Forex trading and income tax

READER QUESTION: TRADING FOR A LIVING – WHAT’S THE POSITION WITH THE RECEIVER?

Any expenses you incur in producing profit from forex trading can be deducted from tax.

Q: What are the Sars’ tax requirements on forex trading? It will be my sole income. Do I need to set up a company? If I intend on migrating, should I choose a broker in that country now? What expenses can I claim? Will I be a provisional tax payer?

Answer: The profit you make from trading forex meets the defection of gross income in the Income Tax Act, and thus will be taxed as income, based on the income tax tables for an individual. Consequently any expense you incur in producing the income can be deducted.

Foreign exchange allowance

In terms of getting money offshore to trade you have a R1 million annual discretionary allowance that doesn’t require Reserve Bank or South African Revenue Services (Sars) approval. In addition, you have a R4 million foreign investment allowance. To use it you need to apply to the Reserve Bank for approval and will also need a Sars tax directive.

Worldwide income

As a South African resident you are taxed on your worldwide income and as such will need to declare the profits (converted to rand) in your annual tax return. You would also need to pay provisional tax in August and February every year. Note that this is not an additional tax but just a mechanism to pay your annual tax, as your income won’t be subject to PAYE.

If you move overseas it’s important to note that if you move without formal emigration procedures, you may still be a tax resident for SA tax and therefore would need to continue to pay tax in South Africa. Emigration involves applying to both the Reserve Bank and Sars to no longer be an SA resident. It’s advisable to get advice on emigration as, depending on your circumstances, it may trigger a capital gains tax liability.

Structure

Whether you trade through a company or sole proprietor would be based on more than just tax decisions, too numerous to discuss here.

Remember that if you set up a firm in SA and then emigrate afterwards, it would still be an SA-domiciled company and subject to SA tax.

Selecting a broker

Note: the information here shouldn’t be seen as advice in terms of the Financial Advisors and Intermediary Services Act. We recommend seeking formal advice from a CFP professional and a registered tax practitioner before implementing a forex trading account.

Forex intermediaries or advisors must be registered with the Financial Services Board if they provide advice or intermediary services in SA, regardless of whether the product’s local or foreign-domiciled. Before selecting a broker, check on the FSB website to see if they’re licensed to provide services in SA.