How is forex trading taxed in South Africa?

Tax responsibilities for foreign currency traders in South Africa can be a mystery to many South Africans.

For this reason, some traders create accounts with forex brokers based in South Africa or with foreign brokers with South African offices.

Many traders are under the mistaken impression that profits earned in offshore trading accounts are exempt from paying taxes.

Those who gain money from trading in an offshore trading account while residing in South Africa must file their tax returns in South African Rand, which is considered normal taxable income.

To this end, who makes the money is more important than where they live, regardless of where it originates.

Taking a look at Forex trading as it relates to South African residents’ responsibilities to SARS will help us better understand the taxable nature of Forex income.

This is how Forex income is taxed and SARS regulations South African traders should be aware of.

Factors which make Forex income taxable in South Africa

Traders make money by speculating on the future value of various currencies, a practice which involves estimating how much one currency will grow or fall against the other when trading.

Trade flows, economic, political, and geopolitical events all have an impact on the value of a currency pair. As a result of these conditions, the daily volatility in the currency market offers new opportunities for profit for traders.

If you have an internet connection, you can trade currencies from your phone, laptop, tablet, or PC using online trading platforms supplied by international brokers or by South African brokers.

To answer the question regarding Forex trading’s taxability, you need to focus on the phrases “trading” and “income.” Here, it is strongly implied that you aim to make money by trading foreign exchange (for profit).

To put it another way, if you make money through forex trading, you’ll have to pay income tax on it at your marginal rate. In other words, you can write off any expenses you have to make money.

South African tax law requires that you report all of your international income, regardless of how much money you make, on your tax return each year. During the months of August and February, taxpayers must also pay provisional taxes.

The income you get will not be subject to PAYE, so this is not an extra charge but a way to pay your annual tax.

For those who have relocated, to avoid being taxed in your new country but still subject to South African tax, it’s imperative that you follow the correct emigration procedures before leaving South Africa.

To leave South Africa, one must apply to both the SARB and SARS. According to your unique circumstances, you may have to pay capital gains taxes after moving to another country.

The correct way to declare your Forex trading income

The forex profits and losses would be included in the “foreign revenue” and “business/trading” sections, respectively. The rate of taxation for an individual would be determined by their income, according to the SARS tax tables.

The SARS monthly exchange rates must be taken into consideration when calculating revenue. On its website, SARS has a section devoted to these issues.

Categories of Forex trading taxation by the South African Revenue Service (SARS)

Taxation of a business entity

Various factors should be taken into consideration before selecting whether to operate a firm as a corporation or an individual sole proprietorship, such as taxation and liability.

When forming a corporation in South Africa, keep in mind that, even if you later relocate to another country, the corporation will continue to be subject to South African taxation until it is dissolved.

The tax rate on forex trading undertaken through a South African registered firm is 28 percent of taxable income, with no exemptions or deductions.

Small business corporations, in contrast to corporations, are immune from tax until their taxable revenue exceeds R75, 750 in the year of incorporation.

Taxation of individuals

Individuals and special trusts who trade forex are subject to income tax based on the amount of money they earn from their trading. The only tax that a trader is required to pay is income tax – if their total annual income exceeds a specific annual level that is determined by their age.

Tax deductible expenses

South African forex traders are permitted to deduct any expenses incurred in the course of earning money from their taxable income.

Local forex traders should keep account of all of their trading expenses, including staff salary, training expenses, software purchases, office supplies, computer maintenance, and bank fees, in order to maintain track of all of their trading expenses.

Asset depreciation may also have the effect of reducing a trader’s taxable revenue (the wear and tear of a laptop). If a forex trader’s computer depreciates in value, the depreciation of his computer may be deducted from the earnings gained from his trading activity.

Taxable income can be reduced by any expenses incurred in producing that income, whether they are incurred through a registered company or through a small business corporation/trust, or whether they are incurred in an individual’s own personal capacity.

Provisional taxation

The majority of South African forex traders are not compensated by a legally recognized South African employer for their forex trading activity, which is a firm in the country.

In order to be legally compliant, these traders must register for provisional tax and make two provisional tax payments every year, which they must do in order to be legally compliant.

A third payment, frequently referred to as a “top-up,” may be made in order to make up for any shortfall in the second instalment.

In order to calculate provisional tax payments, SARS uses estimated taxable income. Provisional tax payments are subsequently reported to SARS on an IRP6 tax return. Companies must additionally pay a provisional tax, which is a small amount.

Why it is so important to have an FSCA-regulated broker

Forex brokers, advisors and intermediaries in South Africa must be registered with the Financial Sector Conduct Authority (FSCA) in order to give advice or intermediary services to clients.

It makes no difference whether the broker is based on South Africa or headquartered overseas. If you are not sure that a broker is permitted to provide services in South Africa, check the FSCA’s website to ensure that they are before hiring them.

In the same vein, if you’re relocating abroad, make certain that any broker you hire is legitimately licensed by completing background checks on them.

To ensure that your Forex trading is legal and above-board, we’ve compiled a list of some of the best regulated Forex brokers in South Africa for your convenience. Licensed and registered with the Financial Sector Conduct Authority (FSCA), each of these brokers is a legitimate option for investors.