How is forex trading taxed in South Africa?
Forex traders in South Africa often don’t know what their tax responsibilities are to the South African Revenue Service (SARS) (SARS).
Some traders open trading accounts with forex brokers in South Africa, or with international brokers that have branches in South Africa, so that the gains they make from their trading are visible to SARS.
As a result of a frequent misconception, many traders believe that they don’t have to pay income tax on earnings obtained in offshore trading accounts.
Tax returns must be filed in South African Rand if a South African resident makes money through trading in an offshore trading account while located in South Africa, and the profit is considered normal taxable income.
No matter where the money comes from, what matters is the person who generates it, not the place they live. To provide more clarity on the taxable nature of Forex income, we are going to take a closer look at Forex trading and how it pertains to South African residents’ obligations to SARS.
This is how forex trading is taxed in South Africa.
Why is Forex trading taxable?
In order to generate a profit, traders speculate on the value of currencies. When trading currencies, a trader is betting on whether one currency will rise or decline in value in relation to the other currency when trading.
There are several factors that affect the value of a currency pair, including trade flows, economic, political, and geopolitical events. A forex trader may find new chances for profit in the daily volatility that results from these circumstances.
You can trade currencies from your phone, laptop, tablet, or PC using online trading platforms provided by worldwide brokers, or from brokers established in South Africa.
‘Trading’ and ‘income’ are the key words in the question. There’s a strong implication here that you intend to trade FX for profit.
As a result, any profit you make through forex trading is subject to income tax at the individual’s marginal rate under the Internal Revenue Code. As a result, you can deduct any costs you incur in generating money.
Since your worldwide income is subject to South African taxation, you’ll need to include the profits (converted to rand) in your yearly tax return. Provisional taxes are also due in August and February each year.
To be clear, this is not an additional tax, but rather a way to pay your annual tax, since your income will not be subject to PAYE.
In the event that you relocate outside of South Africa, it is crucial to keep in mind that you may still be a tax resident subject to South African tax if you move without proper emigration proceedings.
Emigration from South Africa requires submitting an application to both SARB and SARS. Emigration may result in a capital gains tax liability, depending on your personal circumstances.
The various ways the Forex trading income is taxed by SARS
It can be paid as provisional tax
Most South African forex traders don’t get paid by a registered South African employer for their forex trading activity, which is a company.
In order to be legally compliant, these traders must register for provisional tax and pay two provisional tax payments every year, these traders must do so.
To make up for any deficiency in the second payment, a third payment, sometimes known as a “top-up,” may be made. Estimated taxable income is used to determine the provisional tax payments, which are then reported to SARS on an IRP6 return. Provisional tax must also be paid by companies.
It can be paid as tax deductible expenses
If you’re a South African forex trader, you’re allowed to deduct any expenses you incur in making money from your taxable income.
In order to keep track of all of their trading expenses, local forex traders should preserve receipts for everything from employee wages to training expenses to software purchases to office supplies to computer maintenance to bank fees.
A trader’s taxable income might also be reduced by asset depreciation (the wear and tear). Depreciation of a forex trader’s computer, for example, might be deducted from the profits he receives from his trading activity.
All expenses made in generating the income, whether through a registered company, a small business corporation, a trust, or in an individual’s personal capacity, can be deducted from the taxable revenue.
When you are taxed as an individual
People who trade forex as individuals and in special trusts are taxed according to the amount of money they make. If a trader’s total annual income surpasses a set annual threshold that is established by their age, they are only obligated to pay income tax.
When you are taxed as a business entity
There are a slew of other factors to consider before deciding whether to conduct business as a corporation or as an individual sole proprietor.
When setting up a corporation in South Africa, keep in mind that even if you later move to another country, the company will continue be taxed in South Africa.
A flat tax of 28% of taxable income applies to any forex trading conducted through a South African registered firm.
In contrast to corporations, small business corporations are exempt from tax until their taxable revenue exceeds R75, 750.
How to declare your Forex trading income
In the “foreign revenue” and “business/trading” sections, forex earnings and losses would be listed. Using the SARS tax tables, a person’s rate of taxation would be determined by their income.
To calculate revenue, SARS monthly exchange rates must be taken into account. SARS has a page dedicated to these on their website.
The importance of using a regulated broker when it comes to taxable trading
To provide advice or intermediary services in South Africa, forex advisors and intermediaries must be registered with the Financial Sector Conduct Authority (FSCA).
It doesn’t matter if the product is domestic or foreign-made. Check the FSCA’s website to make sure a broker is authorized to provide services in South Africa before hiring them.
In the same way, if you’re moving abroad, be sure any broker you choose is properly licensed by conducting research on them.
Below is a helpful list of some of the best regulated Forex brokers in South Africa, to ensure that your trading is legal and above-board. Each of these brokers has been registered and licensed with the Financial Sector Conduct Authority (FSCA).
Khwezi Trade
Overview
Located in South Africa, Khwezi Trade is a forex and CFD broker that operates online. Technical indicators and expert advisors are both supported by the broker’s trading platform, MT4, which is the industry standard for trading software and is used by the majority of financial institutions.
Among the most favourable trade circumstances available in the sector are those offered by Khwezi Trade. The broker’s spreads are tight, averaging 0.6 pips on average, and there are no commissions charged for trading with the broker.
Pros and Cons
| ✔ Pros | ❌ Cons |
|---|---|
| Trusted forex broker with regulation through the Financial Sector Conduct Authority | No crypto deposits accepted |
| Khwezi Trade is an industry-leading broker and is one of the first non-bank entity to receive OTC licensing | There are limited account base currency options |
| Khwezi Trade is an authorised FSP and ODP in South Africa | US clients are not accepted |
| Traders are provided access to powerful trading technology | |
| Competitive spreads are offered | |
| There is a decent maximum leverage ratio offered |
Features
| 👉 Feature | ℹ️ Information |
|---|---|
| 👮♂️ Regulation | 👍 FSCA |
| 💵 Minimum deposit from | 💰 ZAR500 |
| ⚖️ Average spread from | 👉 0,6 pips |
| 📈 Commissions from | N/A |
| 💸 Deposit/Withdrawal Fees | N/A |
| ⚖️ Maximum Leverage | ⚖️. 1:400 |
| 🤑 Bonuses | 👍 30% |
| ❓ Customer Support | 🏪. 24/5 |
Tickmill
Overview
Tickmill charges lower trading fees than the majority of its competitors. It is possible to open a spread-only account with Tickmill, which has spreads of up to 0.1 pip.
Tickmill’s deposits and withdrawals are likewise completely free of charge. There are a variety of ways to make deposits, including bank transfer, credit card, and Skrill.
As a trading platform, MetaTrader 4 is provided by Tickmill and may be used on a variety of platforms including PCs, WebTraders, and mobile devices including smartphones and tablets.
Pros and Cons
| ✔️ Pros | ❌ Cons |
|---|---|
| STP model | |
| Advanced trading software | |
| Competitive pricing | |
| Well regulated | |
| High leverage |
Features
| 👉 Feature | ℹ️ Information |
|---|---|
| 👮♂️ Regulation | 👍 FSCA |
| 💵 Minimum deposit from | 💰 $100 |
| ⚖️ Average spread from | 👉 0.1 pips |
| 📈 Commissions from | 📈 2% per 100,000 traded |
| 💸 Deposit/Withdrawal Fees | 🙅 None |
| ⚖️ Maximum Leverage | ⚖️ 1:500 |
| 🤑 Bonuses | 👍 $30 Welcome Bonus |
| ❓ Customer Support | 🏪 24/5 |
HotForex
Overview
HotForex offers a choice of account types that are suitable for both beginner and experienced traders. The broker offers a Premium account with a EUR/USD spread of 0.0 pips on average, and there are no additional fees associated with this account.
The MT4 and MT5 trading platforms are available to all traders. There are 49 FX pairings to pick from, as well as CFDs on metals and indices, 56 stocks, 7 commodities, and 7 cryptocurrency pairs. The broker has a low minimum deposit requirement of only $5.
Pros and Cons
| ✔️ Pros | ❌ Cons |
|---|---|
| No deposit or withdrawal fees | High commission charges on the Zero account |
| Competitive spreads |
Features
| 👉 Feature | ℹ️ Information |
|---|---|
| 👮♂️ Regulation | 👍 CySEC, DFSA, FCA, FSA, FSCA |
| 💵 Minimum deposit from | 💰 $5 |
| ⚖️ Average spread from | 👉 0,0 pips |
| 📈 Commissions from | 📈 USD 0.03 per 1K lot. |
| 💸 Deposit/Withdrawal Fees | 🙅 None |
| ⚖️. Maximum Leverage | ⚖️. 1:1000 |
| 🤑 Bonuses | 👍 100% Supercharged Bonus |
| ❓ Customer Support | 🏪 24/5 |
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