April 11, 2024

Tax Implications for Forex Traders in South Africa

April 11, 2024

tax implications for Forex traders
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Dealing with taxes in South Africa as a Forex Trader can be challenging. That’s because a lot of people start trading and don’t think about taxes. We should understand that, no matter what we do to make an income, we must pay taxes.

 

Forex trading is regulated by the Financial Sector Conduct Authority (FSCA) in South Africa. FSCA ensures that the market operates fairly and transparently. If you’re a Forex trader you’ll need to comply with the tax laws set by the South African Revenue Service (SARS), which require you to pay tax on your trading profit.

 

In this article, you’re going to learn about the tax implications of trading on Forex, how to deal with taxes as a Forex trader, and how to legally pay less taxes in South Africa as a Forex trader. So let’s get started with it!

 

How to pay tax as a Forex Trader in South Africa?

Here we’re going to learn about the ways to go about paying taxes as a Forex trader. Now, there are two ways and remember that there is no right or wrong way you choose, it all depends upon what are your plans as a trader.

 

1.   Trading as a self-employed trader

It means, you don’t have a big business to run but you’re just trading for yourself. If you’re a Forex trader and you’re making consistently let’s say over 10,000R for the past six months then you most likely classify for tax.

 

But, there is a very important thing to understand, as a self-employed person you’re going to pay much more than a person who owns a business.

 

2.   Trading as a business owner

If you’re a Forex trader and you own a business related to your trading whether it be an educational institute or a consultation business, then whatever profit you make goes into your business account. So, that’s the difference between being self-employed and trading as a business owner. The amount earned by the self-employed goes into the personal account. On the other hand, having a registered business provides you with multiple benefits the money straight goes into your business bank account, and then from there, you can send money to your personal account to meet your expenses.

Let’s say you make 100,000 South African rands in a month as a business owner. That amount of R100,000 doesn’t go to your personal account but it’s deposited into your business account and from there, you pay yourself a percentage that goes into your personal account.

 

If you’re a Forex trader and you own a business related to Forex trading then certain tips help you pay less tax in South Africa. Let’s see how it works.

 

How to legally pay less taxes in South Africa?

The first thing when it comes to taxes is understanding your ratio. It means understanding what certain amount of money you need to be putting aside to handle taxes at a later date.

 

To potentially reduce your taxes on Forex trading, you need to have a business and because you run a business related to Forex trading, you do some coaching or produce content online you’ll have a lot of expenses. Expenses are a critical thing when you’re talking about taxes. So you have to operate like a business.

 

It is recommended that if you’re a trader and you’re making consistent money, you want to start a consulting business or a coaching business. The main reason behind starting a business if you’re a trader is that it’s a tax advantage. Because if you label yourself as a coach or a consultant, now you can start creating expenses for what you do. When you’ve to buy anything for your coaching business that’s your business expenses and you’re able to deduct money that you’d normally have to pay in taxes. So all of these expenses help you when it comes to your tax bill at the end of the year.

 

Now, in this scenario, it’s also important to understand what’s tax deductibles and what’s not tax deductibles. You; ‘ll need to start reading and do your research about what is tax deductibles and what is not. However, it is always recommended to buy things that are tax deductible. It means you’re not wasting money on things that are not tax deductibles.

 

For example, Education and personal development are tax deductibles. So it’s wise to invest in your education or skill development as a trader to learn more about trading and you’ll be able to eventually deduct those expenses from your taxes. Here, you’ve to think like a business owner. If you’re going to spend money, don’t spend it on something unless it is brought about by your business. Therefore, you need to spend money that makes your business better and ensure that the expenses you’re making are tax deductible.

 

In terms of how much money you should put aside, let’s say for instance you get a withdrawal from your funded account, and let’s say you get R10,000. Now, the first thing you do is you’ll take 25% and put that away for taxes. You are going to repeat this process every single time no matter how much money you receive i.e. taking 25% on average and putting that away for taxes.

 

Another thing that’s important to do is to get a business bank account. Make sure your business bank account has reserves. That way, you can put money aside in different reserve accounts. You’ll have a tax reserve account, a business savings account, and a business investing account. All of them are inside your main business account. You’ll have your normal balance which is what you pay for the expenses of your business. So, you keep money in your business checking account to pay all the business’s expenses every month. The money in your tax reserves account is stored away for taxes. Money in your savings account reserves is for emergency cases when business gets down and your business investing account is for opportunities you see to invest in your education or skill development as a trader and business owner.

 

Now let’s go back to the same example, if you take 25% of 10,000R and put that money away for taxes then you’ll be taking R2500 into your tax reserves. You’re left with R7500. Now you take away another 10% for business savings and 5% for business investing from that R7500. The remaining amount goes into your checking account to cover your business expenses. So, in this case, you’re putting R750 into your business savings reserves and R375 into your business investing reserves. The remaining amount which is R6375 will go into your checking account to handle your business expenses.

 

Now, you might be wondering when you pay yourself. Here, you take an owner’s withdrawal whenever you need to. So, if you need money for your personal expenses then you can just deposit it to your personal bank account from your business checking account and you can easily pay yourself that way.

tax implications for Forex traders

How much tax do South African Forex Traders pay?

The tax rate for South African residents who do Forex trading varies depending on their income and the type of trade they’re going to take. A trader that earns less than R79,000 per year doesn’t have to pay any tax on Forex trading profit. However, if you’re earning more than R79,000 per year as a trader then you’re subject to a tax system ranging from 18% to 45%.

 

To make things simple, let’s take an example. If you earn R90,000 per year from Forex trading then you’ll have to pay tax on the R11,000 above the R79,000 threshold. Now the tax rate for the income bracket is 26%, which means you’ll have to pay 26% on the R11,000 which is R2860 in tax.

 

Another thing that is important to remember is that if a Forex trader experiences losses during the tax year then those trading losses can be deducted from taxable income to reduce tax liability. However, it isn’t clear how much of your losses can be deducted because this is a concern subjected to certain limitations of SARS. But it’s always important for a trader to keep a record of their trading which includes all the profits and losses. In addition, keeping the record can be significantly helpful to ensure that you pay the correct amount of tax.

 

Forex traders need to file tax returns with SARS by the end of each tax year because it can create legal issues and result in particular penalties if you fail to do that.

As a Forex trader, you may also need to pay other taxes like Capital gain or Value added taxes. The tax rate for capital gain in South Africa is 18% and it’s a tax on the profit you made from the sale of assets such as Forex trading investments. On the other hand, a value-added tax is a tax on the value added to products or services. Forex traders shouldn’t be worrying about value-added taxes because they’re exempted from it. However, few traders may be required to pay value-added tax on certain expenses like training courses and software.

 

Expert’s Taxation Tips for South African Traders

We’ve mentioned in the beginning that dealing with taxes as a Forex trader can be challenging but when you comply with the regulations and make sure everything is done correctly then you can save a lot of money and energy. Here are a few expert tips for South African traders to make things easier and simpler for them.

 

1.   Have a good understanding of how tax works in South Africa

Before starting as a Forex trader, it is necessary to have a good knowledge of the tax implications of trading. This strategy is going to be significantly helpful in preventing unnecessary problems with the South African Revenue Service (SARS) in the long run.

2.   You need to register as a provisional taxpayer

SARS requires South African traders to register as a provisional taxpayer. This approach will serve as a method to distribute the tax responsibility in a given tax year.

3.   Deduct your expenses

An efficient way to reduce your tax liabilities is to make a list of your eligible expenses such as telephone costs, internet, broker fees, etc, and deduct those expenses from your taxable income.

 

In conclusion, figuring out taxes as a Forex trader in South Africa is a bit tricky, but it’s crucial to get it right. Knowing the rules and making smart choices can save you money and keep you out of trouble with the tax authorities. Whether you’re trading on your own or as part of a business, understanding how taxes work is key. By keeping track of your expenses and staying organized with your records, you can make sure you’re paying the right amount of tax and avoid any issues down the road. Taking these steps helps you stay on top of your finances and make the most of your trading opportunities in South Africa.

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Disclaimer
Trading involves a significant risk of loss and is not suitable for all investors. It’s important to understand the risks and seek advice from an independent financial advisor if necessary.

The information provided here does not constitute investment advice.

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