No matter if you are trading or investing, it’s essential that you understand cryptocurrency taxes in South Africa. Luckily, there are steps you can take to mitigate your tax burden, such as buying cryptocurrency with ZAR and moving between wallets owned by yourself; gifting crypto can also be tax-exempt.
South African regulators have yet to establish clear rules surrounding cryptocurrency, leaving many investors vulnerable and creating uncertainty for themselves and compromising the integrity of the sector. Due to cryptocurrency not being subject to similar regulation as other financial products, investors can be lured in by its promise of quick returns; further regulatory clarity must be implemented in order to safeguard investors and maintain integrity within this volatile sector.
Regulation has also been raised by FTX’s collapse, with Paris-based intergovernmental organization Financial Action Task Force (FATF) recently criticizing South Africa for lacking sufficient anti-money laundering and countering the financing of terrorism (AML/CFT) measures. To address these shortcomings, national institutions including SARB, FSCA, and SARS have joined forces in an initiative aimed at including crypto assets into its regulatory remit.
To purchase Bitcoin in South Africa, one option is to sign up with a cryptocurrency exchange such as Luno and verify your identity and complete compliance checks before trading at market price. Another alternative would be peer-to-peer marketplaces such as Paxful or Hodl Hodl where buyers and sellers meet face to face and trade directly.
Cryptocurrencies have gained popularity with individuals and businesses for making payments; yet their limited use and lack of stability means policymakers fear their widespread adoption could undermine monetary policies and jeopardise financial stability.
Cryptocurrency is a digital form of money supported by cryptography and stored on a global ledger system known as blockchain. While cryptocurrency remains unregulated by any central authority, its growing popularity among investors and consumers worldwide is testament to this phenomenon. Unfortunately, however, regulation for cryptocurrency remains unknown in South Africa as the Financial Sector Conduct Authority has yet to issue rules that regulate this industry.
However, the Financial Services Conduct and Authorisation Agency (FSCA) recently announced it would regulate cryptocurrency exchanges. This move brings them under its purview, and ensures compliance with anti-money laundering, consumer protection and exchange control regulations that will help mitigate risks associated with cryptocurrency while continuing its role as a source of innovation in finance.
However, the Financial Sector Conduct Authority (FSCA) only regulates exchanges that meet certain criteria. They must have enough capitalization and financial resources to comply with AML/KYC requirements, detect suspicious activity promptly and report it. Failure to do so can incur fines of up to 10 million rand ($510,000); an amount which could threaten startup companies such as Nuud Money’s survival.
Taxing cryptocurrency assets in South Africa can be complex due to limited guidance provided by SARS on this matter. SARS views cryptocurrency assets as intangible property rather than legal tender, so any gains from buying and selling crypto are taxable as capital income; however, taxpayers who purchase and sell foreign-currency based crypto may pay capital gains tax at different rates depending on exchange rates.
Determining whether a gain should be treated as capital or revenue can be challenging, with SARS carefully considering each case individually. To select an appropriate tax treatment method for any transaction, taxpayers must carefully consider several factors, including its purpose, investment potential or trade status.
Investors enjoy several advantages over traders when it comes to taxes; investors receive an annual R40,000 exclusion and only pay 18% in effective capital gains tax rate, while traders must declare all their profits and pay income tax at higher rates.
Maintaining accurate records of all transactions is vitally important as South African Revenue Services will require these from major exchanges. Doing this accurately will enable you to file your crypto taxes accurately and avoid penalties for tax evasion. Koinly makes this easy by storing all your transactional data and providing a comprehensive tax report; for those uncertain of their own tax situation it would be wise to consult a qualified accountant first.
South Africa boasts an array of cryptocurrency exchanges offering various cryptocurrencies. Their fees, security and payment methods vary, making research essential before choosing an exchange that’s safe or compliant with regulations. One such popular exchange is Binance which offers spot, margin and futures trading along with numerous payment methods (credit/debit cards etc). Due to its reliability and user friendliness it has quickly become one of the favorite choices among crypto investors and traders alike.
traders should be aware that most exchanges require them to provide identification as part of the Know Your Customer (KYC) process in order to open accounts with them, as part of this legal requirement. KYC verification serves to prevent money laundering and terrorist financing, making an exchange operation impossible without it. Furthermore, Financial Sector Conduct Authority recently declared crypto tokens financial products which must be monitored and regulated similarly as rands.
Uniswap is another highly rated exchange that provides decentralized trading of Ethereum-based tokens, charging a flat fee of 0.3% split evenly among makers and takers of trades. Furthermore, their iOS and Android mobile apps receive rave reviews.