Foreign Income and Expat tax

The below is only applicable if you are a South African Tax resident and have any of the below mentioned income streams.

Foreign income consists of any earnings that did not originate in South Africa; meaning the property or investment is held within another country’s market or jurisdiction, and would consist of

Foreign income received from :

    • Salaries (Section 1)
      • Living in South Africa
      • Expat – living overseas for work, but still a South African citizen, and South Africa is still your “home” ?
    • Other earnings (Section 2)
      • Fees for services
      • Goods

Each of the above gets treated differently for South African Tax and must be converted to Rand value, based on the exchange rate as at 28/29 February (or the financial year end of a company).


1) Foreign salary :

This is where things can get complicated and our vision is that this section will assist you to understand your tax situation a lot better. For both of the below scenarios, SARS and the Tax Act state that the individual should register for Provisional tax.

Please see our article on provisional tax for more information :

1) Individual earning a foreign salary, but primarily lives in South Africa and NOT in the foreign country for more than 183 days :

Another 2 scenarios can exist :
i. The foreign company does withhold or pay taxes on your behalf

a) Proof of this will be needed when submitting your tax return.
b) Please see the example below in the Expat section which will explain the foreign tax credit.

ii. No tax is being withheld or paid.

There is no rebate or special reductions in the taxable income for this type of scenario.
Your salary must be converted to Rand and declared as foreign income on your tax return.
On your tax return, you can claim any foreign tax (converted to Rand) which was withheld OR paid to the foreign State.

Work from Home expenses can be claimed and you can find more on this here :

2) Expats :

Some conditions are to be met, before the R1,250,000 rebate of Sec. 10(1)(o)(i) can be applied :
• Out of South Africa for more than 183 days – consecutively.
• Still a South African citizen and tax resident
• South Africa is “STILL your Home”

Your salary and any foreign taxes are also converted to Rand value and in your income tax return, added as other foreign income.
NB: As of the date of writing this, there is an error under the tax return for sec. 10(1)(o)(i) income block and its corresponding foreign tax rebate.

Example in calculating taxes :
This example excludes and does not consider other income received.
Annual Foreign Salary : $100,000
Foreign Taxes paid : $20,000
Assumed Exchange rate : R15 to $1
Annual Salary in Rand : R1,500,000
Foreign taxes in Rand : R 300,000

Salary : R1,500,000
Sec 10(1)(o)(i) deduction of : R1,250,000 (EXPATS ONLY)
Taxable portion of income R 250,000
And then calculated at the applicable tax rate for earning R250,000.
For individuals who earn a foreign salary whilst in South Africa, their taxable salary will be R1,500,000 in total and taxed at the applicable rate for this income tax bracket.

The foreign tax credit is calculated based on 2 different calculations :
a) To determine the maximum foreign tax amount allowed – The maximum allowable deduction of foreign tax, from the South African tax. .

The foreign tax credit cannot :
• Cause a refund
• Be more than the South African tax

Sec 6 Quat (1B)(a) :
Foreign tax cap = Total taxable foreign income X SA Tax
                                   Total taxable income ALL sources (local and foreign)

All taxable income means :
• Rental profit
• Salaried income
• Interest received
• Any other income not mentioned

AFTER deductions such as (and not limited to) :
• Retirement annuity
• Logbook / travel expenses
• Home Office
• NOT medical as medical expenses (incl. medical aid) have a tax reduction effect, not a reduction in taxable income.

b) The allowable portion of the foreign tax credit.

This is the portion that will be deducted from the South African tax calculated after all income and all allowable expenses are considered.
This means that after all your income was added up
• Taxable portion of salaries
• Rental profit
• Interest received
• Other income received
AFTER deductions such as (and not limited to) :
• Retirement annuity
• Logbook / travel expenses
• Home Office
• NOT medical as medical expenses (incl. medical aid) has a tax reduction effect, not a reduction in taxable income.

Allowable portion of foreign taxes = Foreign tax X Nett taxable income
Gross income (before deductions)


2) Other Foreign Income :

This would include (and NOT limited to) :

• Service fees charged to a company that is based in another country.
• Earning rental income from a property in a foreign country
• Sale of goods by a South African (individual or Company)

Whether this income is received by a South African Individual or Company, makes no difference in the INCOME TAX treatment.

• VAT will be 0% on these services delivered – ZERO-rated VAT.
• VAT registration MUST be done if the service fees or sales of goods exceed, R1,000,000.

• The revenue will still be declared on the VAT return, but under ZERO rated and NO VAT would be payable on the foreign amounts received.

The amount declared must be converted to Rand.
An individual generating the above income must be registered for Provisional tax.

There are no special deductions except those deductions applicable to :
• For :

• Generating the fees
• Sale of the goods
Standard business expenses can be deducted :

• Accounting fees
• Bank fees
• Rent or home office expenses – as applicable
• Utilities
• Salaries
• Etc

• Directly related to the property – if rental income is received.

– Salim Khan

Please click here to read related article on Foreign Investment Taxt treatment

Foreign Investment Tax Treatment

The below is only applicable if you are a South African Tax resident and have any of the below-mentioned income streams.

Foreign income consists of any earnings that did not originate in South Africa; meaning the property or investment is held within another country’s market or jurisdiction, and would consist of

Foreign investment income :

    • Dividends (Section 1) 
    • REITS (Section 2) 
    • Interest (Section 2)
    • Capital Gain/Loss on foreign investments (or investment properties – properties held for rental) (Section 3) 

Each of the above gets treated differently for South African Tax and must be converted to Rand value, based on the exchange rate as at 28/29 February (or the financial year end of a company).


1) Foreign dividends :

Foreign dividends are NOT exempt from South African tax.
For individuals, trusts and companies the treatment is the same except for the rates (shown below) used. Any foreign dividend tax paid is taken into consideration when calculating the tax payable on foreign dividends.
After converting the foreign dividend and applicable tax to rand value, deduct the tax from the gross dividend.

A special exemption is calculated based on this figure and whether the taxpayer is a person(individual), company or Trust.

The fraction used for each taxpayer type is as follows :

        • Individual : 25/45
        • Trust : 25/45
        • Company : 7/27 

Example :

Rand Value of Gross dividend = R150
Foreign tax in rand value = R25
Nett dividend  =  R125

To calculate the EXEMPT portion : 

  1. Individual and trust :
    R125 x 25 / 45 = R69.44
    Hence the taxable portion of the foreign dividend is :
    = R125 – R69.44
    = R55.56 – will be added to your taxable income.
  1. Companies :
    R125 x 7 / 27 = R32.41
    Hence the taxable portion of the foreign dividend is :
    = R125 – R32.41
    = R92.59 – will be added to the company’s taxable income.


2)  Foreign investment income :

The Rand Value is taxed, in full at the applicable tax rate (18%, 41%, etc) and any foreign tax paid, will have its Rand value deducted as a tax rebate.


3) Foreign Capital Gains and Loss

All values have to be converted to Rand Value

A Capital Gain or loss is calculated as follows :

    • Selling price less Base Cost.
      • We will not go into detail here on how different ways to calculate base cost, however the fundamental rule is :
        • Rental Property :
          • how much did purchase of the property cost you/the company?
          • How much were any additions (NOT repairs and maintenance)?
            • New warehouse or extra rooms built on.
            • Changing Carpets to Tiles is NOT an addition
        • Investments :
          • Your investment house/institution would have calculated this and does appear on the applicable certificate/report.
          • Foreign reports do not necessarily come in the South African standard and some adding up and subtracting would be required.
      • Commission and certain fees involved, can be added onto the base cost.
    • a) Foreign Capital losses :
      • are not added to any Local Capital Losses.
      • Should you have sold an investment, which was held within another country, and this sale resulted in a loss, then this Foreign Capital Loss will be put aside.
      • The Foreign Capital Loss can only be offset against other Foreign Capital Gains going forward.
      • A Local Capital Loss cannot be offset against a Foreign Capital Gain
      • A foreign capital loss cannot be offset against :
        • A Local Capital Gain (Gain on sale of an Allan Gray/PSG- Investment / Rental property held in South Africa)
        • Other foreign income (Dividends, rental, fees, etc)
    • b) Foreign Capital Gains : 
        • When the proceeds (what you/the company received for the property) is more than what you/the company paid for the property, then a Capital Gain originates.
          • The Foreign Capital Gain gets reduced by any Foreign Capital Losses
            • These Capital Losses will either be for the same tax year 
            • A Foreign capital loss brought forward from previous years
        • The Foreign Capital Gain that remains, gets added onto any Local Capital Gains.
          • For Individuals ONLY, the balance is reduced by the annual exclusion of R40,000
          • And then a potion (40% for individuals / 80% for companies and Trusts) is calculated as the taxable portion.
      • Commission and certain fees involved, can be added onto the base cost.

Example :

The initial calculation is the same for Trusts, Companies and Individuals.

Investment (or a portion thereof) was sold for : $50,000
Base Cost : $15,000
Foreign Capital Loss from the year before : R100,000
Let us use an exchange rate of R15 for $1

Proceeds $50,000 x R15 = R750,000
Base Cost$15,000 x R15 = R225,000
Foreign Capital Gain = R525,000


Foreign Capital Loss      = R100,000
Leaves us with a nett Foreign Capital gain of : R425,000
Local Capital Gains       :  R 75,000

Total Taxable Gain to be considered       : R500,000

To calculate the portion that has to be taxed :

Individuals :
Total of ALL capital Gains = R500,000
Less Annual exclusion   = R   40,000
= R460,000

40% of the R460,000 is what your tax will be calculated on R460,000 x 40% = R184,000.
This R184,000 will be added to your salary, investment income, and any other income.

Companies and Trusts
Total of ALL capital Gains = R500,000
Less Annual exclusion   = R   ZERO
= R500,000

80% of the R500,000 is what your tax will be calculated on
R500,000 x 80% = R400,000

This R400,000 will be added to your company’s / Trust’s other income.

NOTE : Should a Trust opt to distribute the Capital Gain to the person who is a beneficiary, then that Capital Gain is taxed in the name of the individual and that person can deduct the annual exclusion of R40,000 and the balance of 40% is taxable in their names.

The Trust will then NOT pay tax on the Capital Gain.

– Salim Khan

Please click here to read related article on Foreign income and Expat Tax:

    • Salaries (Section 1) – see this article
      • Living in South Africa
      • Expat – living overseas for work, but still a South African citizen, and South Africa is still your “home” ?
    • Other earnings (Section 5) – see this article
      • Fees for services
      • Goods

How to submit an EMP501

The EMP501 is a bi-annual reconciliation which is submitted in October (ex: March 2021 to August 2021) and May (ex: September 2021 to February 2022). It is a reconciliation to match Payroll figures (IRP5’s) to the Monthly EMP201’s and both to agree to the Monthly payments made.


There are 2 ways of submitting:

1) Via E-Filing
Recommended for less than 10 employees.

2) EasyFile

a. A program, which can be downloaded from E-Filing’s home page or the SARS website.
b. Easy to use, but sometimes not all the needed software is downloaded. Quick fix normally.

For both of the above:

  • A payroll file can be imported, although, with EasyFile, this process is a lot smoother.
  • IRP5’s can be manually entered, if there is NO formal payroll system.

How to obtain the payroll file:

Every payroll system will have a specific file that can be imported into EasyFile. Can be a .txt file or a .csv file – System dependent.

For Pastel Payroll and Sage Payroll Online, you will find the options under Reports or Tax certificates.

For VIP -> History -> Reports.

Ensure the following is selected:

a. the correct year
b. Mid-year or Year end
c. Live submission

Resolve any issues.

For manual submissions:

Payroll systems would allow you to select tax codes. E-Filing does not provide a search option for tax codes, but can be searched for on SARS’s website. It is advised that only to a maximum of 10 employees be done manually on E-Filing.

Submission via EasyFile:

This section assumes that EasyFile has already been set-up.

  • Open up the selected company.
  • Firstly select Import/Export Payroll File and Pop-up will show. Select Import and search for the payroll file.
  • Follow prompts.
  • Nothing and no forms will open.

  • Next, select Declaration, 2nd the period and 3rd “Request”.

  • A pop-up menu will appear with 3 options:

1) Accept Data

a. A pop-menu requesting log in.
b. This is the same Log Ins for your E-Filing profile which was used to submit the EMP201’s.
c. The EMP501 form will open

2) Own Values

Two options :
i. Request SARS Data: same process as nr 1, above.
ii. Request own Values: you will have to enter figures manually.

  • The EMP501 form will open:

Now for all the different columns:
– PAYE, UIF SDL pulls through from the EMP201’s you have submitted.
– Payments need to be added manually.

a. These MUST agree to what you paid.
b. EXCLUDE interest and penalties.



  • Click on File.
  • Next, go to “Submissions” (Left side menu) and click on “Submit”.
  • Select the applicable form (Should only be one).
  • Say Submit.
  • EMP501 and IRP5’s will print.

And you are done!

Submission via E-Filing:

  • Ensure that the EMP501 profile has been activated.
  • Go to -> Returns (Top Menu) -> Returns Issued (left-side menu) -> EMP501.
  • Right-hand side, select the period (if mid-year then “current year” -08”)

Example : If we are in 2021 and we are doing the 2022 mid-year submission (done in October), then we select 202108.

  • Click on :” Request Return” and Open.

  • Select EMP501 on the following page:

  • Fill out the Contact person details:

  • LEAVE Financial Particulars for now.
  • Select “My Tax Certificates” -> “Add” -> Click anywhere on the GREY area.

  • Input all the information until you get to the : ”Tax Certificate Information” – Section.

  • Complete the ”Tax Certificate Information”.
  • You will need to have codes for:

– Gross salary (3601).
– Annual lump sums (3605).
– Medical aid (3810).
– Logbook (3701).

– Employer medical aid contributions (4474).
– PAYE (4102).
– UIF {Employee portion + Employer portion} (4141).
– SDL (4142).

  • After completing the above for ALL employees, go back to the top menus and select: “My Reconciliation Declaration”.
  • Go to : ”Financial Particulars” – bottom drop down menu.
  • Now for all the different columns:

– PAYE, UIF SDL pulls through from the EMP201’s you have submitted.
– Payments need to be added manually.

a. These MUST agree to what you paid.
b. EXCLUDE interest and penalties.



  • After entering all payments and providing a reason for any over/unders, you can click “SUBMIT” at the top of the form.


– Salim Khan

Medical Aid and medical expenses

In this article, we wish to simplify and explain when and how claimed medical expenses – SPECIFICALLY out-of-pocket expenses – will be allowed as a deduction.

Medical expenses (NOT the tax credits) are based on taxable income AFTER ALL OTHER deductions (RA, Pension, Rental profit/loss and trading profit/loss.)

Medical tax credits (MTC):

MTC is technically the last calculation, but the most well-known and the reason a salary-earner will most likely not see a tax refund, purely based on the Medical Tax Credits.

As an employee of a company and with a medical aid benefit (it forms part of your salary package), the Medical Tax Credits, will cause a reduction in your monthly PAYE.


  • Your monthly PAYE (before the MTC) is R3,000.
  • You and your spouse are on your medical aid.
  • The monthly MTC for you both is : R664 (R332 for main member and R332 for 1st dependent).
  • Your monthly PAYE will be reduced to R2,336.
  • You get a monthly benefit.

Should your medical aid be out of your own pocket and /or you pay on behalf of someone who is related and dependent (Either on your medical aid or they are on their own medical aid), your MTC will be a lump sum at the end of year.

For sole proprietors:

You can always set-up a payroll system for yourself and bring these into calculation. MTC is a TAX reduction, NOT an expenses. Meaning, it comes off the actual Tax portion.


  • If your annual tax was : R20,000.
  • PAYE was R11,000.
  • MTC = R332 (just you) x 12months = R3,984.
  • Your tax payable would be : R5,016 (R20,000 – R11,000 – R3,984).



Medical tax credits after the 1st dependent is calculated at R224 (2021 to 2022 tax years) per dependent. A dependent is someone who is related to you or, in the case of children, also adopted. A dependent also includes your spouse or parent and in the latter, some rules do apply.

As for children:

On the last day of assessment (28/29 February) was alive and NOT:
Married and

  • Over the age of 18 years.
  • Over the age of 21, except:

– Wholly or partially dependent on their parents for their livelihood
– Did not become liable for income tax.

  • Over the age of 26, except:

– Wholly or partially dependent on their parents for their livelihood.
– Did not become liable for income tax.
– Full-time student and an educational institution.

The exception to all of the above, is when a child has a disability and wholly or partially dependent, on the taxpayer, for their livelihood and well-being.
– Also, did not become liable for tax.

Also allowed are:

  • Nursing homes.
  • Mid-wives.
  • Stay-in caregiver salaries and

– Stay-in expenses are limited to 20% of the national minimum wage for electricity, food and water.
– Training and related expenses.

Medical aid contribution:

Only contributions paid to any registered medical scheme OR a “registered under provisions similar to the provisions of the MS Act in the laws of any other country” {SARS LAPD-IT-G07, ISSUE 13}”. Meaning even if you belong to a foreign medical scheme and its Legislation is similar to South Africa’s Medical Scheme Act, you can claim the contributions. THEREFORE: medical insurance, will NOT be allowed. This also includes GAP covers, however, if you had to make a co-payment, to a hospital and this was NOT recovered from your medical aid, then it can be claimed under OTHER MEDICAL EXPENSES PAID OUT-OF-POCKET.
But do not expect this co-payment claim, to make a difference in your tax calculation.

Medical expenses paid out-of-pocket:

Let us get through what does qualify:

  • Any amount NOT recovered from the medical aid.

– If you are not on a medical aid this is not applicable and the below would be:

  • Paid out of your own pocket (or your spouse’s if on the same medical aid).
  • Medicine, which a registered medical practitioner, provided a prescription for.

– Lenses also fall under this section.

  • Payments made to a hospital for hospitalisation.
  • Payments to registered medical practitioners:

– GP
– Paediatrician
– Other specialists (oncology, anaesthetist, dentist, cardiologist, etc.).

The above ONLY qualify for the calculation to determine what can be deducted from Taxable income.

For any disabilities:

  • The relevant medical practitioner needs to complete an ITR-DD.

– This form is for mental and physical disabilities.
– The expense will only qualify if it was necessarily incurred and paid by the taxpayer.
– And either the taxpayer or a dependent, must have the disability.
– For more information look on SARS’s website for:

  • List of Qualifying Physical Impairment or Disability Expenditure; Annexure B.

Some exception which does get included:
Physical impairment (broken arm, leg, eye injury etc) expenses can be claimed, even for over the counter medicine, as long as the medicine is on the Prescribed medicine list of the Act. Your medical practitioner would most likely have provided a script, if not, have proof of your impairment and the related medical expenses.

Calculation for allowed medical expense portion:

For a taxpayer that is:

  • Over 65 and/or
  • Has a disability.

– You do not have the worry about the 7.5% rule.
– The 7.5% rule is for all other taxpayers.
– The 7.5% relates to all medical expenses paid (out-of-pocket and not recoverable), must exceed 7.5% of your taxable income, BEFORE being taken into account for the ALLOWED portion calculation.

Calculation for taxpayers Over 65 and/or with disability:
All qualifying expenses are brought into the calculation as follows:

  • Allowed medical expense deduction = 33.3% x {[A – ( 3 x B )] + c}.
  • A = Fees paid to medical scheme.
  • B = Medical tax credits (annual amount).
  • C = Qualifying medical expenses.

As you note, if your medical aid contributions are less than Three (3) times your medical tax credits, you are already at a disadvantage when it comes to your medical expenses.

Calculation for all other taxpayers (Under 65 and/or without disability):
All qualifying expenses are brought into the calculation as follows :

  • Allowed medical expense deduction = 25% x {([A – ( 4 x B )] + C) MINUS (7.5% x D) }
  • A = Fees paid to medical scheme.
  • B = Medical tax credits (annual amount).
  • C = Qualifying medical expenses.
  • D = Taxable income (Excl. lump sum retirement or severance).

As you note, if your medical aid contributions are less than FOUR (4) times your medical tax credits, you are already at a disadvantage when it comes to your medical expenses. ONLY the medical expenses OVER AND ABOVE 7.5% of taxable income is considered as a deduction, but limited to 25%.


  • Taxable income = R150,000
  • Medical expenses = R25,000
  • Tax credits = R3,984

– R150,000 x 7.5% = R11,250 : All medical expenses over and above this amount will be brought into calculation; therefore
– R25,000 – R11,250 = R13,750 of your medical expenses are now considered.

NOT on medical aid:

Medical expense allowed:

= 25% x {( A – ( 4 x B) + C }
= 25% x {( zero – (4 x zero) + 13,750}
= 25% x 13,750
= R3,437.50 is allowed as a medical expense.

ON medical aid:

  • Contributions = R25,000 for the year.
  • One member – no depedants.

Medical expense allowed

= 25% x {( A – ( 4 x B) + C }
= 25% x {( 25,000 – (4 x 3,984) + 13,750}
= 25% x {( 25,000 – (15,936) + 13,750}
= 25% x {9,064 + R13,750}
= 25% x 22,814
= R5,703.50 is allowed as a medical expense.

Should the 7.5% be MORE than {( A – ( 4 x B) + C }; the answer is ZERO and no NEGATIVE amount can be claimed.

– Salim Khan

Working from home: Capital Gain rules

With COVID restricting travel and employees with logbooks not being able to travel for business purposes, and who are used to getting a refund might have to prepare to pay taxes in this year. Claiming home-office expenses now will result in a capital gain for the period you claimed.

Do not be terrified of the Capital Gain concept.

Let use an example with figures and taking the above 10%:
• House cost was: R2,000,000.
• House was sold for: R2,500,000.
• Gain = R500,000: 10% of this will be subject to Capital Gain rules.

If the house is co-owned, this gain is split

NOTE : We ONLY look at the GAIN on the property.

Therefore, after the split or in 1 person’s name, the following happens :
• Split: R500,000 ÷ 2 = R250,000.
• One-person owner = R500,000.
• After this the 10% applies.

The difference of R450,000 (R500,000 less 10%) gets taken out of the R2,000,000 LIFE-TIME PRIMARY RESIDENCE allowance.

This 10% gets reduced by R40,000 (annual exclusion for all individual taxpayers).

So, if the house was co-owned: (R250,000 x 10%) less the R40,000 exclusion = R0 for capital gain.

If the house is in one person’s name: (R500,000 x 10%) = R50,000 less R40,000 = R10,000.
R10,000 x 40% (inclusion rate to determine taxable portion) – this gives us R4,000.

So, should you claim home-office expenses in the current, or future, tax year this R4,000 will be added to your taxable income, when you are selling the property.

What does this mean?

This R4,000 + salary + other income, CAN still be reduced by normal tax-deductible expenses: logbooks, RA’s, Medical Aid and medical expenses (rules apply).

Tax Season 2021 and home-office expenses do not have to be a concern, but be cautious and aware regarding what the implications are. Sad that so many companies did not adjust their payroll structure – if you have a logbook, you most likely will have a tax liability.

– Salim Khan

What is VAT and how does it work ?

A detailed explanation on the different types of VAT and their impact. We delve into when and how to claim as well as details for a valid tax invoice.


Types of VAT:

– Standard rate
– Zero-rated supplies
– Exempt


Standard Rate

VAT is calculated at 15% of the service or goods total and then added onto the service/goods total.

• Output VAT:

– When a company or an individual generates a sale or fee, it is considered Excluding VAT, and VAT is calculated on this revenue and then added onto it.
– The VAT Inclusive amount is considered, taxable goods – for VAT purposes. For INCOME TAX, the nett / Exclusive amount is recognised as revenue/sales/fees.
– This is the amount shown on the VAT201.
– Output VAT is what is owed to SARS.
– When the debtor/customer/client pays their account, you allocate the entire receipt against their account, BUT the VAT portion, belongs to SARS and is due to SARS from the moment the invoice amount becomes receivable.

• Input VAT:

– Input VAT is VAT payable to service providers and suppliers as part of their invoice total.
– Input VAT is calculated and claimed on the following :
• General expenses (with limitations)
• Capital goods purchased (with limitations)
– Therefore, when payment is made on an invoice (or at the till a shop or supermarket), the total amount paid, includes the VAT portion
– Input VAT is deducted from the Output VAT declared, in order to determine the final VAT balance owing to SARS

When are goods exempt from VAT and when are they zero-rated? Why are they zero-rated or exempt?

Both exempt and zero-rated items may have a 0% rate on your accounting software, but the difference needs to be understood. It is also important to know that just because the items are zero-rated or exempt from VAT, it does not mean the items are not taken into account for income tax.
Input VAT cannot be claimed on fuel or interest paid, but should these be business expenses, the expense can be claimed for income tax. Should a service or sale, to a foreign business be invoiced, there is no VAT being charged, but the income is taxable for income tax.


The most popular items are:

• Sales or services to foreign countries.
• Basic food items:

– Brown bread.
– Milk.
– Fresh paprika (dried paprika has VAT).
– Agricultural goods: maize, corn, dried mealies, etc.
– Fuel.

The idea behind basic food items not carrying VAT, is to make these items more affordable for households, with lower incomes. Farmers are also able to obtain/purchase seeds, etc at a zero rate.


Also at a rate of 0%, but consists of the following items:

• Finance services (excluding bank fees):

– Interest.
– Long-term insurance.

• 3rd party companies or individuals who earn commission on the sale of policies can register for VAT and will have to register for VAT if their revenue exceeds R1million.
• See Section 2(1) of the VAT Act

• School fees.
• Public transport.
• Residential accommodation.

– The landlord cannot charge VAT or claim VAT on services (commission to agents, repairs, etc.).– Needs to pay the VAT, but cannot claim it from SARS.

– This excludes B&B’s, hotels and other relevant accommodations, where the accommodation is a service and not for a primary residence.


Expense and capital items purchased:

When can and when can we not claim input VAT?

1) When the service provider / supplier is NOT registered for VAT.
2) When the service or goods is either :
i.  Zero-rated
ii. Exempt
3) When VAT is strictly not allowed :
– Petrol and diesel 
i. There are exceptions, but rule-of-thumb is NO VAT may be claimed.
 – Staff welfare and refreshments
i. Water for the water cooler
ii. Tea, coffee, milk, sugar, etc
iii. Fast foods when traveling
– Entertainment 
i. Taking clients or staff out or for office consumption
ii. The exceptions here are when the company/individual earns commission or is strictly in specific industries
– Goods purchased from foreign countries :
i. The exception :
There may be customs VAT on the invoice which is at a higher rate than 15%


Input VAT on Capital Goods: 

Capital goods are generally a single item with a value of over R7,500 (excl. VAT).
– Eg. Seven chairs at R1,500 each totals: R10,500. Individually, they are not considered.
They can still be shown on an asset register, but then fully written off.
Input VAT on capital goods is disclosed separately on the VAT201 and is added to the Input VAT as mentioned above.
When can Input VAT NOT be claimed on capital goods?
1) When the service provider / supplier is NOT registered for VAT.
2) Vehicles :
– Double cab bakkies
– 4-door passenger vehicles (with exceptions)
– Mini-busses (with exceptions)
These are the most common, general examples.


Information needed for valid invoice:

There is quite a bit of information needed, on an invoice, to make it a valid tax invoice. Without the below, your VAT claim will be dismissed and your VAT liability will increase:

1) Details for both supplier and purchases :
– Full company names (or an individual’s name and surname)
– Addresses
– VAT numbers
– Contact details are a bonus, but not a strict requirement.
2) Other details on the invoices :
– Date on which the invoice is issued
– Clearly be shown how the pricing is calculated
– Exclusive amount must be clearly stated
– VAT percentage and amount must be clearly shown
– Inclusive amount must be shown

3) Description of services / goods to be clearly shown as well as whether calculated price already Includes or excludes VAT. This relates to individual line-items and separate descriptions within the body of the invoice.

– Salim Khan

Provisional tax

Provisional tax can be seen as a deposit a company or individual pays towards what their assessed would be once the annual tax return is done.


There are 3 provisional tax dates to be aware of:

  • 1st Provisional: 6months into the financial year.
  • 2nd Provisional: In the month of the financial
  • 3rd Provisional: 6months after the financial year.

All 3 provisionals get taken into account when penalties and interest for underpayment of provisional tax is calculated.

1st Provisional:

This is not always considered important in terms of accuracy, however, the higher the 1st provisional, naturally the lower you have to consider for your 2nd provisional tax return.

2nd Provisional:

This is considered the vital calculation seeing as all provisional tax has to be within 20% of total assessed tax, otherwise penalties will be incurred. This implies mainly when taxable income is higher than R1 million.

3rd Provisional:

This is not an actual return and just a payment done via e-filing.


  • After logging into , you will be on the home screen.
  • Select the taxpayer (if more than one company or individual on the profile)
  • On the left-side menu choose:
  • Payments: Create additional payment
  • “Tax type”: Provisional tax
  • Tax period : “year” & “03”
  • Example: 3rd provisional for 2020

Who must register and submit provisional tax returns?

– All companies (CC’s and Pty’s) are required, by law, to submit provisional tax returns. Directors and Members of companies. Individuals who earn any of the following:

  • High interest returns.
  • Rental income.
  • Income other and/or “over-and-above” their salaried income.

– Sole proprietors.
– Professionals not running as company (or a Personal Liability Company).
– Trading Trusts and Family Trusts.

What is required for the the Provisional tax return?

– Estimated turnover for the year.
– Estimated taxable income for the year.

How would we calculate the tax for the Provisional Tax Return?

We normally provide our clients (via our mandate which they have to sign) with 3 options:

1st option:

  • Always based on the prior year’s tax assessment and adding 8%.
  • For the 1st Provisional this amount is divided by 2.
  • For the 2nd Provisional, the 1st provisional is deducted to determine the amount to be payable for the 2nd provisional tax.

2nd option:

  • Client’s own estimate for what the taxable income and therefore, the tax would be.
  • Based on sales or projects.
  • Or just due to cashflow constraints.

3rd option:

This is based on the finalised accounting records for the period closest to the month, in which the Provisional tax submission becomes due.

Example: If the Financial year-end is February 2021. The 1st provisional would in August 2020. The profit until end of July 2020 will be used.

The profit is divided by the number of months that have passed for the financial year and then times by 12 – To get estimated annual profit. The same can be done for the turnover estimate, that needs to be filled in on the form, but this has no bearing on any penalties.

We then bring in specific transactions which may not have been taken into account OR which have not realised:

  • Interest on loan accounts.
  • Depreciation.
  • Potential sales and projects and the related costs.
  • 13th cheques or bonusses.

Tax is then calculate on the calculated profit – taking any current financial year provisional taxes, already paid, into consideration.

Use the applicable tax table:

  • For individuals, the sliding tax tables used for individuals.
  • If your company falls within the Small Business Corporation Rules, then use the applicable sliding tax table.
  • If the company is not Small Business Corporation the rate is 28%.
  • Trusts apply the 45% tax rate for taxable income, after distributions.

– Salim Khan

What are tax directives and when to utilise them

A tax directive is an instruction, from SARS, to employers, Fund managers (RA’s, provident etc) and even insurers to deduct employees’ tax, from a lump earned by taxpayer, at a higher rate than the normal tax rate. With the current pandemic in full swing, a few enquiries have come in regarding tax directives.


The more frequent tax directives are the following:

  • Commission earners : To be taxed at a fixed rate, rather than at fluctuating rates. The onus stays on the taxpayer to ensure that all taxes are paid. As a commission earner, you will either get a refund or a heavy tax bill. Evaluate your tax liability every 3 to 4 months.
  • Withdrawals from retirement funds : Should you only be transferring your funds, a tax directive would still be issued, but with a zero effect.
  • Severance packages as well as CCMA cases.
  • There are a few other cases and scenarios though, however, we listed the 3 most common ones our office deals with.

Different form types for different Tax Directives:

  • IRP3(a) – Gratuities paid by employer (e.g. death / retirement / retirement due to ill health / retrenchment / other – to supply reason for payment).
  • IRP3(b) – Employees’ tax to be deducted at a fixed percentage (commission agents / personal service company / personal service trust).
  • IRP3(s) – Employees’ tax to be deducted on any shares or options.
  • Form A&D – Lump sums paid by pension, pension preservation fund, provident or provident preservation fund.
  • Form B – Lump sums paid by pension or provident fund (e.g. resignation / withdrawal / winding up / transfer / Section 1, Paragraph (eA) of the definition of gross income transfer or payment / future surplus / unclaimed benefit / divorce – transfer, divorce – non-member spouse / divorce – member spouse / housing loan / involuntary termination of employment (retrenchment) including withdrawals from a pension preservation or provident preservation fund).
  • Form C – Lump sums paid, by a Retirement Annuity Fund, to a member, before retirement.
  • Form E – Lump sums paid after retirement by an insurer or a fund.
  • ROT01 – Recognition of transfer between two funds before retirement must be used where a benefit was transferred to another approved fund.
  • ROT02 – Recognition of GN18 purchase of a member / beneficiary owned pension / annuity from an insurer must be used to acknowledge the purchase of annuities.

Something to remember:

  • Should the taxpayer owe SARS any outstanding taxes (income tax and administration penalties), the outstanding amount will be settled, before any lump sum is paid out.
  • Administration penalties are charged, by SARS, per the Tax Administration Act, for (not on) non-submission of tax returns. These penalties can easily accumulate to the thousands of Rands for just a few years of outstanding returns.

How do we apply or obtain a tax directive?

Tax directive can be online via

  • After logging in -> “Services” (top right menu) -> “Tax Directive” (Drop-down menu on the left side of the screen).
  • Tax practitioners can use the SARS practitioner emails
  • Taxpayers can utilise the “, for the applicable region (Centre, east, south etc).

– Salim Khan

Taxation for Small Businesses

Small Business can be taxed at more favourable rates if they meet the specific requirements.


What are the requirements ?

  • Annual Turnover to be less than R20million.
  • Investment income must not exceed 20% of total income : This will include, but not limited to, rental income, interest & dividends, etc.
  • All shareholders are to be natural persons : No trusts nor any company to hold shares in the company.
  • Shareholders not to hold shares in any other companies (Private, Close Corporations, Personal Liability Companies) excluding Public Companies.
  • Directors are not be directors in any other business – The rules get quite sticky as it mentions that even if persons related to directors hold business interests, the company will be disqualified.
  • Personal services companies are disqualified as well : A personal services company gets taxed at 34% and is a company who received more than 80% of remuneration from one source.
  • Specific industries are also limited and can only start qualifying after having at least 3 employees, excluding the directors.

Although SARS does not ask all of these questions on the tax return; it should be abided by. Ok, so your company qualifies, what now? What tax benefits are there? The most important one, is that the company gets favourable tax rates, similar to individuals.

For the tax year 1 April 2023 to 31 March 2024, the tax rates are as follows:

  • R0 to R95,750 : Tax at 0%
  • R95,751 to R365,000 : Tax at 7% for the amount over R95,750 (meaning the first R95,750 of profit is tax-free and the profit to be taxed at 7% is calculated by deducting R95,750 from the profit.
  • R365,001 to R550,000 : Taxed at 21% on the amount over R365,000 plus R18,848 (which is the highest tax for the previous bracket)
  • R550,001 and above is taxed at 28% for the amount above R550,000 plus R57,698.
  • R550,001 and above is taxed at 28% for the amount above R550,000 plus R58,583.


Profit (taxable income if you want to be very specific) for the year : R400,000.

We will calculate the tax as follows : R400,000 less R365,000 = R35,000. This difference is then multiplied by the tax rate : R35,000 x 21% = R7,350, but we still have to add the maximum tax from the previous bracket to get our taxation payable. So, R7,350 + R18,848 = R26,198 will be our total tax payable on a profit of R400,000.

For the technical inclined: profit and taxable income are not always the same, as there could be expenditures which are allowed for accounting purposes, but not for taxation purposes. Example : SARS interest and penalties, fines, change in depreciation rates, etc.

Are there any other benefits?

Yes, there are. Mainly on the depreciation of assets. Consult with your accountant regarding the accounting implications as there might be a difference between you can claim for accounting purposes and for tax purposes.

A Small Business Corporation may choose to use the following rates for movable assets brought into use for the first time by the SBC:

  • Assets used directly in a process of manufacture or similar process: 100% of the cost in the year of assessment in which the asset is first brought into use.
  • Other qualifying assets: 50% of the cost in the year of assessment in which the asset is first brought into use, 30% in the first succeeding year, and 20% in the second succeeding year.

The Company (which includes Close Corporations and Personal Liability Companies) can also choose the normal rates (20% on machinery over 5years as an example).

– Salim Khan