Types of Tax in South Africa: A Beginner Guide

South Africa has eight main types of tax that affect individuals and businesses. SARS administers them all under the Income Tax Act, the VAT Act, the Estate Duty Act, and related legislation (SARS: Taxes, 2024). Understanding which taxes apply to your situation is the first step before filing a return, registering a business, or making a significant financial decision.

Key Takeaways

Income tax is charged on total taxable income using a sliding scale - marginal rates range from 18% to 45% for individuals.

VAT is charged at 15% on standard-rated supplies by registered vendors.

Capital Gains Tax uses a 40% inclusion rate for individuals - only 40% of the net gain enters taxable income.

Dividends tax is withheld at 20% at source before you receive any dividend payment.

Income tax

Income tax is charged on the taxable income of individuals, companies, and trusts. For individuals, SARS applies a progressive (sliding) rate scale - from 18% on the first R237,100 of taxable income up to 45% on income above R1,817,000 (2024/2025 rates). The rate applied depends on total taxable income for the year, after deductions and credits have reduced the base (SARS: Income Tax Rates).

Companies pay tax at a flat rate of 27% on taxable income, while qualifying small business corporations (SBCs) benefit from a graduated rate starting at 0%.

PAYE

Pay As You Earn (PAYE) is the mechanism employers use to deduct income tax from employees each month and pay it to SARS on their behalf. PAYE is not a separate tax - it is how income tax is collected from salaried earners during the year. At year-end, all PAYE withheld is credited against the employee’s final income tax liability on their ITR12 return (SARS: Employees’ Tax).

VAT

Value Added Tax (VAT) at 15% is charged on the supply of goods and services by registered vendors. Not all supplies are taxable - some are zero-rated (0%, including certain basic foodstuffs and exports) and some are exempt (residential rental, certain financial services). VAT registration is compulsory once taxable supplies exceed R2.3 million in any 12 months (from April 2026) (SARS: VAT).

Provisional tax

Provisional tax is an advance payment of income tax. It applies to individuals and companies whose income is not fully taxed at source - freelancers, business owners, property investors, and people with significant investment income. Two mandatory IRP6 returns are due each year (end of August and end of February), with an optional third payment in September (SARS: Provisional Tax).

Capital Gains Tax (CGT)

CGT is built into the income tax system through the Eighth Schedule to the Income Tax Act. When you dispose of an asset for more than its base cost, 40% of the net capital gain (after the R40,000 annual exclusion for individuals) is included in taxable income and taxed at your normal marginal rate. The effective maximum CGT rate for individuals is 18% (40% × 45% marginal rate) (SARS: Capital Gains Tax).

Dividends tax

Dividends tax is a 20% withholding tax on dividends paid by South African resident companies and by certain foreign-listed companies. The company or your broker withholds the tax and pays it to SARS before the dividend reaches you. Key exemptions apply to retirement funds, shares in tax-free savings accounts (TFSAs), and resident company-to-company dividends (SARS: Dividends Tax).

Donations tax

Donations tax is charged on gratuitous disposals of property by a natural person at 20% on the value of the donation above the annual exemption (currently R100,000 per donor per year). The donor - not the recipient - pays the tax. Donations to approved section 18A public benefit organisations and bequests to a surviving spouse are exempt (SARS: Donations Tax).

Estate duty

Estate duty is charged on the net dutiable value of a deceased estate above the R3.5 million abatement, at 20% on the first R30 million and 25% above that. Bequests to a surviving South African-resident spouse are fully exempt - a central planning mechanism for deferring duty to the second death (SARS: Estates).

Frequently Asked Questions

Is PAYE a separate tax from income tax?

PAYE is not a separate tax - it is the mechanism employers use to collect income tax from employees during the year. The amounts withheld are credited against the employee’s final income tax liability when the ITR12 return is assessed. If PAYE withheld exceeds the final liability, SARS refunds the difference; if less, the balance is due on assessment.

Is VAT charged on all goods and services in South Africa?

No. VAT at 15% applies only to taxable supplies by registered vendors. Some supplies are zero-rated (0%) - basic foodstuffs, exports, and certain agricultural supplies. Others are exempt - residential rental, certain financial services, and some educational services. Whether VAT applies depends on whether the seller is a registered vendor and the nature of the supply.

Do freelancers pay PAYE?

Freelancers and self-employed people typically do not pay PAYE because there is no employer to withhold it. Instead, they register as provisional taxpayers and make advance income tax payments using the IRP6 form twice a year. The final position is settled on the annual ITR12 return.

What is donations tax and who pays it?

Donations tax at 20% is charged on gratuitous disposals of property by natural persons above the R100,000 annual exemption. The donor pays the tax, not the recipient. Certain donations - to qualifying charities, to a spouse, and bequests in a will - are exempt. Verify the current exemption amounts with SARS.

Sources

SARS: Tax Rates - current income tax rates, corporate rates, and special tax tables
SARS: Individual Taxes Overview - guide to all taxes affecting South African individuals
SARS: Business Taxes Overview - VAT, PAYE, provisional tax, and corporate tax obligations

This guide is for general educational purposes. Tax rates, thresholds, and rules are reviewed annually - verify current figures at sars.gov.za before acting.