A comprehensive guide to Business and Personal Taxes
TIRED OF TAXES MAKING YOU TEARFUL AND TENSE, we got you!
As accountants in South Africa, we understand that the tax landscape can seem complex and daunting, especially when it comes to both business and personal taxes. In this blog, we walk you through the different types of taxes you encounter in South Africa, shedding light on the key aspects of each to help you better understand your tax obligations.
Income Tax:
Income tax is charged on the annual worldwide income that South African individuals and corporations earn during a financial year, after subtracting allowable tax deductions.
South Africa operates on a progressive tax system for individuals. This means that the more you earn, the higher the percentage you’ll pay in taxes. The income tax rates for individuals range from 18% to 45%.
For companies, the tax rate is 27%. Small business corporations are taxed on a sliding scale of 0% – 27%. Trusts (other than special trusts) pay tax at an astonishing 45%.
Provisional tax:
Corporates and certain individuals are required to make provisional tax payments. Provisional tax is not a separate type of tax but simply a method to pay your taxes during the tax year instead of paying a large amount to SARS on assessment when you submit your Income Tax return. Proper tax planning is key when it comes to cash flow.
Pay-As-You-Earn (PAYE):
As a salary worker, your employer is obligated to deduct PAYE from your earnings and pay it over to SARS on a monthly basis. PAYE is a method of collecting income tax that applies to your employment earnings. The same sliding scale used for income tax is also used to calculate the monthly PAYE deduction.
Value-Added Tax (VAT):
VAT is an indirect tax on the consumption of goods and services. This effectively means that the sales price of standard-rated goods and services need to be increased by 15% to stay within the targeted profit margins.
There are 3 categories for VAT:
Standard-rated VAT of 15% is charged on most goods and services.
Zero-rated VAT of 0% is charged on items such as basic food supplies and fuel.
‘Exempt from VAT’ means that no VAT is levied on goods and services such as residential accommodation and educational services.
If the value of your taxable supplies is in excess of R1 million in any consecutive 12-month period, you are obligated to register as a VAT vendor. (Of course, there are a few exemptions to this rule.)
Individuals and corporates registered as VAT vendors pay output VAT on revenue received, and are entitled to deduct input VAT on certain purchases made. If the output VAT exceeds the Input VAT, the difference is payable to SARS and visa versa.
Capital Gains Tax (CGT):
CGT is not a separate tax but forms part of income tax. CGT is applied when you sell an asset, like property, shares, or investments, at a profit. For individuals, 40% of the gain is included in your taxable income and taxed at your marginal rate (between 18% – 45%). For corporates, 80% of the gain is included in the taxable income and is taxed at 27%. Certain exclusions and deductions may apply.
Estate Duty:
Estate Duty is levied on the worldwide property and deemed property of a natural person who is ordinarily resident in South Africa and on South African property of non-residents. This means that individuals pay taxes on all their property until the date of their death, and then estate duty kicks in. Estate duty is levied on the dutiable value of a deceased person’s estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million. Generously, an abatement of R3.5 million is allowed against the net value of your estate, resulting in you only paying estate duty on the amount exceeding R3.5mil.
Donations Tax:
Donation tax is triggered when property is disposed of for free or at no charge. Donation tax is calculated at 20% of the value of the donation or gift, up to R 30 million. If the donation exceeds R 30 million, then the amount over and above R 30 million will be taxed at 25%.
Donation tax is payable by the donor. Donations between spouses are not subject to donation tax. Please keep in mind that this is only applicable to spouses who are legally married and does not apply to cohabiting couples.
Dividends Tax:
Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax at a rate of 20% is withheld by the entities paying the dividends to the individuals. Dividends are tax exempt if the beneficial owner of the dividend is an SA-resident company, SA retirement fund, or another prescribed exempt person.
Navigating the tax landscape in South Africa, whether for personal or business purposes, requires a good understanding of the various tax types and their implications. It’s essential to stay informed about changes in tax regulations and consider seeking professional advice from accountants or tax consultants to ensure compliance and optimize your tax position. By staying informed and proactive, individuals and corporations can plan and manage their tax obligations effectively.