Created on December 10, 2024

South Africa recognizes Forex trading as a legitimate activity and the South African Revenue Service (SARS) requires South African residents to pay tax on Forex trading profits. In short, all South Africans must report their Forex income for tax purposes, and there is no way around it. Like most countries’ revenue collection agencies, SARS will impose penalties for non-payment of tax.

Let’s look at how SARS taxes Forex trading and explore some tax planning strategies that Forex traders can use.

Profits from Forex trading are subject to South Africa’s regular income tax rates (unless the individual has set up a company for their Forex trading). Taxpayers can deduct trading-related expenses (eg computer equipment, trading courses, software, etc.) from their Forex profits to reduce their taxable income.

SARS publishes the current “Individual Tax Rates” here on its website. Individual tax rates are a progressive system with higher percentages at higher income levels. The lowest tax rate is 18%, and the highest is 45% above a certain income level. Each year SARS adjusts the income levels for each percentage of the income tax rate.

The provisional tax system applies to Forex trading profits as trading is not a taxable activity under the Pay As You Earn (PAYE) tax system. Let’s examine how the provisional tax system works.

Profits from Forex trading are subject to the SARS “provisional tax” method of payment.

Although “provisional tax” sounds like a special type of tax, such as income tax or inheritance tax, it is not. Rather, it is a way of spreading tax payments to SARS over the year rather than in one annual lump sum at the end of the tax year. SARS uses a temporary tax payment system to smooth the cash flow for taxpayers, rather than confronting them with one large payment at the end of the year that they may not be able to meet. Provisional tax requires taxpayers to pay at least two amounts in advance during the accounting year based on estimated taxable income.

1. The tax year in South Africa runs from 1 March to 28 February of the following year (or 29 February if it is a leap year). A tax year is named after the year in which it ends. For example, the tax year from March 1, 2024 to February 28, 2025 is called tax year 2025.
2. Provisional taxpayers must submit two provisional tax returns (IPP6) with all required payments to SARS during the tax year.
3. The first payment for the tax year must be made by the end of August (the middle of the tax year).
4. The second payment for the end of the tax year must be made by the end of February.
5. If the amount paid in previous payments was insufficient, the taxpayer can make a third payment at the end of September (seven months after the end of the tax year).
6. The “estimated taxable income” required by the provincial tax return is all of your (non-PAYE) income less business expenses incurred in earning that income. Also deduct any pension fund, pension annuity contributions, donation deductions and exempt income.
7. If the first and second payments result in an overpayment, SARS will issue a refund (this happens when the taxpayer submits the ITR12 to SARS for assessment).

Provisional tax registrants must file an IRP6 even if there are zero payments. Provisional taxpayers must also file an ITR12 tax return (just like regular/non-provisional taxpayers). The due date for ITR12 for provisional taxpayers is approximately 23 January next year.

Late and underpayments result in interest and other penalties from SARS, which depend on the extent of missed payments.

All South African resident forex traders must pay income tax on their trading profits when they start forex trading in South Africa. It doesn’t matter whether they used a domestic broker who holds assets in South Africa or a foreign broker who holds client deposits abroad.

South Africa has a domicile-based tax system, which means that SARS taxes residents on their worldwide income regardless of where it is earned. It does not matter where the resident earned the income. (In contrast, non-resident South Africans pay income tax only on their income from South African sources.)

The simple answer is: No, South African residents must pay tax on their Forex profits. Because traders are not paid under the Pay As You Earn (PAYE) tax plan, they must register for provisional tax (ie make at least two tax payments per year).

However, there are legal ways for Forex traders to pay less tax. Let’s explore some of them.

1. The easiest and most common way for Forex traders to reduce their income tax is to deduct expenses. Keep track of your trade-related expenses, as they are tax deductible, meaning you can deduct them from your income before calculating income tax. Types of trade-related costs typically include:
   • Courses and trading books
   • Charting software such as TradingView
   • Computer equipment: Don’t forget to include anything you buy, such as new monitors, upgraded keyboards and mice, special cables, external speakers, etc.
   • Office expenses, e.g. office furniture
   • Internet connection
   • For example, travel to a seminar or even meet another trader for networking
2. Consider putting some of your Forex profits into a retirement annuity (RA) fund. RA contributions are tax deductible, effectively reducing your taxable income in the year you contribute. Remember, there is a percentage limit and a dollar maximum (currently 27.5% and R350,000 per year) that you can put into an RA each year. There are also rules on when and how much you can withdraw from your RA, for example the minimum withdrawal age is 55 (with some exceptions, such as small deposits).
3. Consider putting some of your Forex profits into a tax-free account (TFSA). These accounts allow tax-free growth of investments, e.g. no interest or capital gains tax. Unlike an RA, contributions to a TFSA are not tax-deductible, so simply putting money into a TFSA does not change the amount of income tax you pay. However, individuals can withdraw money from a TFSA at any time without limit. Similar to TFSAs, there are limits to how much individuals can contribute. The current annual contribution limit is R36,000 per tax year, with a lifetime limit of R500,000.

All South Africans trading forex for themselves must pay income tax on their profits and minor expenses related to trading. It does not matter whether you use a domestic or foreign broker, as SARS taxes South African residents equally on their worldwide income. One of the best ways to reduce taxable trading income is to keep track of all expenses that should be deducted from profits before the final calculation of income tax. Costs include trading courses, books, computer equipment, drawing software, internet connection, office furniture, etc. Forex traders must register for the SARS interim tax payment method, which requires at least two tax returns (IRP6) and all required payments at the end of August and February of the tax assessment year, plus a third payment if there is still tax. Forex traders must also file an IRT12 tax return for the total year of assessment. Late or underpayment results in interest and penalties. Always register and pay your taxes! Finally, South Africans can also contribute a portion of their income to a superannuation (RA) fund to reduce their taxable income.