As with any business activity, foreign exchange trading attracts certain levels of tax and traders need to understand the implications of this when deciding to open a trading account. Whether it is intended to be a main source of income or a way to earn some money on the side, a full understanding of the system for paying forex trading tax in South Africa is important for anyone considering it.
For many people, this will go hand in hand with learning about the way the forex market works altogether, so the whole venture will involve a lot of research into the various ways that their trading account can be set up. With more and more people looking to diversify their income streams rather than relying on their main source of employment, the forex market is attracting a lot of interest from those that want to increase their income.
The foreign exchange market is the largest in the world, operating twenty-four hours a day during the week to account for the wide variety of time zones that it covers. Trades are expressed as currency pairs, with the value of the base currency expressed in comparison to another, e.g the African Rand (ZAR) ‘against’ the US Dollar (USD).
Tax on foreign exchange trading
Whenever you are making money, however, there is a system in place to tax it and foreign exchange trading is no exception. The situation can vary depending on whether you are a South African national or an offshore trader, so it’s important to research your position carefully so that you can have a good understanding of how your income is likely to be taxed.
For anyone that is trading in forex, as opposed to holding currency as an investment, the income generated will be treated as revenue in the same way that it would for freelance or contracted work. Traders need to keep detailed and accurate records of the sums that they put into their trading account and the profits or losses made to reach a total figure that represents their overall performance.
This will then be liable for taxation at their prevailing rate which can be calculated from official tax tables available online. For residents of South Africa, this will be a part of their standard annual tax returns and they will be taxed on all their income, whether that is generated locally or in a foreign currency.
How to reduce your forex tax bill
If you want to keep your tax bill as low as it can be, there are ways to minimise your liabilities, but it is important to ensure that you understand the difference between tax avoidance and tax evasion.
Tax avoidance involves using legitimate ways to decrease your tax bill via legal measures available as part of the taxation system to ensure that you are paying the lowest legal rate of tax on your income. Anything that strays from the legal, such as failing to declare income, using ‘hidden’ accounts or any fabrication, is evasion and is illegal.
There are plenty of legitimate ways to keep your tax bill as low as possible that are lawful and considered good practice for anyone that wants to maximise their income and reduce their outgoings as much as possible. These include measures such as:
- Claiming expenses related to the commission earned, if your pay structure allows
- Keeping track of all your expenses related to any non-salary income
- Paying into a medical aid scheme
- Paying money into a retirement annuity fund
- Depositing money into a tax-free savings account
- Donating to a charity fund that is registered with the South African Revenue Service
- Claiming costs such as travel and other expenses as well as any subsistence allowance
By making the most of these options, it is often possible to reduce your tax liability significantly which will help ensure that you are operating in the most tax-efficient way possible.
Forex brokers in South Africa
For most people, using a broker can be a great way to enjoy the benefits of forex trading without having to take full responsibility for every aspect of managing and running your accounts. With forex trading becoming increasingly popular in South Africa, there are a number of brokers that are seeing exceptional results.
One of the leading brokerage firms has reported a 100% increase in trade volume in 2020 and has seen new clients coming from South Africa particularly. The size of the African market grew by 35 per cent according to another leading firm, and there have been a number of traders that have taken advantage of this increase in the opportunities.
Some of the most successful traders include:
- George Van Der Riet – Director and head traders at the Global Forex Institute
- Ref Wayne – Founder of the South African cryptocurrency, Pip Coin
- Jabulani Ngcobo – Entrepreneur, motivational speaker, and author known as Mr Cashflow
- Louis Tshakoane – Successful forex trader and author
- Shaun Benjamin – founder of an investment academy and an investment group
With so many opportunities available, the trading market in South Africa has a lot of potential for new investors. It’s an ideal choice for anyone who’s keen to diversify their income streams, earn some extra cash, or potentially pursue a new career.