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The tax implications of trading forex for a living

What are Sars’ tax requirements on forex trading? It will be my sole income.

Q:  What are the South African Revenue Service’s (Sars’) tax requirements regarding forex trading? It will be my sole income. Do I need to set up a company? If I intend on immigrating, should I choose a broker in that country now? What expenses can I claim? Will I be a provisional taxpayer?

 

David Kop - The Financial Planning Institute of Southern Africa (FPI)

Income or capital

The operative words in the question are ‘trading’ and ‘income’. This implies that your intention is to trade forex with the intention of making a profit. As a result, the profit that you make from trading forex meets the defection of gross income in the Income Tax Act, and thus would be taxed as income, based on the income tax tables for an individual. Consequently, any expense that you incur in the production of the income can be deducted.

Foreign exchange allowance

In terms of getting money offshore to trade, you have a R1 000 000 annual discretionary allowance that doesn’t require the South African Reserve Bank’s (Sarb’s) or Sars’ approval. In addition to that, you have a R4 000 000 foreign investment allowance. In order to use the foreign investment allowance you need to apply to Sarb 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. It’s important to 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 [subject to] South African tax and therefore would need to continue to pay tax in South Africa. Emigration involves applying to both Sarb and Sars to no longer be a South African resident. It is advisable to get advice on emigration as, depending on your circumstance, it may trigger a capital gains tax liability.

Structure

Whether you should trade through a company or sole proprietor is based on more than just tax decisions, which are too numerous to discuss in this response. Remember however that if you set up company in South Africa and then emigrate afterwards, the company would still be an RSA-domiciled company and subject to tax in South Africa.

Selecting a broker

Forex intermediaries or advisors must be registered with the Financial Services Board if they provide advice or intermediary services in South Africa. This is regardless of whether the product is local- or foreign-domiciled. Therefore, before selecting a broker, check on the FSB website to see if they are licensed to provide services in South Africa. Likewise if you emigrate, do research on any broker that you select to check that they are correctly licensed.

Please note that the information contained in this response should not be seen as advice in terms of the Financial Advisors and Intermediary Services Act, but I trust that it provides some clarity on the tax position. We do recommend seeking formal advice from a CFP® professional and a registered tax practitioner before implementing a forex trading account.

 

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COMMENTS   7

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As a Forex trader you don’t need to worry about paying taxes. The only good thing about trading Forex is that you only pay taxes on profits. The only guys involved with Forex who pay taxes are those who supply the trading platforms.

A person that ask about the tax implications of trading Forex hasn’t been trading Forex for very long…..

Ha ha ha! You beat me to it: I was just about to post…

You say “It will be my sole income”

Fixed it for you

“It will be my sole loss”

Haha ….I traded forex for almost 40 years..The only way to make money now these days is big Corporate FX Desks – that margins their clients effective dealing exchange rates (spot, forward, futures, derivatives etc).

Trading Dollar/Rand without a firm and ascertainable commitments is still against exchange control…

Certain Banks like the ones implicated in the ”rate fixing” saga (Investec, Absa, Standard etc) are now exposed…methinks

I just refused to believe that any ”mom and pop-shop” that trades any other currency pair with their offshore will make any money over a 12 month etc period..they eventually all become liquidity provider for the big funds players, methinks.

Agree with the article but have to highlight an important point with regards to a very popular topic at the moment and that is an individual’s foreign investments allowance.

The individual annual foreign capital and discretionary allowances are currently available for natural persons who are: 1) taxpayers in good standing; and 2) over the age of 18 years. Each individual may invest an amount of up to R11 million – R10 million (prior to 1 April 2015: R4 million) foreign capital allowance and a R1 million (2010: R750 000) discretionary allowance – per calendar year offshore.

Hello. Thank you yes you are right. The foreign investment allowance has been increased to R 10 million per annum

Trading forex is an excellent way to get rid of extra money. I once got rid of R4000 in half an hour.

Agreed!

Q: How do you make a ‘small fortune”in the fx trading market?

A: You have to start with a big one!

End of comments.

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