Simple Tax Guide for Americans in South Africa
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in South Africa for over 8 years. Our clients hail from all parts of the country - Cape Town and Durban, Johannesburg and Pretoria, Soweto and Port Elizabeth.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in South Africa and know how to integrate your U.S. taxes into the local income taxes you pay. Any South African income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in South Africa for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the South African Tax System for the American Expatriates.
South Africa personal income tax rates are progressive to 45%.
| Taxable income | Rates of tax |
| 1 – 195 850 | 18% of taxable income |
| 195 851 – 305 850 | 35 253 + 26% of taxable income above 195 850 |
| 305 851 – 423 300 | 63 853 + 31% of taxable income above 305 850 |
| 423 301 – 555 600 | 100 263 + 36% of taxable income above 423 300 |
| 555 601 – 708 310 | 147 891 + 39% of taxable income above 555 600 |
| 708 311 – 1 500 000 | 207 448 + 41% of taxable income above 708 310 |
| 1 500 001 and above | 532 041 + 45% of taxable income above 1 500 000 |
Tax Rebates
Primary rebate: R14 220
Secondary rebate (65 and older): R7 794
Tertiary rebate (75 and older): R2 601
Tax Threshold
| Under 65 | R79 000 |
| 65 an older | R122 300 |
| 75 and older | R136 750 |
Rates applicable to personal service providers
Employees' tax must be deducted at a flat rate of 33% on the remuneration of personal service providers. No rebates are allowed to personal service providers.
Basis – South African residents are taxed on worldwide income. Nonresidents are taxed on their South African-source income and capital gains from the disposal of immovable property and assets of a permanent establishment in South Africa. Interest from a South African source paid to a nonresident will not be taxable in South Africa if the person is outside South Africa for more than 183 days in the tax year and does not conduct a business in South Africa.
Residence – An individual is resident if he/she is "ordinarily resident" in South Africa, or is physically present in South Africa for more than 91 days during each of the current and preceding 5 tax years, and physically present in South Africa for a period exceeding 915 days in the aggregate.
Tax Filing status – The tax year for individuals runs to the end of February. Tax returns must be filed by a date published by the Commissioner of the South African Revenue Service.
Taxable income – 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. Dividends from South African companies are tax free. The tax-free portions for lump sums received from a pension, provident fund and retirement annuities are all calculated differently, depending on whether the payment is as a result of resignation, withdrawal or retirement.
Taxation of Capital gains – 25% of capital gains is taxable at the regular income tax rate.
Tax Deductions and allowances – Subject to certain restrictions, deductions are granted for medical expenses, contributions to pension and retirement annuity funds, certain donations, travel and motor vehicle expenses and entertainment expenses.
Other taxes on individuals:
Capital duty – No
Stamp duty – The rate is 0.25% on the transfer of shares.
Capital acquisitions tax – No
Net wealth/net worth tax – No
Real property tax – Transfer duty is paid on the acquisition of immovable property where the transaction is not subject to VAT. Transfers to individuals are subject to duty at progressive rates, up to a maximum of 8%. The municipal authorities levy a real estate tax, known as "rates", on the occupation of real property.
Inheritance/estate tax – Estate duty is payable at the 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 the surviving spouse. Estate duty is also payable on the net South African situated estate of a person who dies while not ordinarily resident in South Africa. The same deductions and exemptions are applicable.
Social security contributions – Employers must contribute the equivalent of 1% of gross income for each employee, plus a 1% deduction from the employee, to the Unemployment Insurance Fund.
South Africa Tax year – Southe Africa tax year ends 28 February.
Tax Filing and payment of tax – Tax returns must be filed by a date published by the Commissioner. 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 6-month intervals during the tax year and a final payment 6 months after the tax year.
Penalties – Penalties and interest apply for failure to comply.
South Africa corporate Income Tax
South Africa corporate income tax rates are 28% for companies and 33% for branches.
Residence – A corporation is resident if it is incorporated in South Africa or effectively managed in South Africa, but does not include a corporation that is deemed to be exclusively a resident of another country for purposes of a tax treaty between South Africa and that other country.
Basis – Residents are taxed on worldwide income; nonresidents are taxed on South African-source income and capital gains on 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 African-source income. Branches are taxed the same as subsidiaries, but at a higher rate.
Taxable income – 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.
Taxation of dividends – Dividends received by a South African company from another South African company are exempt from corporation tax, although Secondary Tax on Companies (STC), calculated on the net amount of dividends declared at a rate of 10%, is imposed on the payer of the dividends (subject to exemption). STC will be abolished, probably in 2010, and replaced by a withholding tax at the shareholder level. Dividends received from a foreign company are in principle subject to income tax, although various exemptions exist (e.g. where at least 20% of the shares and voting rights are held). When the foreign dividend is taxable, a credit for withholding tax suffered is generally available.
Taxation of Capital gains – Capital gains are taxed at the normal income tax rate on 50% of the gains; however, gains on the sale of substantial foreign shareholdings are exempt if certain conditions are satisfied.
Losses – Trading losses may be carried forward indefinitely. The carryback of losses is not permitted.
Surtax – No
Alternative minimum tax – No
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, amongst others, the amount of South African tax payable on the foreign income.
Participation exemption – 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, other than a "foreign financial instrument holding company". To qualify for the exemption, the South African company must hold at least 20% 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. Complex antiabuse rules apply to the participation exemption.
Holding company regime – See under "Participation exemption".
Tax Incentives – Incentives include a preferential corporate tax rate for small business corporations; an R&D deduction, an employee housing allowance; depreciation; an urban development and infrastructure development allowances; and a public private partnerships allowance.
Withholding tax:
Dividends – No withholding tax is imposed on dividends, but this is expected to change in 2010 (at a rate of 10%). See STC under "Taxation of dividends".
Interest – South Africa does not levy withholding tax on interest paid to nonresidents.
Royalties – The withholding tax on royalties paid to a nonresident is 12% unless the rate is reduced under a tax treaty.
Other – Where a purchaser of South African immovable property makes a payment to a nonresident, the resident must withhold a percentage of the amount payable, depending on whether the seller is an individual, a company or a trust. A final withholding tax of 15% is withheld on gross payments to nonresident entertainers and sportspersons who earn income in South Africa.
Branch remittance tax – No
Other taxes on corporations:
Capital duty – No
Payroll tax – A 1% payroll levy ("skills development levy") is imposed on all employers, but companies with payroll costs below ZAR 500,000 are exempt.
Real property tax – The municipal authorities levy "rates" on the occupation of real property. Tax rates are deductible in calculating corporation tax liability.
Social security contributions – Employers must contribute the equivalent of 1% of gross income for each employee, plus a 1% deduction from the employee, to the Unemployment Insurance Fund.
Stamp duty – Securities Transfer Tax is levied on the transfer of securities (including shares) at a rate of 0.25%.
Transfer tax – An 8% tax applies to the transfer of real property to companies unless the transaction is subject to VAT.
Other – Donations (gift) tax is payable by a donor at 20% of the value of property donated by South African residents (non-public companies).
Anti-avoidance rules:
Transfer pricing – The transfer pricing legislation requires a South African taxpayer to follow arm's length principles in transactions with connected persons outside South Africa. The tax authorities may adjust prices to the arm's length prices that would have been charged between independent parties dealing at arm's length.
Thin capitalisation – Thin capitalisation provisions limit the deduction of interest payable by South African companies on debt provided by a nonresident connected person in relation to the South African borrower or entitled to participate, directly or indirectly, in not less than 25% of the company's equity. As a general guideline, the tax authorities should not apply the thin capitalisation provisions if the debt-to-equity ratio does not exceed 3:1. Any interest disallowed on excessive debt will be regarded as a dividend subject to STC.
Controlled foreign companies – Under the CFC rules, an amount equal to the net income earned by a CFC in relation to a South African resident is subject to tax in the hands of the South African resident unless an exemption applies. A CFC is a foreign company in which one or more South African residents hold, directly or indirectly, more than 50% of the participation or voting rights of the company. The tax paid in the foreign country may generally be offset against the South African tax payable.
Other – A statutory GAAR applies.
Disclosure requirements – 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 items that the authorities may require.
South Africa Tax year – South African tax year is the same as the corporation's accounting year.
Consolidated returns – Consolidated tax returns are not permitted; each company must file a separate return.
Tax Filing requirements – Companies are required to file their income tax returns annually, within 12 months of the company's financial year end. Advance payments of tax must be made twice a year, based on estimates of the final tax amount, the first during the first 6 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, a third provisional tax return may be submitted, accompanied by an additional payment of provisional tax, within 6 months after the end of the tax year.
Penalties – Penalties and interest are imposed for failure to comply.
Rulings – Binding rulings are available from the tax authorities on the interpretation of most provisions of the Income Tax Act.
South Africa vat (value added tax) rates
The standard rate of VAT in South Africa is 15%. A vendor making taxable supplies of more than R1 million per annum must register for VAT. A vendor making taxable supplies of more than R50 000 but not more than R1 million per annum may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT.
Taxable transactions – VAT is levied on the sale of goods and the provision of services.
VAT Registration – A person making standard or zero-rated supplies of more than ZAR 1 million per year is obliged to register. Nonresidents that carry on an enterprise in South Africa are required to register.
VAT Filing and payment – VAT returns are generally submitted every 2 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 information about local South African Tax preparation and a thorough South African tax guide - see Tax Consulting ZA
Questions about South African Taxes?
Understanding tax obligations in South Africa can be complicated. If you're looking for an expatriate tax accountant or require tax advice, our dedicated team is here to help.
We provide comprehensive advice tailored to your needs, ensuring you have all the information you need to meet your tax obligations. For further details please contact us.