Forex trading is a popular investment in South Africa. But before you start trading, you need to consider how much tax you need to pay for your gains.

Trading Tax in South Africa

Any trader in the forex market may have different styles and preferences, but they surely share a common goal in mind, which is to gain profits from the trades and see their trading accounts grow. Whether it's the high liquidity or the low transaction fees, forex trading offers numerous benefits that could attract millions of traders around the world to participate in the market. However, the lure of fortune can easily make people forget about other important considerations, such as forex taxes.

Capital gains from forex trading are considered taxable. Capital gains refer to the increase of value in assets when it's sold on the market. This means traders must pay taxes for the gains they made from selling a certain asset at a higher price than the initial purchase cost. The exact tax rate may vary from one country to another, so before you start trading, it's necessary to learn how forex taxes work in the country that you're trading in. Today, we're going to cover forex trading tax in one of the leading developing countries, South Africa.

 

Forex Trading in South Africa

Forex trading in South Africa was announced a legal activity since 2010 and it has been thriving ever since. In South Africa, there are no less than 200,000 forex traders with a transaction size of about $19 million per day. People consider forex trading as an additional source of income, and some are even aiming to be professional forex traders. It's also worth mentioning that the South African national currency, Rand (ZAR), is included in the top national currencies in Africa.

Forex trading in South Africa is regulated by the Financial Sector Conduct Authority (FSCA). It is one of the oldest and most reputable regulators in the world with over 1,000 entities under its watch, so it undoubtedly can provide great protection to the traders in South Africa. This is also why it's highly recommended for South African traders to only use brokers that are approved by the FSCA. This ensures that all of the broker's activities are legal and meet all the country's requirements.

Compared to other countries in the continent, South Africa has the best market for forex traders. The growing demand for forex products and technology has also attracted many leading brokers to base their operations in the country, including FXCM, IG Markets, and more. Some of them even offer ZAR-based trading accounts, which is certainly preferable for South African traders.

 

Is Forex Trading Taxable in South Africa?

The answer the question: yes, forex trading is taxable in South Africa. Any South African traders who generate profits from forex trading within the country's borders are subject to tax. The profits are considered as normal taxable income and thus, must be declared in South African Rand value on the annual tax returns.

According to the South African Revenue Services (SARS), South Africa uses the residence-based tax system, which means that "residents are, subjected to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned". This shows that regardless of where the income originates from, every South African must pay taxes for the income they receive.

If the trader relocates out of South Africa, they might still be subject to tax if they move without proper emigration proceedings. This includes submitting an application to both SARS and SARB, which may or may not grant the trader capital gains tax liability depending on the circumstances. It is also important to note that profits gained from an offshore account are still subject to income tax. The tax range varies, starting from 18% to 40% depending on the profits made.

 

For Individuals

If you are trading as individuals and residing in South Africa, you'll be required to declare all your profits from forex trading in your annual tax returns. The amount of tax you'll need to pay largely depends on your age and the amount of money you make in a year. Look at the table below for more details.

Income tax

Keep in mind that individuals are only subject to tax if their total income exceeds a certain level of annual threshold.

Tax threshold

In a nutshell, you'll need to deduct all expenses from your gross income in order to calculate the taxable profit from your forex trades. Thus, it's important to keep all documents regarding your forex trading activities in a safe place. In some cases, it is also necessary to convert the profit money to South African Rand. To make the job easier, create a spreadsheet so you can calculate your taxes more accurately. Failure to declare the annual profits can trigger additional interest and penalties from the authority.

 

For Business Entities

Business entities such as private companies, close corporations, and small business corporations are subject to Corporate Income Tax (CIT) in South Africa. Keep in mind that even if you later move to another country, your business will stay taxed in South Africa. In 2022, a fixed tax of 28% from taxable income applies to any forex trading conducted through a company registered in South Africa. However, when it comes to small business corporations, the rule only applies to those with a taxable revenue that exceeds the minimum level of taxation. Please refer to the table below for more details.

Small business corporation tax rangeThe fiscal year ends on any date between 1 April 2022 and 31 March 2022.

 

How Forex Trading is Taxed in South Africa

 

Provisional Tax

Traders and businesses in South Africa are required to register as provisional taxpayers in order to spread the tax liability and avoid paying a huge amount in a single go. As a provisional taxpayer, traders must pay two provisional tax payments every year, which takes place before the end of February and the end of August. Moreover, there is an optional third payment often known as "top-up" in order to make up for any deficiency in the second payment. The third payment usually takes place after the end of the tax year, but before the assessment is issued by SARS.

 

Tax Deductible Expenses

We've mentioned that it is necessary to keep track of all of your expenses because they can be used to lower your taxable income. All expenses made in generating income, whether it's conducted through a company or an individual's personal capacity, can be deducted from the taxable revenue. Therefore, you need to keep all trading expense documents, starting from employee wages, training expenses, computer maintenance, and bank fees. Keep in mind that your taxable income can also be reduced by depreciation in the asset's value, so keep track of that too.

 

3 Things to Remember

  • Pay close attention to the deadline. Calculating how much you owe in taxes is no simple task and it might require some time to get the exact result. Hence, you need to understand the tax payment timeline correctly.
  • Keep good records of your trades and expenses. This could save you some time when tax season comes. You can keep everything organized by keeping records regularly, whether it's daily, weekly, or monthly. 
  • Pay what you owe. Some traders would try to outsmart the system and don't pay taxes. This is definitely not a great idea because eventually, the authority will find out and they might charge you with much larger tax avoidance fees.

 

The Bottom Line

There are many benefits of trading in South Africa. For instance, the regulatory framework is sophisticated, the products are varied, and the liquidity is pretty high. However, one should not forget that any income gained from forex trading is subject to annual income tax and must be declared in South African Rand value on their tax returns. If you fail to declare your taxable income and pay your due taxes, the authority will certainly take action, whether in the form of penalties or extra interests.

While you can't avoid the taxes altogether, you can reduce your taxable income with expenses that are related to the earnings of your income. This also includes asset depreciation and any form of trading costs. Apart from that, it would also be helpful to only use an FSCA-regulated broker. Forex trading is not a cheap investment, so you need to be smart when choosing where to put your money and avoid unnecessary risks. Make sure that the broker is safe and has a good track record before registering.