Income tax is the government’s main source of income and is levied under the Income Tax Act 58 of 1962, on the taxable income of natural persons, companies and trusts. The South African Revenue Service (SARS) is South Africa’s tax collecting authority. Established under the SARS Act as an autonomous agency, SARS is responsible for administering the South African tax system and customs service. It is essential for individuals and companies to understand the tax laws and regulations to ensure that they are in compliance with their tax obligations.
In this overview, we will briefly discuss the tax types for which our tax practice specialises and offers professional assistance to the taxpayers.

South Africa has a residence-based tax system. Persons who are residents for tax purposes are taxed on their worldwide income, subject to certain exclusions. Non-residents are taxed only on their income from a source within the Republic.
    1) A natural person is a resident for income tax purposes if the natural person is:
    • ordinarily resident in the Republic; or
    • meets all the requirements of the physical presence test, and
    • is not deemed to be exclusively a resident of another country for the purposes of the application of any tax treaty.
    2) Being "ordinarily resident" in South Africa for tax purposes has a specific meaning and is determined on the principles set out in certain case law, such as the Cohen case.
When determining whether a natural person is ordinarily resident in the Republic, the following factors must be considered:
    • An intention to be ordinarily resident in the Republic;
    • The natural person’s most fixed and settled place of residence;
    • The natural person’s habitual abode, that is, the place where that person stays most often, and his or her present habits and mode of life;
    • The place of business and personal interests of the natural person and his or her family;
    • Employment and economic factors;
    • The status of the individual in the Republic and in other countries, for example, whether he or she is an immigrant and what the work permit periods and conditions are;
    • The location of the natural person’s personal belongings;
    • The natural person’s nationality;
    • Family and social relations (for example, schools, places of worship and sports or social clubs);
    • Political, cultural or other activities;
    • That natural person’s application for permanent residence or citizenship;
    • Periods abroad, purpose and nature of visits;
    • Frequency of and reasons for visits
    • The above list is not exhaustive and it serves as a guideline only.
    3) Physical presence test: the person must be physically present in the Republic for a period or periods exceeding –
                    (a) 91 days in aggregate during the year of assessment under consideration;
                    (b) 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
                    (c) 915 days in aggregate during the five preceding years of assessment.
It must be noted that a physical presence at all times is not a condition to being, or becoming an ordinarily resident in the Republic. The purpose, nature and intention of a natural person’s absence, and/or physical presence must be recognised and considered as part of all the facts in determining whether that person is ordinarily resident.
Each individual case of whether a natural person is ordinarily resident in a country must be decided on its own merits, taking into consideration principles established by case law. There are no fast and hard rules, and thus, a registered tax practitioner’s assistance is fundamental in establishing the status of a tax residency in the Republic.

South African income tax rates for individuals are based on a progressive tax system, meaning that an individual is taxed more the higher their income is. The maximum tax rate is 45% of taxable income above R 1 731 601. Each year the Minister of Finance proposes tax rates in the annual Budget Speech and these are fixed or passed by Parliament. The tax year always starts on 1st March each year and it ends on the last day of February the following year, that is – 28th, or 29th of February.
The tax rates for the current 2023 tax year, ending on 28th February 2023 are:

Rebates
The Income Tax Act allows the South African taxpayers three different rebates to be deducted from their total tax liability. The rebates are based on the relevant age of a taxpayer – taxpayers up to the age of 65 years are allowed a primary rebate only, the secondary rebate is in addition to the primary rebate and it is allowed for persons between the age of 65 to 75 years, and the tertiary rebate is added to the primary and secondary rebate for individual taxpayer aged 75 years and older. The tax rebates for 2023 tax year are:
    • Primary (Up to 65 years of age) – R 16 425;
    • Secondary (65 to 75 years of age) – R 9 000; and
    • Tertiary (75 years and older) – R 2 997.
The Medical Scheme Fees Tax Credit (MTC) is allowed to taxpayers in respect of fees paid by the person to a medical scheme registered under the Medical Schemes Act, or a fund which is registered under any similar provision contained in the laws of any other country where the medical scheme is registered. For 2023 tax year the monthly MTC are as follows:
    • ​For the taxpayer; or for a dependant who is a member of a medical scheme or fund, where the taxpayer him- or herself is not a member of a medical scheme or fund – R 347 per month;
    • ​​For the taxpayer and one dependant; or in respect of two dependants where the taxpayer him- or herself is not a member of a medical scheme or fund – R 694 per month; and
    • For each additional dependant – R 234 per month.
The MTC is allowed as a deduction from the total tax liability.
Additional medical expenses tax credit is allowed to taxpayers, who paid for “qualifying medical expenses” during the tax year and it is calculated according to a formula, where the taxable income of a taxpayer is taken into consideration.

Companies in South Africa are taxed on their taxable income at a flat rate of 28%, for years of assessment ending up to 30th March 2023. Starting from years of assessment ending on, or after 31st March 2023, the corporate tax rate changes to 27% of taxable income.
Trusts, other than special trusts, as defined in the Income Tax Act, are taxed at a flat rate of 45%
Small Business Corporations (SBC) are taxed on progressive based tax rates, depending on their taxable income, and not exceeding 28% of taxable income for years of assessment ending on 30th March 2023, and as from 31st March 2023 – not exceeding 27%:
Years of assessment ending on or after 31 March 2023:

Employers are required by the Income Tax Act to deduct employees’ tax from the remuneration of their employees and remit these to SARS via monthly employees’ tax returns – EMP201, which are due and payable on or before the 7th of each month. The employees’ tax is also known as Pay-As-You-Earn (PAYE). PAYE for each individual employee is deducted according to the tax rates for individual taxpayers. Employers are compelled to furnish their employees with an annual certificate for tax paid, known as IRP5, in a form prescribed by SARS, after the end of the tax year and before the start of the filing season, which is usually 1st July every year. Employers must submit bi-annual and annual employees tax declarations – EMP501 to SARS. PAYE is considered personal income tax.
A mandatory employers’ contributions and employees’ deduction at a rate of 1% by each, is in respect of Unemployment Insurance Fund (UIF) and every employer who is registered for employees’ tax must also register for UIF. Skills Development Levy (SDL) represents 1% of the total amount paid in salaries to employees (including wages, overtime payments, leave pay, bonuses, fees, commissions and lump sum payments) and it is mandatory for employers whose annual payroll exceeds R 500 000. Both UIF and SDL are due and payable to SARS together with PAYE deductions and submitted on an EMP201 return.

Provisional tax is not a separate tax, but rather a method of paying the total income tax liability for a particular tax year in advance, to ensure that the taxpayer does not have a large tax debt on assessment. Provisional tax allows the tax liability to be spread over the relevant year of assessment. It requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income. A third payment is optional after the end of the tax year, but before the issuing of the assessment by SARS. On assessment the provisional payments will be off-set against the liability for normal tax for the applicable year of assessment.
The definition of a provisional taxpayer includes:
    • A natural person who derives income, other than remuneration or an allowance or advance or who derives remuneration from an employer who is not registered for employees’ tax (for example, an embassy is not obligated to register as an employer for employees’ tax purposes)
    • A company; or
    • A person who is told by the Commissioner that he or she is a provisional taxpayer.

Capital Gains Tax forms part of the normal income tax, according to the provisions of section 26A of the Income Tax Act and it is contained and governed by the Eighth Schedule to the Act.
CGT arises when a property is disposed of for amounts that exceed the initial cost of the asset. If multiple properties are disposed during a tax year, then the taxpayer is liable for CGT on the total capital gain. If there is a capital loss ensuing from the disposal of the immovable property, then this capital loss is carried forward to the next tax year, or whenever there is a capital gain to offset the capital loss and to result as an inclusion – taxable capital gain, in the taxable income of the taxpayer. Definition of “asset” includes property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and a right or interest of whatever nature to or in such property. It is important to note that shares in a company also fall into this definition and subject to the requirements of section 9C of the Act.

Donations tax is raised on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident, referred to as the donor. Donations tax is usually chargeable at a current rate of 20% of that value of the donated property, if the aggregate of that value and the value of any other property disposed of under a taxable donation on or after 1 March 2018 until the date of that donation does not exceed R30 million, and at a rate of 25%, if that value exceeds R 30 million. There are certain exemptions from donations tax, therefore each individual case of intent to donate property must be reviewed and considered by a registered tax practitioner, so the donor attains the maximum tax benefit.

Dividends tax are chargeable at a rate of 20% of the amount of any dividend paid by any company other than a headquarter company. Dividends Tax declarations and returns are compulsory to be submitted to SARS with any dividend paid by a company.

Typically withholding tax are chargeable to foreign persons on their income from a source within the Republic. “Foreign person” is defined as “any person that is not a resident”.
Withholding of amounts from payments to non-resident sellers of immovable property
Any the purchaser of immovable property, who must pay any amount to any other person who is not a resident (hereinafter referred to as “the seller”), or to any other person for or on behalf of that seller, in respect of the disposal by that seller of any immovable property in the Republic must, withhold from the amount which that person must so pay, an amount equal to:
    (a) 7,5% of the amount so payable, in the case where the seller is a natural person;
    (b) 10% of the amount so payable, in the case where the seller is a company;
    (c) 15% of the amount so payable, in the case where the seller is a trust.
If the amounts payable by the purchaser to the seller and to any other person for or on behalf of the seller, in respect of the acquisition by that purchaser of the immovable property, in aggregate do not exceed R2 million are exempt from withholding tax as per above.
Withholding tax on royalties
Withholding tax on royalties is chargeable at a rate of 15% of the amount of any royalty that is paid by any person to, or for the benefit of any foreign person, to the extent that the amount is regarded as having been received by or accrued to that foreign person from a source within the Republic. Withholding tax on royalties is a final tax.
Withholding tax on interest
Withholding tax on interest is chargeable at a rate of 15% of the amount of any interest that is paid by any person to, or for the benefit of any foreign person to, the extent that the amount is regarded as having been received or accrued from a source within the Republic. Withholding tax on interest is a final tax.

VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain traders (vendors), that carry on an enterprise to register for VAT. It is compulsory for a person to register for VAT if the value of taxable supplies made or to be made, is in excess of R1million in any consecutive 12-month period. Voluntary registration is possible under certain circumstances. VAT201 returns are submitted by vendors according to the category of tax period, for which the vendors are registered. There are five categories of tax periods.

Securities Transfer Tax is levied at 0,25% on every transfer of a security. Security is defined as any share, or depository in a company, and any member’s interest in a close corporation. Securities transfer tax applies to the purchase and transfers of listed and unlisted securities.

Tax deduction in respect of contributions to retirement funds
Taxpayers who contribute towards retirement funds are allowed an annual tax deduction, not exceeding the lesser of R 350 000, or 27% of their taxable income (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit), but including any capital gains tax. Any amount which is in excess of that limit, is not forfeited, but carried forward to the next tax year, and it could be used as a deduction by the taxpayer in that year of assessment.
Tax deduction of donations to certain organisations
There shall be allowed to be deducted in the determination of the taxable income of any taxpayer so much of the sum of any bona fide donations by that taxpayer in cash or of property made in kind, which was actually paid or transferred during the year of assessment to any approved organisation, agency, programme, fund, High Commissioner, office, entity, organisation or department. A section 18A receipt must be issued to the donor taxpayer for the donation.

Income Tax returns for individual taxpayers
Submission and assessment
ITR12 returns are submitted once a year. SARS announces every year the dates of the filing season for non-provisional and provisional taxpayers. The taxpayers must observe the deadlines for the submission of their tax returns. After the successful submission of the ITR12, SARS raises an original assessment ITA34.
Payment
Once the assessment is received from SARS, the taxpayer must proceed to make any payment that may be due to SARS in respect of their tax obligation. The final payment date for the tax liability is stated on the assessment. If the tax assessment resulted in a tax refund, the refund date is usually on the statement of assessed tax account (ITSA). Should the taxpayer cannot afford to make the full tax payment to SARS, a payment arrangement with SARS must be requested.
Income tax returns for companies
ITR14 returns are for corporate taxpayers. The tax year of a company coincides with the company’s financial year end and the ITR14 is due normally one year after the end of their financial and tax year end. The completion of an ITR14 is a complex matter, which must be navigated by an experienced tax professional, especially when it comes to the tax deductions and allowances to be used.
Provisional tax returns
Provisional tax returns IRP6 are due and payable two times during the tax year. IRP6 are compiled on a 6-month basis, taking into account estimated taxable income of the taxpayers for the first six months of the tax year – that is the first provisional tax return, and the estimated taxable income for the entire tax year – that is the second provisional tax return. The deadlines for submission and payment of provisional tax for individual provisional taxpayers are:
    • First provisional tax return - 31st August of every year; and
    • Second provisional tax – 28th, or 29th February of every year.
If a provisional taxpayer makes a late payment in respect of any provisional tax return, a late payment penalty of 10% of the total value of the IRP6 is chargeable by SARS, as well as interest at the current interest rate. The late payment penalty and interest cannot be disputed with SARS.
Employees’ tax returns
Employees’ tax returns EMP201 are monthly employers’ declarations which are due and payable on or before the 7th of each month. The EMP201 typically includes PAYE, SDL and UIF. Late payment penalty of 10% of the value of the return is chargeable by SARS together with interest at a current interest rate.
VAT returns
VAT201 returns are submitted according to the category of tax period, for which the vendor is registered. VAT201 return comprises of details regarding the Output tax, as well as Input tax and the difference results in either a VAT payment to SARS, or a VAT claim from SARS.

SARS is empowered by section 211 of the Tax Administration Act to raise Administrative Non-Compliance Penalty (AP34) in respect of non-compliant taxpayers. These AP34 penalties may range from R 250 up to R 16 000, depending on the taxable income. If SARS is satisfied that an amount of tax was not paid as and when required under a tax Act, SARS must, in addition to any other ‘penalty’ or interest for which a person may be liable, impose a ‘penalty’ equal to the percentage of the amount of unpaid tax as prescribed in the tax Act.
To avoid the AP34 penalties from SARS, the taxpayers must observe the deadlines for the submission of their personal income tax returns.
Late payment penalty of 10% of the value of the return is chargeable by SARS together with interest at the current interest rate. The interest incurred is calculated on a daily basis from the day when the return is due until the day the outstanding return amount is settled in full. Late payment penalty of 10% and the accompanying interest amounts on any outstanding returns cannot be disputed and they must be fully paid by the taxpayer.
Verification of income tax returns by SARS
In certain cases, SARS may request that a taxpayers’ income tax return is verified. The supporting documents of the tax return must be provided to SARS. In many instances, SARS may request additional documents, which were not initially included. SARS communicates to the taxpayers the deadline when the required documents must be submitted. If the taxpayer does not submit the required documents, SARS may raise an additional assessment, if they are not satisfied that the income, or tax deductions are justified by supporting documents. The taxpayer bears the burden of proving that an amount, transaction, event or item is exempt or otherwise not taxable and that an amount or item is deductible or may be set off. If the taxpayer does not discharge their burden of proof, SARS is entitled to raise an additional assessment.

If a taxpayer is aggrieved by SARS decision, or assessment, they may dispute such decision, or assessment via submission of a Notice of Objection. There are strict rules regarding the timeline of the submission of dispute and taxpayers are advised to use the assistance of a registered tax practitioner, who is well versed with the process.
The taxpayer must follow the principle established in the Tax Administration Act “first pay, argue later”, when a dispute is concerned. However, there are instances where that taxpayer is allowed to apply to SARS for suspension of payment, pending the outcome of the dispute.