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Does Forex get Taxed in South Africa?

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Forex, also referred to as FX, is the foreign exchange market on which currencies are bought and sold. It is the largest global market and is completely decentralized with no central regulatory body in charge. Instead, each country has its own regulatory bodies that oversee its own trading systems, making and enforcing its own rules and regulations.

Until the advent of the internet, the foreign exchange market was largely presided over by banks and other large financial institutions. This meant that individuals were reliant on third parties to convert currencies on their behalf, attracting relatively poor rates and paying the fees and costs associated with each transaction.

However, since the proliferation of the internet, individuals now have the ability to track currency values and manage forex trading accounts themselves. Because the forex market doesn’t rely on third parties such as clearing houses and brokerages, the costs of completing transactions are relatively low, making the forex market an attractive prospect to new investors.

The international appeal of forex trading

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For those that like to keep up with international events, the forex market can be a profitable choice as it allows traders the opportunity to capitalize on their knowledge of global news. Although research is always important, anyone who already has an understanding of the economic forces that drive change could make money in forex.

The nature of the foreign exchange market means that many of the things that affect a currency’s performance come under the heading of national and international news. Big events will often provoke fluctuations in currency value, including:

  • General elections
  • Legislative changes
  • Civil unrest
  • Changes to heads of state
  • Discovery of natural resources
  • Hosting international events
  • The performance of the tourism market

Traders all over the world make predictions about currencies’ performance, and the marketplace is open twenty-four hours a day, Monday to Friday, so it’s possible to take advantage of breaking news, wherever it’s happening in the world.

Forex trading around the world

Because each country regulates its own forex industry, the rules about how forex is treated for tax purposes vary significantly. In South Africa, individuals that make a profit on forex trading are required to declare it on their usual tax return.

If you are a South African taxpayer that wants to trade in forex, then you will pay tax on your profits at the rate that applies based on your total income. Residents are taxed based on where they reside rather than where the income is generated, and this means that all forex income should be declared.

Do you want to know which broker is best for a ZAR account? Check reviews and pick one that scores highly in the areas that are most important to you, whether that’s low fees, handling cryptocurrencies, or excellent customer service.

While most countries treat forex incomes as taxable like South Africa, there are some that do not impose any capital gains tax on profits generated from foreign exchange trading. These include:

  • New Zealand
  • Switzerland
  • Honk Kong
  • Oman
  • Brunei
  • United Arab Emirates
  • Belgium
  • Malaysia
  • Belize
  • Bahamas

Is tax on forex income fair?

While some countries do not tax their citizens’ forex income, there are plenty of arguments in favor of the South African approach to taxation. The ubiquity of forex income taxation suggests that most countries treat forex trading like any other income-generating activity and tax it accordingly.

However, some argue that to treat forex investment profits as taxable should mean that losses are deductible, which they are not in most cases. This inconsistent approach could potentially be contested in court, as in countries such as the UK where spread betting is explicitly tax-free but revolves around identical mechanisms to the forex market.

Trading forex in South Africa

Forex traders in South Africa can take advantage of the relatively volatile market and the opportunities that offers. Because of the fast pace and high liquidity of the forex market, traders with limited budgets can still get a piece of the action, and it’s possible to cash out at any time.

Whether you want to make some money in addition to your regular job, or you want to change careers and trade full time, it is important to do your research into the foreign exchange market. Because things can change quickly, you need a system that you can trust, so make sure that you choose a broker who can give you the level of service that suits you.

Traders that are completely new to the market can view historic market data and gain useful insight from the ability to keep an eye on global events and move quickly when they spot an opportunity.

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