South Africa

Social security/Unemployment insurance contributions

South Africa does not have a comprehensive social security system or a national healthcare program; consequently, no significant social security taxes are levied. Employees and employers are each obligated to make contributions to an unemployment insurance fund at the rate of 1% of gross remuneration. The employee's contribution is withheld by the employer. However, both the employer and employee's contributions are limited to a remuneration of ZAR 212,544 per annum per employee. 

Consumption taxes

Value-added tax (VAT)

VAT is an indirect tax that is largely directed at the domestic consumption of goods and services in South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. It is levied at two rates, namely a standard rate (currently 15%) and a zero rate (0%). 

Under the VAT system, vendors generally levy and account for VAT on taxable supplies made and are entitled to a deduction of the VAT incurred on expenses paid for purposes of making such taxable supplies. Only the ‘added value’ is therefore ultimately taxed.

Practically, VAT is a self-assessment tax, and vendors are required to submit periodic VAT returns. The two main tax periods are either monthly (generally for large vendors) and bi-monthly (which is the standard tax period issued by the SARS).  

The amount of input tax that the vendor is entitled to for the specific tax period is set off against the output tax due to the SARS, and the net amount is either due and payable to or refundable by the SARS.  

Very few business transactions carried out in South Africa are not subject to VAT. The tax is generally collected by businesses that are registered with the SARS as vendors on all taxable supplies throughout the production and distribution chain. Sales or supplies by non-vendors are not subject to VAT.

VAT registration and administration

Compulsory registration 

All suppliers of goods and services having an annual turnover exceeding ZAR 1 million must register as a vendor and charge VAT on taxable supplies made in the course or furtherance of their enterprise. 

In addition, where a person expects that its taxable turnover will exceed ZAR 1 million in the next 12 months in terms of a written contractual agreement, such person is also required to register as a vendor and levy VAT on the taxable supplies made in the course or furtherance of their enterprise.

Non-resident suppliers of electronic services are required to register for VAT once the value of taxable supplies has exceeded ZAR 1 million in any consecutive 12-month period. 

Voluntary registration 

A person may elect to register as a VAT vendor if their annual taxable turnover exceeds ZAR 50,000.

Notwithstanding this, where the turnover does not exceed this amount, there are some specific rules to consider in order to register voluntarily, as follows: 

• Where a person is carrying on an enterprise and the total value of taxable supplies made or to be made by that person has not yet exceeded ZAR 50,000 but can be reasonably expected to exceed this amount within 12 months from the date of registration, the person may register on a voluntary basis under certain circumstances. These circumstances are set out in the applicable regulations and mainly deal with when the SARS will accept that the afore-mentioned threshold will reasonably be expected to be exceeded. 

• If a person is likely to make taxable supplies only after a period of time, the person may register if the activities are of a nature set out in the applicable regulations. These activities are also set out in the applicable regulations and include, for example, construction or mining type activities.

Taxable supplies

Standard-rated and zero-rated supplies are known as taxable supplies. Other supplies are known as either exempt supplies or non-supplies (i.e. supplies that are not subject to VAT). 

Goods and services

‘Goods’ are corporeal movable things, fixed property, and real rights in such things and property. ‘Services’ are very broad and encompass not only traditional services like consulting or legal advice but includes the granting, assignment, cession, or surrender of any right or the making available of any facility or advantage.

Electronic services

‘Electronic services’ are defined quite broadly and include any supply of services by means of an electronic agent, electronic communication, or the Internet for a consideration. Further changes to these regulations are expected in the near future.

A non-resident supplier of electronic services will be regarded as conducting an enterprise in South Africa if two of the following criteria are applicable: 

• The recipient has a residential address in South Africa. 

• The recipient has a business address in South Africa.

• Payment is received from a South African bank account.

Imports

Goods are subject to VAT on importation into South Africa. However, the VAT Act has a schedule setting out the specific goods that are exempt from VAT on importation.

Services imported by any person and used or consumed otherwise than for making taxable supplies is subject to VAT in South Africa. However, services imported wholly for taxable purposes is not subject to VAT in South Africa.

Zero-rated supplies

The VAT Act sets out supplies of goods or services that may be taxed at the zero rate. As VAT is a destination-based tax, exported goods and services may be zero-rated.  

Special provision is also made to zero rate the following (amongst others):

• Certain basic foodstuffs. 

• Fuel products subject to the fuel levy.

• Specified goods utilised for farming purposes.

• The sale of an enterprise as a going concern,  

Under a zero-rated supply, a vendor charges VAT at 0% on the value of the supply and obtains a credit for the VAT paid on taxable supplies utilised in the making of the zero-rated supplies.

Exempt supplies

The VAT Act sets out specific supplies of goods or services that are exempt from VAT. Examples of exempt supplies include financial services, residential rentals, non-international passenger transport by road or rail, and educational services. However, all fee-based financial services are subject to VAT at 15%. 

No VAT is deductible on expenses incurred for the purpose of making exempt supplies.

Net wealth/worth taxes

South Africa does not levy any net wealth/worth taxes.

Inheritance, estate, and gift taxes

Estate duty is levied on the dutiable amount of a deceased person’s estate. An abatement of ZAR 3.5 million is deducted from the net value of the estate in order to determine the dutiable amount, on which estate duty is calculated at the rate of 20% on the value of the estate to the extent that it does not exceed ZAR 30 million and at a rate of 25% to the extent that the value of the estate exceeds ZAR 30 million. A non-resident's estate will be subject to estate duty, but only the assets located in South Africa will be included in the estate for the purposes of the duty.

Donations tax is payable by South African resident individuals at a rate of 20% of the value of the donated property to the extent that this value does not exceed ZAR 30 million, and at a rate of 25% to the extent that the value of property donated exceeds ZAR 30 million. Exempt donations include those between spouses, donations to approved public benefit organisations and all other donations by an individual that, during the tax year, do not exceed ZAR 100,000 in aggregate.

Property taxes

Local municipalities levy rates on land. These rates are based on a percentage of the municipal valuation of land and improvements, and vary by municipality. Generally, a higher rate is levied on properties zoned for business use.

Luxury and excise taxes

Excise duty is levied on certain locally manufactured goods as well as their imported equivalents. A specific duty at a pre-determined amount is levied on tobacco and liquor. An ad valorem duty is levied on certain luxury goods and automobiles.

Relief from excise duty is available for exported products, and for certain products produced in the course of specified farming, forestry, and (limited) manufacturing activities.

Other non-income taxes

Transfer duty

Transfer duty is payable on the transfer of immovable property or rights in such property located in South Africa. The duty is payable by the person acquiring the property at the following rates:

Transfers of immovable property that are subject to VAT are exempt from the transfer duty.

Securities transfer tax (STT)

STT applies to the transfer of listed and unlisted securities. The tax rate is 0.25%, which is applied to the taxable amount in respect of the transfer of a security. The taxable amount is usually the consideration for which the security is purchased, or (if the consideration is less than the market value of the security) the market value of the security. If the consideration declared is less than the market value, or if no consideration was paid, STT will be payable by the company that issued the shares in question (or, in the case of listed shares, by a regulated intermediary). However, the company or regulated intermediary can then recover the tax from the person acquiring the shares. Slightly different rules apply in the case of listed securities.

Skills development levy (SDL)

SDL is a compulsory levy to fund education and training. It is payable by an employer and cannot be deducted from the remuneration payable to an employee. Small employers with an annual payroll of less than ZAR 500,000 are exempt from the levy. SDL is levied at the rate of 1% of payroll. It is payable monthly, together with income tax that the employer has withheld on its employees’ salaries.

Workmen’s compensation

Employers are liable for workmen’s compensation, calculated by applying to the employee’s earnings varying rates depending on the employer’s industry. An exemption applies where an employee is employed in a private household only.

Withholding taxes (WHTs)

The following WHTs apply to South-African sourced income payable to a foreign resident. The statutory rates may be reduced by double tax treaties (DTTs).

• WHT on royalties: 15% of the gross amount of royalties.
• WHT on foreign sportspersons and entertainers: 15% of the consideration for the person's activities in South Africa.
• WHT on dividends: 20% of the gross amount of dividend.
• WHT on interest: 15% of the gross amount of interest.
• WHT on the sale of South African immovable property: 7.5% of the consideration where the property is sold by a non-resident individual. This is not a final tax but an advance on the final tax liability and may be reduced upon a ruling from the South African tax authority.