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janvdwest

TAX and 15% VAT

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Could somebody please explain tax expenses on trading?  Does one pay capital gains tax on share sales and 15% VAT on dividend income?   Is the 15% a flat rate regardless of the size of portfolio?  How do these tax fees compare to international costs?  Are these the only taxes involved?  Is it possible for a business to own a portfolio? 

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Posted (edited)

Hi janvdwest

 

I'm not a tax expert, but the way I understand the tax on trading is as follows:

 

When buying or selling a share, you first pay brokerage and Strate fees (which are not taxes), and VAT is levied on these costs.

 

The first direct tax you pay is the securities transfer tax of 0.25% which is levied on every transfer of a security.

 

When you sell a share at a higher price that you bought it for, only the profit is considered to be capital gains (not the whole proceeds of the sale). The first R40,000 of capital gains you make per year is  exempt from tax. Any capital gains above R40,000 is taxed at 18% p.a. for individuals and 22.4% p.a. for companies.

 

When a South African company pays a dividend, it withholds tax of 20% on the dividend that it pays (not 15% as you mentioned in your post - that was increased in 2017). When an individual receives the dividend from a South African company, it is exempt from tax, because the tax has already been withheld and paid over to SARS by the company paying the dividend. There is no VAT on dividend income.

 

Income earned from REITs (Real Estate Investment Trusts) is not considered as dividends and there is no withholding tax on these. However, this income should be declared as income on your annual income tax return and will be taxed along with your overall assessment according to your normal tax bracket in the same way as if you rented a property out yourself. When you finally dispose of your REITs, then any profit made from the difference between the selling and buying price of the REITs is considered a capital gain, taxed at 18% p.a. for individuals and 22.4% p.a. for companies (also subject to the R40,000 exemption for total capital gains per year).

 

Then, finally, dividends, income and capital gains earned within a tax free investment account are exempt from all of the above taxes (except for VAT on brokerage and strate fees, of course).

 

Edited by SaurusDNA
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