Tax Implications Linked to Investing
Overview
Investment in shares comes with responsibilities in as much as it has its rewards.
Part of that responsibility is in the tax paid on investments. A recent product that has come onto market in South Africa is a tax-free savings account in the form of ETFs which we cover in another module.
This module will seek to offer information on the different types of taxes you may incur when investing in shares and how they impact your money.
Remember, the JSE is not a tax expert. You should consult SARS or an accountant for deeper insights into the topic.
First Things First: VAT & STT
The first tax you will pay as an investor is value-added tax (VAT) on brokerage and STRATE* fees when buying securities.
You also pay securities transfer tax (STT) of 0.25% on the invested amount when buying shares. Then there is also dividend withholding tax of 20% on all dividends paid by local companies.
There is another fee you pay when buying and selling and that is Investor Protection Levy (0.0002% on the transactions value) which is paid to finance insider-trading investigations (Please note that this Investor Protection Levy is a fee and not a tax).
*STRATE is the electronic settlement service used in South Africa for share transactions. STRATE Settlement Costs are calculated as 0.005787% of the transaction value (minimum of R10.19 and maximum of R73.49)
Paying Tax on Profits and Shares
Please consult a tax advisor with regards to paying tax on profits of your shares for both income and capital gains tax.
Dividend Tax
For equities (apart from listed property companies), you will incur dividend withholding tax (DWT) on the dividend income that is paid out.
DWT of 20% is held back from your dividends before they are paid out or reinvested. Note the DWT is payable only on dividends paid out by the company and is payable after the company has already paid 28% corporate tax on its net profits.