South Africa Tax & Business Guide - Deloitte

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Basic facts
Population 46.9m Inflation 4.0% (2005)*
Main languages IsiZulu, IsiXhosa, Afrikaans and English GDP per head US$5,630*
Currency Rand (ZAR) GDP growth 4.9% (2005)
Economic communities WTO
GDP sources 2.5% agriculture, 30.3% industry, 67.1% services
*Economist Intelligence Unit.
Political environment

South Africa is a constitutional democracy with a bicameral parliament and an indirectly elected executive president. The National Assembly is elected by proportional representation; the National Council of Provinces consists of indirectly elected representatives of the nine provinces.

Thabo Mbeki, the president, succeeded Nelson Mandela as leader of the African National Congress (ANC), now the majority party in the coalition government, in 1997, and was re-elected president in April 2004. The next elections are due in 2009.
Foreign trade and investment
Exports US$51.9bn (2005)* Imports US$53.6bn (2005)*
*Economist Intelligence Unit.

Leading export markets: The EU, the US and Japan.

Major exports: Metals and metal products, gold and diamonds.

The government recognises the need to attract foreign investment, and will continue to use industrial development zones as the main method of attracting foreign direct investment (FDI).
Business and financing
Business forms Public or private limited liability companies; close corporation; partnership, sole proprietorship; external company (ie branch of a foreign company)

A private company need not assign equal voting rights to all shares nor file financial statements. A branch is not considered a separate legal entity.

Johannesburg is South AfricaÌs main financial centre, although most large insurance companies are based in the capital, Cape Town.
Labour environment
Unemployment rate 26.6% (2005)* Minimum wage Varies
*Economist Intelligence Unit.

Joblessness remains one of the countryÌs most pressing problems.

The level of unionisation is high.

Employers contribute to the WorkersÌ Compensation Fund for staff earning up to a set annual amount.

Although no prescribed limits apply to the employment of foreign nationals, the system to obtain a work permit can be slow. The application for a work permit should be commenced two to three months before the individual is required to start work.
Taxation
Corporate tax
Main rate 29%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on South African-source income. A company is resident if it is incorporated, established or formed in South Africa or its place of effective management is in South Africa. The tax rate is 29%, and the secondary tax on companies (STC) is imposed at 12.5% on distributions. Dividends paid within a group of companies (70% holding) are exempt from STC, subject to election. The tax rate for foreign companies operating through a branch or agency in South Africa is 34%. Special rules apply to gold mining and insurance companies.
Individual tax
Progressive rates to 40%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on their South African-source income. An individual is resident if present in South Africa for more than 91 days in the relevant tax year and the five preceding years, and for more than 915 days in the aggregate in the preceding five tax years. A person is also resident if Ïordinarily residentÓ, ie if the personÌs settled home or main residence is in South Africa. Income tax is charged at progressive rates to 40%. Dividends received by a resident individual from a South African company are generally exempt.
Capital gains
Gains are taxed in part as income

Capital gains tax is charged at the normal corporate or individual tax rates on 50% of the gain realised by a company and 25% of the gain realised by an individual. Non-residents are only liable for capital gains tax on the disposal of immovable property in South Africa, the disposal of shares in a real property company or the disposal of assets by a permanent establishment in South Africa. Individuals are exempt from gains on the sale of their primary residence, up to a value of ZAR 1.5m.
Indirect tax
VAT standard rate 14%

Value-added tax (VAT) applies to most transactions at the 14% standard rate. Zero-rating applies to exports, international transport, some basic foodstuffs, some farming goods and certain fuels. Exemptions include some financial services, residential rents, domestic passenger transport and educational services.

Registration is compulsory for businesses with a turnover above ZAR 300,000.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: year to February 28th

Companies make provisional tax payments on a half-yearly basis, the first payment within the first six months of the tax year and the second by the end of the tax year. Companies must submit a tax return within 60 days of the end of their financial year. Employment income of individuals is taxed by withholding; other income is subject to provisional tax payments. Individuals who are required to complete a tax return must submit the return by a date notified to them by the tax commissioner. Final tax payments of companies and individuals are collected by assessment after examination of the tax return.
Additional tax information
Withholding taxes Dividends and Interest 0%, Royalties 12%. Rates may be reduced by tax treaty.
Tax treaties South Africa has concluded more than 55 tax treaties.
Dividends Domestic dividends are not taxable. Foreign dividends are taxable with a participation exemption, where shareholding criteria are met.
Revenue protection There is transfer-pricing, thin-capitalisation and offshore subsidiary (CFC) legislation.
Groups There is no provision for group treatment.
Incentives Preferential corporate tax rate for small business corporations; research and development, employee housing depreciation, urban development and infrastructural development allowances; and public private partnerships allowance.
Other taxes Capital gains tax, Donations tax, Estate duty, Excise duty, Import duties, Marketable securities tax, Stamp duty, Tax on retirement funds, Transfer duty.