Provisional tax season is upon us. What does that mean for investors who buy shares in international companies? Which taxes do you pay, how and where? The good news is that if you’re using an app like Shyft, the bank does most of the tax admin for you. “From a tax point of view there’s nothing to declare when you start investing,” says Jeanne Stegmann, head of tax advisory and CRM at Standard Bank.
That makes sense: you haven’t made any money yet, so there’s no tax to be paid. Instead, the bank will ask for your ID number, tax residency and tax number. “We ask those questions because we’re required to report certain activities to SARS, so that SARS can pre-populate your tax return,” Stegmann explains. With the bank taking care of that behind-the-scenes paperwork, you’re free to focus on the big decisions, like whether to buy shares in Nike or Netflix… or both.
The three most common taxes that you and your accountant will have to be aware of include:
1. Capital gains tax
“A typical retail investor will be taxed on their capital gains and losses, and not on trading gains and losses,” says Stegmann. Capital gains tax only applies on the sale of an investment, and it works both ways: if you’ve made a profit, you’ll be taxed on that; if you’ve made a loss, you can deduct that loss in your income tax return.
2. Dividends withholding tax
DWT is a tax on the dividends you earn on your local equity investments. “For an individual or retail client, the rate is 20%,” says Stegmann. “If you’ve invested in a South African company and it declares a dividend of R100, there’d be a withholding of 20% and you’d receive a net amount of R80. You don’t need to do anything here: the bank is responsible for administering DWT – that’s why it’s called a ‘withholding’ tax. No other income tax is due on the balance."
3. Situs tax
Situs is a tax that most folks don’t have to worry about, but it’s still worth knowing about. “South Africa has estate duty tax, so if you’re sitting on SA equities when you die, they will form part of your estate and they can be taxed,” says Stegmann. But what happens to your offshore shares? “If they are U.S.-sourced, for example, the United States will also want to tax you on the wealth you’ve accumulated there. That’s the situs tax.”
But as your tax consultant will tell you, there are exemptions on all taxes (and, as Stegmann points out, the thresholds are quite high)… so don’t let fear of situs prevent you from investing in U.S. shares.
Where do I pay taxes on offshore investments?
Let’s say you’re a South African tax resident, sitting in Joburg or Durban, happily investing in global companies… Where do you pay the tax on your earnings?
“The moment a South African tax resident invests in an offshore market, two taxes come into play,” says Stegmann. “South African taxes still apply, but then you’re also taxed on your worldwide income. So if you earn a dividend from Apple or Amazon or Pfizer or Pinterest, you’ll be taxed here in South Africa; and because those shares are in U.S.-registered companies, the U.S. taxman would consider them to be U.S.-sourced.”
To protect you from that double tax, the South African government has a wide network of tax treaties that ensure you don’t get hit by both SARS (at home) and the IRS (in the States). “South Africa has a wide tax treaty network which determines which country has the taxing rights,” says Stegmann. “Depending on the jurisdiction, the treaty might say that one country has taxing rights and the other doesn’t; or that both countries have taxing rights, but one has to give a tax credit for the amount taxed in the other; or there might be a maximum tax that one country can impose.” Again, the good news is that the bank, as custodian, takes care of all that paperwork for you.
So go ahead and invest wherever, whenever and however much you like*. Download Standard Bank’s Shyft app to easily buy, sell and manage shares in specific companies or in indices like the S&P 500 or Nasdaq-100. Just remember to pay those taxes.
*Subject to exchange control requirements. The single discretionary allowance (SDA) limit is R1-million per calendar year for a South African resident who is 18 years and older.
This post was sponsored by Shyft, the global money app, powered by Standard Bank. With Shyft you can buy forex instantly anytime, anywhere, and at the best rates, and invest in top U.S. stocks and ETFs. Shyft was named best financial solution at the 2021 MTN Business App of the Year Awards. Visit Shyftto download it now, no matter where you bank. Shyft operates under the license of The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287).
This post and content is sponsored, written and provided by Standard Bank.