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Personal Taxation and Benefits
Personal income tax rates and thresholds for South Africa in 2011 are as follows:
- From ZAR 0 to ZAR 150,000 - 18%
- From ZAR 150,001 to ZAR 235,000 - 25%
- From ZAR 235,001 to ZAR 325,000 - 30%
- From ZAR 325,001 to ZAR 455,000 - 35%
- From ZAR 455,001 to ZAR 580,000 - 38%
- Above ZAR 580,000 - 40%
At 24 February 2011 the exchange rate of the Rand to the US dollar was ZAR 1 = USD 0.141.
Capital gains on the disposal of assets are included in taxable income. The effective rate for individuals is 10%. The following are some of the specific exclusions from capital gains tax:
- ZAR 1.5 million (USD 183,222) gain/loss on the disposal of a primary residence or the disposal of a primary residence for an amount of ZAR 2 million (USD 244,296) or less;
- most personal use assets;
- retirement benefits; and
- payments in respect of original long-term insurance policies.
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Estate duty is levied at a flat rate of 20% on property of residents and South African property of non-residents. A basic deduction of ZAR 3.5 million (USD 427,517) is allowed in the determination of an estate’s liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.
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Medical Insurance Taxation
The Income Tax Act regulates the taxation of medical contributions; those paid by the employer are treated as a business expense and, subject to certain conditions, employee contributions and uninsured medical costs are tax deductible. Benefits under the scheme are not subject to tax.
For those under age 65 the situation is as shown below.
- Contributions to medical schemes: the full 100% of contributions will be tax deductible irrespective of who makes the contribution. A maximum monetary amount will, however, apply of ZAR 570 (USD 70) for each of the first two beneficiaries plus ZAR 345 (USD 42) for each additional beneficiary. (ZAR 530 (USD 77.1) for each of the first two beneficiaries plus ZAR 320 (USD 46.6) for each additional beneficiary
- Medical expenses paid by individuals (including medical scheme contributions paid by the individual): since 1 March 2006 medical expenses in excess of 7.5% of income have been tax deductible (an increase in the threshold from 5%). Any contributions qualifying as a contribution to a medical scheme will be excluded under this allowance. If the claimant has a disability all medical expenses will be tax deductible.
- Employer provided medical treatment: since 1 March 2006 all benefits derived from employer provided medical treatment (on- or off-site) have been tax free in the hands of the employee provided that certain criteria are met relating to “prescribed minimum benefits” at an off-site location.
Those aged 65 or over are able to deduct all medical expenses and medical scheme contributions from taxable income. This will be extended so that those that took early retirement but still enjoy medical scheme coverage paid by their former employers will enjoy this as a tax free benefit.
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Pensions Taxation and Benefits - South Africa 2011 South Africa makes pensions available to only the poorest people and therefore fiscal encouragement has been given to citizens to make their own provisions for retirement through company or individual arrangements. For pensions and provident funds, employers may normally take a tax deduction as a business expense in respect of contributions up to 20% of remuneration and in special cases a higher level may be agreed. Some benefits, however, such as critical illness coverage, may rank as fringe benefits in which case a tax charge will arise against a member.
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Pension Taxation and Benefits
As the state makes pensions available to only the poorest people in South Africa, fiscal encouragement has been given to citizens to make their own provisions for retirement through company or individual arrangements.
For pensions and provident funds, employers may normally take a tax deduction as a business expense in respect of contributions up to 20% of remuneration (although the legislation refers to only 10%) and in special cases a higher level may be agreed. Some benefits, however, such as critical illness coverage, may rank as fringe benefits in which case a tax charge will arise against a member. For current contributions, employees may deduct from income 7.5% of retirement funding employment income up to a maximum. Additional voluntary contributions may be allowed to provide for past service. The employee tax benefit applies only to pension fund contributions, not to provident funds, but this tax problem may be avoided by employers paying the contributions on behalf of employees to a provident fund on a salary sacrifice basis.
The taxation of lump sums on retirement and death changed through the Taxation Laws Amendment Act, No 8 of 2007 that was enacted on 8 August 2007. The calculation of the taxable portion of lump sums from funds on retirement or death has been simplified and amended so that they are taxed less heavily if they accrue on or after 1 October 2007 than had hitherto been the case. Members of pension and retirement funds are legally entitled to withdraw up to one-third of the amounts standing to their credit when they retire. Provident fund members receive the whole amount due to them by the fund. Following the 2007 legislation, a person whose balance in a fund does not exceed ZAR 75,000 (USD 9,161) may withdraw the entire amount.
There is no tax payable on a lump sum of up to ZAR 300,000 (USD 36,644) over the individual’s lifetime. Any lump sums that are taken in excess of ZAR 300,000 (USD 36,644) will be subject to tax on a simplified scale as shown below.
- From ZAR 0 to ZAR 300,000 - 0%
- From ZAR 300,001 to ZAR 600,000 - 18%
- From ZAR 600,001 to ZAR 900,000 - 27%
- Above ZAR 900,000 - 36%
The simplified taxation system principles will also apply on death in service as the beneficiary is deemed to have retired immediately prior to death for the purposes of taxation of the benefit.
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Corporate, VAT and Other Taxes - South Africa 2011 Company (corporation) tax is payable at 28% of profits as calculated by a formula set by the relevant authority. Secondary Tax on Companies (STC) is imposed at a rate of 10% on dividends. The standard rate of VAT is 14%. Certain services including education and some financial services are exempt from VAT.
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Company (corporation) tax is payable at 28%.The tax year for a company is the financial year.
Secondary Tax on Companies (STC) is imposed at a rate of 10% on dividends declared by resident companies after being reduced by dividends receivable. South African branches of foreign resident companies are exempt from STC.
Interest and dividends are not subject to withholding tax. Royalties paid to non-residents are subject to withholding tax of 12%, although this may be reduced by the provisions of a relevant double tax treaty. Gross payments for income earned in South Africa by non-resident sportsmen and entertainers are subject to 15% withholding tax.
From 1 March 2010, mining companies are subject to a royalty payment of between 0.5% and 7% on gross sales of minerals mined, less allowable deductions.
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Regional Headquarter Company
A resident company may qualify as a regional headquarter company under legislation introduced by the Taxation Laws Amendment Act 2010 and effective from 1 January 2011. To qualify, each of the shareholders of the company must hold at least 20% of the shares ("minimum participation shareholding requirement"); 80% of the company's year-end tax value must represent equity, debt or intellectual property investments in foreign subsidiaries ("80-20 tax value requirement"); 80% of total receipts and accruals in the year must be from foreign companies in which it holds at least 20% of the shares; and the minimum participation shareholding requirement and 80-20 tax value rule must be satisfied continuously from the time that the company first qualifies as a regional headquarter company.
Where the above conditions are satisfied, the company is treated as non-resident for the purposes of the controlled foreign companies (CFC) regime, with the consequence that the CFC status of the company's foreign shareholdings is determined by the indirect holding of the headquarter company's shareholders rather than by a direct holding by the headquarter company itself. For transfer pricing purposes, the headquarter company does not need to take into account any foreign loans, subject to certain exceptions, though the tax deductions for interest paid on these loans are ring-fenced and only offset against interest earned on loans that are on-lent to the foreign associated companies, the excess interest expense being carried forward.
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Value Added Tax
The standard rate of value added tax (VAT) is 14%, and this applies to most supplies of goods and services including imports. Exports are subject to VAT at a zero rate. Some goods and services are exempt, including financial services, residential accommodation in a dwelling, public passenger transport, certain educational services, some services of trade unions and of not for profit organisations.
The VAT registration threshold for businesses is turnover of ZAR 1 million in any 12-month period, although there is a voluntary registration threshold of ZAR 20,000.
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Insurance Premium Tax
There is no insurance premium tax and no stamp duty is payable by the insured. However insurance companies are required to pay, each year, a fixed percentage of their premium income to finance the operations of the supervisory body, the Financial Services Board (FSB). These provisions are made under the FSB Act.