Sa Tax Laws on Forex Trading

Tax on Forex Trading

Forex Trading

Forex trading, short for foreign exchange trading, entails the buying and selling of currency pairs simultaneously in order to profit from the fluctuations in currency prices.

Forex trading takes place in the
over-the-counter forex market, the largest financial market in the world. It is an
electronic network of buyers and sellers
of currencies.
Forex traders
include, inter alia, private banks, central banks, financial institutions, investment firms, and individuals.

A Quick Overview of Forex Trading Taxability:

✔️Forex trading
✔️Forex trading in South Africa
✔️Is there tax payable on forex trading in South Africa?

Forex Trading in South Africa

Since it has been considered as a legal activity in 2010,
forex trading is thriving in South Africa. Retail forex trading is growing in popularity and volume in South Africa, with a growing number of forex traders speculating on the exchange rate between currencies of different countries.

In South Africa, as well as worldwide, dedicated
electronic trading platforms
and the internet have boosted trading volumes tremendously. Estimates in December 2019 indicated that there could be almost 200 000 forex traders in South Africa.

Many South African forex traders are utilizing forex trading as
one of the main sources of their income and for some the only source.

Is There Tax Payable on Forex Trading in South Africa?

The answer is an unequivocally ‘yes’. Even when you generated profits in your
offshore forex trading accounts, you are obliged to pay income tax on the profits.

Residence-based tax system

The reason is that, according to the South African Revenue Service (SARS), ‘South Africa has a residence-based tax system, which means residents are, subjected to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned.’ This implies that regardless of where the income originates from, the
litmus test
for tax payable is
where the person resides while generating that income. Non-residents
pay income tax on their income from a South African source.

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Declaring your profits from forex trading

Forex traders who are residing in South Africa, are required to
declare all their profits from forex trading
on their annual tax returns.

All
expenses incurred
from your forex trading must be deducted from the gross income of the trading
to calculate the taxable profit
from your forex trading. Therefore, local forex traders should keep all documents and records pertaining to their forex trading activities. If necessary, profits have to be converted to South African rand.

Failure to declare the profits activates interest and penalties like any other failure to report income.

The profit is added to your other income and then applied against the
applicable tax tables
– refer below.

When you trade as a business entity, such as a private company, close corporation, or small business corporation, your trading profit will be subjected to corporate income tax (CIT) – refer below for tax rates.

Tax tables (tax brackets) for individuals for the tax years 2022 and 2022

2020 (1 March 2022 – 28 February 2022)

Taxable income Rates of tax
R1 – R216 200 18% of taxable income
R216 01 – R337 800 R38 916 + 26% of taxable income above R216 200
R337 801 – R467 500 R70 532 + 31% of taxable income above R337 800
R467 501 – R613 600 R110 739 + 36% of taxable income above R467 500
R613 601 – R782 200 R163 335 + 39% of taxable income above R613 600
R782 201 – R1 656 600 R229 089 + 41% of taxable income above R782 200
R1 656 601 and above R587 593 + 45% of taxable income above R1 656 600

2020 (1 March 2019 – 29 February 2022)

Taxable income Rates of tax
R1 – R205 900 18% of taxable income
R205 901 – R321 600 R37 062 + 26% of taxable income above R205 900
R321 601 – R445 100 R67 144 + 31% of taxable income above R321 600
R445 101 – R584 200 R105 429 + 36% of taxable income above R445 100
R584 201 – R744 800 R155 505 + 39% of taxable income above R584 200
R744 801 – R1 577 300 R218 139 + 41% of taxable income above R744 800
R1 577 301 and above R559 464 + 45% of taxable income above R1 577 300
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However, individuals are only obliged to pay income tax if their total
income exceeds a certain annual threshold.

Tables for tax thresholds

Age 2022 2021
Under 65 R87 300 R83 100
65 and older R135 150 R128 650
75 and older R151 100 R143 850

Tax rates for business entities

Companies

For both the 2022 and 2022 tax years, the
corporate income tax is 28%.

Tax table for small business corporations (SBCs) (2020)

Financial year ending on any date between 1 April 2022 and 31 March 2022

Taxable Income Tax rate
R1 – R87 300 0% of taxable income
R87 301 – R365 000 7% of taxable income above R87 300
R365 001 – R550 000 R19 439 + 21% of taxable income above R365 000
R550 001 and above R58 289 + 28% of the amount above R550 000
Tax table for small business corporations (SBCs) (2020)

Financial year ending on any date between 1 April 2019 and 31 March 2022

Taxable Income Tax rate
R1 – R83 100 0% of taxable income
R83 101 – R365 000 7% of taxable income above R83 100
R365 001 – R550 000 R19 733 + 21% of taxable income above R365 000
R550 001 and above R58 583 + 28% of the amount above R550 000

Provisional tax

Normally, your income from forex trading
will not be subject to PAYE
(Pay As You Earn), which is a system of monthly tax payments to SARS.

Therefore, you need to register as a
provisional taxpayer
with SARS. Provisional taxpayers are obliged to make two provisional tax payments per year – before the end of February and the end of August of every year. An optional third payment may be made after the end of the tax year, but before the assessment is issued by SARS.

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Provisional tax
is not an additional tax but a method to spread the tax liability over the tax year to avoid paying large amounts on assessment.

Provisional tax estimates are submitted to SARS on
IRP 6 returns
before the end of August and the end of February of every tax year.

Businesses are also required to register as provisional taxpayers.

Tax on interest earned from a forex trading account

Interest earned on forex trading accounts
during a given tax year will be added to other interest income if any. Interest earned is only taxable when it exceeds the
exemption for interest, as indicated below.

Tax table for interest exemptions

2022 2021
Person younger than 65 R23 800 R23 800
Person 65 and older R34 500 R34 500

**Note: This article is a general guide only and does not purport to be a document of legal tax advice.

Sa Tax Laws on Forex Trading

Source: https://sashares.co.za/forex-trading-tax-south-africa/

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