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.
An individual trader is liable for value-added tax (VAT) on the same basis as a company. VAT is an indirect tax, which is largely directed at the domestic consumption of goods and services and at goods imported into South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. Goods and services are either exempt from VAT or are levied at two rates, namely a standard rate (15%) and a zero rate (0%).
Very few business transactions carried out in South Africa are not subject to VAT. The tax is collected by businesses that are registered as vendors with the South African Revenue Service (SARS) 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
All suppliers of goods and services having an annual turnover exceeding ZAR 1 million, or which are expected to exceed ZAR 1 million in the next 12 months in terms of a written contractual agreement, are required to register as VAT vendors and to charge output tax. Other vendors may elect to register as VAT vendors, provided their annual turnover exceeds ZAR 50,000. Some specific rules apply. Firstly, non-resident suppliers of electronic services are required to register once the value of taxable supplies has exceeded ZAR 1 million in any consecutive 12-month period. Secondly, persons likely to make taxable supplies only after a period of time may register if the activities are of a nature set out in regulations. If they do not register, they are prohibited from charging VAT on goods or services they supply and claiming an input tax (rebate of VAT paid) on goods and services that they acquire. Lastly, 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 exceeded ZAR 50,000 but can be reasonably expected to exceed this amount within 12 months from the date of registration, they may register subject to the provisions of the relevant regulations.
Under the VAT system, vendors normally pay VAT on expenses (input tax) and charge VAT on supplies made (output tax). This mechanism, therefore, ensures that only the so-called ‘added-value’ is taxed. Due to VAT being a self-assessment system, the output tax collected may be reduced by input tax paid. Thereafter, the net amount is payable to (or refundable by) SARS. The self-assessment returns are due regularly within prescribed tax periods.
Standard rated and zero-rated supplies are known as taxable supplies. Other supplies are known as exempt and non-supplies.
Goods and services
A VAT liability arises where there is a supply or importation of goods or services. 'Goods' include corporeal movable things, fixed property, and real rights in such corporeal movable things and fixed property. The term ‘services’ is very broadly defined, and includes the granting, assignment, cession or surrender of any right, or the making available of any facility or advantage.
From 1 June 2014, non-resident suppliers of electronic services are compelled to register for VAT and account for VAT on supplies of electronic services to South African residents.
Services imported by a vendor and utilised or consumed by the vendor for the making of taxable supplies are not subject to VAT. In addition, the VAT Act lists certain goods that are exempt from VAT on importation, whether by a vendor or an unregistered person.
The VAT Act contains a list of supplies of goods or services that are taxed at the zero rate. The list primarily refers to exports and international transport items. However, other specified goods utilised for farming purposes, the sale of an enterprise as a going concern, certain basic foodstuffs, fuel subject to the fuel levy, and deemed supplies by welfare organisations are also zero-rated.
A zero-rated supply made by a vendor is subject to VAT but at a rate of 0%. Under a zero-rated supply, a vendor does not charge VAT on the consideration for the supply and obtains a refund or credit for the VAT paid on taxable supplies utilised in the making of the zero-rated supplies.
In addition to zero-rated supplies, the VAT Act contains a list of supplies of goods or services that are exempt from VAT. While all fee-based financial services are subject to VAT, the charging of interest is exempt. Other exempt supplies include residential rentals, non-international passenger transport by road or rail, and educational services.
Under exempt supplies by vendors, the vendors do not charge VAT on the supply, and they are not entitled to a deduction or credit for the VAT paid by them on goods and services supplied to them for the making of the exempt supply. Accordingly, vendors treat the VAT paid by them, and for which they do not obtain a deduction or credit, as another cost and recover it in the consideration they charge for the making of the exempt supply.
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.
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 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:
|Value of property (ZAR)
|Transfer duty rate
|Not exceeding 1,100,000
|1,100,001 to 1,512,500
|3% on value above 1,100,000
|1,512,501 to 2,117,500
|12,375 plus 6% on value above 1,512,500
|2,117,501 to 2,722,500
|48,675 plus 8% on value above 2,117,500
|2,722,501 to 12,100,000
|97,075 plus 11% on value above 2,722,500
|1,128,600 plus 13% on value above 12,100,000
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.
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.