Personal taxation in Johannesburg
Effective personal income tax rate
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The rate of Securities Transfer Tax is 0.25% on the
Estate duty is payable at a rate of 20% on the worldwide net estate of an individual who dies while ordinarily resident in South Africa, with a standard deduction of ZAR 3.5 million per estate. Certain other deductions are allowed, the most important of which is the deduction for assets accruing to a surviving spouse. Estate duty also is payable on the net South African-situated estate of a person who dies while not ordinarily resident in South Africa.
South African residents are taxed on worldwide income. Nonresidents are taxed on South African-source income and on capital gains from the disposal of immovable property and assets of a permanent establishment in South Africa.
An individual is resident if: (a) “ordinarily resident” in South Africa, or (b) physically present in South Africa for more than 91 days in the current tax year and in each of the preceding five tax years, and physically present in South Africa for a period exceeding 915 days in aggregate in those preceding five tax years. This excludes a person that is deemed to be exclusively resident in another country for purposes of the application of a tax treaty between South Africa and such other country.
Spouses generally are taxed separately.
The employer must contribute the equivalent of 1% of gross income (up to a capped amount) for each employee, plus a similar 1% deduction from the employee, to the Unemployment Insurance Fund.
Rates are progressive up to 40%. Other taxes on individuals:
Deductions and allowances
Subject to certain restrictions, deductions are granted for contributions to pension and retirement annuity funds, certain donations and travel and motor vehicle expenses. Deductions for medical expenses have been converted to medical tax credits.
Real property tax
Municipal authorities levy a real estate tax, known as “rates,” on the occupation of real property. Transfer duty is payable at progressive rates up to 11% on the acquisition of immovable property, where the transaction is not subject to VAT.
Taxable income is gross income, less exempt income and allowable deductions. Gross income from employment includes all remuneration in cash or in kind, including bonuses, allowances and taxes reimbursed or paid on the employee’s behalf.
Only 33.3% of capital gains are included in taxable income to be taxed at the normal tax rates applicable to individuals.
Compliance for individuals
Penalties and interest apply for failure to comply, according to the Tax Administration Act.
Filing and payment
Tax returns must be filed by a date published by the SARS. Tax on employment income is withheld by the employer under the PAYE system and remitted to the tax authorities. Income not subject to PAYE is self-assessed— individuals must make tax payments at six- month intervals during the tax year and a final payment six months after the tax year.
The tax year for individuals ends 28 February.
Corporate taxation in Johannesburg
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Residents are taxed on worldwide income; nonresidents are taxed on South African-source income and on capital gains arising from the disposal of immovable property and assets of a permanent establishment in South Africa. Foreign- source income derived by residents is subject to corporation tax in the same way as South
Taxation of dividends
Dividends received from a foreign company are, in principle, subject to income tax, although various exemptions exist (e.g. a foreign dividend will be exempt where the recipient holds at least 10% of the shares and voting rights of the company declaring the dividend). When a foreign dividend is taxable, a credit for withholding tax suffered generally is available. The Secondary Tax on
A corporation is resident if it is incorporated in South Africa or effectively managed in South Africa (unless a corporation is deemed to be exclusively resident in another country for purposes of the tax treaty with such other country).
Trading losses may be carried forward indefinitely. The carryback of losses is not permitted.
A participation exemption may apply to capital gains derived by a South African resident holding company on the disposition of a substantial shareholding in a foreign company. To qualify for the exemption, the South African company must hold at least 10% of the equity shares and voting rights in a foreign company for at least 18 months before the disposal, and the interest must be disposed of to a nonresident who is not a connected person in relation to the resident.
Foreign tax credit
Foreign tax paid on foreign-source income may be credited against South African tax on the same profits, but the credit is limited to the amount of South African tax payable on the foreign income. Other limitations also may apply.
Income tax is imposed on a company’s profits, which consist of business/trading income, passive income and capital gains. Expenses incurred in the production of income may be deducted in computing taxable income.
Only 66.6% of capital gains are included in taxable income and taxed at the normal income tax rate. However, gains on the sale of substantial foreign shareholdings are exempt if certain conditions are satisfied.
Holding company regime
Under the headquarter company regime, the controlled foreign company (CFC) rules; the dividends, interest and royalty withholding taxes; and the transfer pricing rules do not apply. Exchange control relief is given to qualifying headquarter companies.
Other taxes on corporations
Securities Transfer Tax is levied on the transfer of securities (including shares) at a rate of 0.25%.
The employer must contribute the equivalent of 1% of gross income for each employee (up to a capped amount), plus a similar 1% deduction from the employee, to the Unemployment Insurance Fund.
Donations (gift) tax is payable by a donor at 20% of the value of property donated by South African residents. Certain exemptions apply (e.g. donations by public companies and between group companies).
Transfer duty at progressive rates up to 11% is payable on the acquisition of immovable property, where the transaction is not subject to VAT.
Real property tax
Municipal authorities levy “rates” on the occupation of real property. Rates are deductible in calculating corporation tax liability. (See also “Transfer tax,” below.)
A 1% payroll levy (“skills development levy”) is imposed on employers, but companies with annual payroll costs below ZAR 500,000 are exempt.
Other taxation in Johannesburg
Value added tax
Filing and payment
VAT returns generally must be submitted every two months, but businesses with an annual turnover in excess of ZAR 30 million must submit monthly returns. Returns must be submitted within 25 days after the end of the tax period. Payment in full must accompany the return. For businesses that file their VAT returns and make payments electronically, the VAT must be paid by no later than the last business day of the month after the end of the tax period.
The standard rate is 14%; certain transactions are zero-rated or exempt.
VAT is levied on the supply of goods and services, and on the importation of goods and the supply of imported services.
A person making standard or zero-rated supplies of more than ZAR 1 million per year is required to register. Nonresidents that carry on an enterprise in, or partly in, South Africa are required to register. All foreign suppliers of electronic services to South African customers are required to register for VAT in South Africa in respect of supplies of e-commerce services made on or after 1 April 2014. These foreign suppliers fall into the compulsory VAT registration category, which has a monetary threshold of ZAR 50,000 to trigger a VAT registration liability.
Transfer pricing legislation requires a South African taxpayer to follow arm’s length principles in transactions with connected persons outside South Africa. The taxpayer has the responsibilityforadjustingpricestoarm’s length.
Penalties and interest are imposed for failure to comply, accordingto theTaxAdministrationAct.
Thin capitalization provisions that are part of the general transfer pricing rules limit the deduction of interest payable by SouthAfricancompanies ondebtprovidedbyanon-resident connected person in relation to the South African borrower or a non- resident connected person entitled to participate, directly or indirectly, in not less than 20% of the company’s equity. The main test for thin capitalization purposes is to assess the commercial terms and conditions of an agreement concluded between independent parties, as compared to the terms and conditions concluded between a South African taxpayer and a non-resident connected person.
Binding rulings are available from the tax authorities on the interpretation of most provisions of the Income Tax Act.
Companies are required to file their income tax returns annually, within a period prescribed by the South African Revenue Service (SARS) (normally within 12 months of the company’s financial year end.). Advance provisional tax payments must be made twice a year, based on estimates of the final tax amount, the first during the first six months of the company’s financial year and the second before the end of the year. Where the provisional tax payments are less than the final tax liability, an additional payment of provisional tax must be made within six months after the end of the tax year.
Consolidated returns are not permitted; each company must file a separate return.
A statutory general anti-avoidance rule applies. Compliance for corporations:
The tax year is the same as the corporation's accounting year.
The tax authorities may, for purposes of the administration of the Income Tax Act, require any taxpayer or any other person to furnish information, documents or other items. South Africa has also expanded its reportable arrangement provisions to give the revenue authority an early warning with respect to transactions that may give rise to an undue tax benefit. The definition of a reportable arrangement is set out in section 35 of the Tax Administration Act. In addition to this, a list of reportable arrangements was published in the Government Gazette (GG 38569) on 16 March 2015. This list is not final and will be amended as and when necessary.
Foreign exchange control
Exchange control is administered by the South African Reserve Bank, which has delegated powers to authorized dealers (banks licensed to deal in foreign exchange). South Africa does not impose exchange controls on nonresidents, but exercises exchange controls over residents and transactions between residents and nonresidents.
Accounting principles/financial statements
Financial statements must be prepared annually according to the International Financial Reporting Standards (IFRS). Certain companies are required to have audited financial statements and other companies must have their financial statements independently reviewed (Companies Act requirements).
Principal business entities
Companies are classified as profit or nonprofit companies. With regard to profit companies, the Companies Act distinguishes between four different types of company: a private company, personal liability company, state- owned company and a public company. A branch of a foreign company is required to register as an external company. The most commonly adopted forms of doing business by foreign investors are private companies and branches.
Dividends paid to individuals, trusts and foreign persons are subject to a 15% withholding tax (subject to the provisions of an applicable tax treaty).
Where a purchaser of South African immovable property makes a payment to a nonresident, the purchaser must withhold a percentage of the amount payable, depending on whether the seller is an individual, a company or a trust.
Technical service fees
No (a 15% withholding tax is expected to apply from 1 January 2017).
Effective from 1 March 2015, interest paid to or for the benefit of a nonresident is subject to a 15% withholding tax (subject to the provisions of an applicable tax treaty), to the extent that such interest accrues from a source within South Africa (prior to 1 March 2015, South Africa does not levy a withholding tax on interest).
The rate of the withholding tax on royalties paid to a nonresident is 15% (increased from 12% effective from 1 January 2015). The rate may be reduced under a tax treaty.
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