.  Likewise, income from services is taxable in South Africa if the services are rendered locally. In his 2008 budget speech, Minister of Finance, Trevor Manuel reduced the corporate tax rate from 29% to 28%

Businesses must file annual income tax returns with SARS, and may select their own financial year-end. For individuals, the tax year runs from 1 March to 28 February.

Two provisional tax payments based on an estimate of annual income are made during each financial year, the first after six months, the second at the end of the financial year.

The South African tax system is phasing out a Secondary Tax on Companies (STC) and replacing it with a tax on shareholders. At present, the STC rate remains at 10% and the tax does not apply to tax-exempt entities such as retirement funds and public benefit organisations. All STC credits will expire when this change is implemented in 2009.

Other business-related tax issues dealt with in the 2008 Budget speech include:

• A simplified tax regime for small businesses;
• A tax-free fringe benefit threshold for bursaries granted to an employee’s dependants increases from R3,000 to R10,000 a year, for employees earning up to R100,000 a year;
• R5 billion in tax subsidies set aside over the next five years to support investments in labour-intensive industries and to support government's industrial policy;
• Introduction of a presumptive turnover tax as an alternative to income tax and VAT for businesses with a turnover less than R1 million a year. The threshold for farmers and businesses who submit VAT returns every six months or four months, respectively, will be raised from R1.2 million to R1.5 million. The VAT registration threshold will be raised from an annual turnover of R300,000 to R1 million. These measures will significantly reduce paperwork for small businesses, while encouraging regular bookkeeping in preparation for migration to the normal income tax system.

South Africa has entered into double taxation agreements with most of its trading partners, including: Austria, Belgium, Canada, Cyprus, Denmark, France, Germany, India, Ireland, Israel, Italy, Japan, Korea, Malta, Mauritius, the Netherlands, Norway, Singapore, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and the United States.

Income tax on individuals

Individuals are taxed on a progressive basis up to a maximum rate of 42% on taxable income exceeding R215,000 per annum. A uniform rate of tax is applied to all individuals, irrespective of gender or marital status, and without child rebates.

Tax on the income of non-South African residents is source-based, meaning that all income arising from a source within (or deemed to be within) South Africa is taxed, irrespective of the residence of the recipient of the income. Trusts (other than special trusts) are also taxed on a progressive basis up to a maximum rate of 42% on taxable income exceeding R100,000.

Other South African taxes include:

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) was introduced in October 2001. It forms part of the income tax system and includes, in taxable income, capital gains made on the disposal of assets.

Value Added Tax (VAT)

Value Added Tax (VAT) is levied at a standard rate of 14% on all goods and services subject to certain exemptions, exceptions, deductions and adjustments provided for in the VAT Act 89 of 1991, as amended.

VAT is levied on the supply of all goods and services rendered by registered vendors throughout the business cycle. It is the government's second biggest source of income. VAT is also levied on the importation of goods and services into South Africa. It is levied at the standard rate of 14%, but certain supplies are subject to a rate of zero or are exempt from VAT.

Customs duty

Customs duties are levies charged when goods are imported into or exported from South Africa. They are paid by the importer or exporter. All goods and gifts that have been acquired abroad are subject to payment of customs duty (as well as VAT) when they are brought into the country. This includes goods purchased duty-free on board aircraft and ships, or in duty-free shops.

South Africa is a signatory to the Southern African Customs Union (SACU) agreement, as are Botswana, Lesotho, Namibia and Swaziland. The five member countries of SACU apply the same customs and excise legislation, the same rates of customs and excise duties on imported and locally manufactured goods, and the same import duties on imported goods. This simplifies trade within the SACU common customs area.

Import duties, including anti-dumping and countervailing duties, are used to protect local industries. South Africa has entered into agreements on mutual assistance between customs administrations. These agreements cover all aspects of assistance, including the exchange of information, technical assistance, surveillance, investigations and visits by officials.

Excise duty

Excise duty is levied on certain locally manufactured goods as well as on their imported equivalents. This duty is levied as a specific duty on tobacco and liquor, and as an ad valorem duty on cosmetics, televisions, audio equipment and motor cars.

Relief from excise duty is available where excisable products are exported. Relief is also available on specific farming, forestry and certain manufacturing activities.

Transfer duty

Transfer duty is payable by individuals when they acquire property, at progressive marginal rates between 0% and 8%. When property is acquired by a person other than an individual, such as a company or trust, transfer duty is payable at a rate of 10%. All transactions relating to a taxable supply of goods that are subject to VAT are exempt from transfer duty.

Estate duty

For the purposes of estate duty, an estate consists of all property of the deceased - including deemed property, such as life-insurance policies and payments from pension funds - wherever situated. However, the estate of a deceased non-resident consists only of his or her South African assets. The duty, at a rate of 20%, is calculated on the dutiable amount of the estate. Certain admissible deductions from the total value of the estate are allowed.

Stamp duty

Stamp duty is levied on leases of fixed property.

Uncertified Securities Tax

Uncertified Securities Tax is payable in respect of the issue and change in beneficial ownership of any securities that are transferable without a written instrument and are not evidenced by a certificate. It is levied at a rate of 0.25%.

Skills Development Levy (SDL)

The Skills Development Levy is a compulsory levy scheme for the funding of education and training. SARS administers its collection. The rate is 1% of a payroll and is payable by employers who are registered with SARS for employees' tax purposes, or employers who have an annual payroll in excess of R250,000. As from 1 August 2005, the amount of R250,000 has increased to R500,000.

Unemployment Insurance Fund (UIF)

The Unemployment Insurance Fund (UIF) provides short-term relief to workers when they become unemployed or are unable to work because of maternity or adoption leave, or illness. It also provides relief to the dependants of the deceased contributor in terms of the Unemployment Insurance Act. The bulk of contributions to the UIF is collected by SARS and is transferred to the fund, which is administered by the unemployment insurance commissioner.

Air passenger tax

Fee-paying passengers departing on international flights pay a tax of R110 (R120 as from 1 August 2005) and passengers flying to Botswana, Lesotho, Namibia and Swaziland pay R55 (R60 as from 1 August 2005).

Other taxes

Other taxes include provincial gaming taxes. Local governments also finance the cost of municipal services by levying rates on the value of fixed property.

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