South Africa - Crypto penetration

intro

This country probably has the best crypto regulations on the African continent. It is the second-largest crypto market after Nigeria. A report published by Chainalysis (1) in September 2022 showed that South Africa ranked 30th in the worldwide cryptocurrency adoption index. However, South Africa was classified as 16th over 154 countries in 2021.

Security level

According to our estimations, South Africa has a very high level of danger. It has 24.5 points (from 100) for safety level in Numbeo crime rating (2). The h omicide level (3) is 41.9 per 100,000 inhabitants a year. The level of firearm-related death (4) is 10.47 per 100,000 inhabitants a year.

Crypto Payments

Goods or services can be legally exchanged for crypto assets as a barter transaction. Therefore, the standard barter transaction rules apply according to the Official position of the local tax service (5).

Crypto Salaries

According to consulting firm Taxtim (6), crypto salaries are legal in SA and crypto payroll is regulated as barter transaction.

This type of income will be treated just like other remuneration and will be subject to normal tax at the earlier of receipt or accrual. It is important to point out that when you convert the crypto to fiat currency at a later date, this will trigger another taxable event and you will need to declare the gain/loss in your tax return. This will be the change in value from the date you originally received it as salary, to what you eventually sell it for.

Taxim

Legal

The country has two central crypto regulators: South African Reserve Bank and the Financial Sector Conduct Authority (FSCA). Their position on crypto regulation was summarized in the following documents:

-IFWG Crypto Regulation Working Group (7)

-FSCA draft declaration on crypto law - October 2022 (8)

-Declaration of crypto assets as a financial product FSCA (9)

The FSCA has launched licensing provess in June of 2023. By July 2024 138 companies (10) got regulator's approval as CASPs.

Based on Apexgroup (11) research, local licensing procedure is based on providing a type of fintech license to VASPs - an FSP license. Crypto Providers are subject to the Financial Markets Act, 2012 (Act No. 19 of 2012). At the same time, some entities will be excluded from the FAIS Act.

-Crypto asset miners

-Node operators performing functions in respect of the security health of the network

-Persons only rendering financial services to non-fungible tokens

Licensing procedures in detail are described in an overview from consulting firm Fasken (12) and law firm ENS published on Lexology (13).

In 2024 159 companies were licensed and about 200 applications are still in the process. Also, licensed entities started data exchange with the local tax authority - SARS.

Taxation

Tax name	Index
PIT tax Min	18
PIT tax Max	45
Corporate tax (CIT)	27
Min Individual CGT (for crypto)	18
Max Individual CGT (for crypto)	18
Wealth tax Min	0
Wealth tax Max	0

The South Africa Revenue Service (SARS) regulates tax rules in South Africa. SARS guide (14) provides essential clarifications about crypto taxation procedures.

Taxpayers are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.
Base cost adjustments can also be made if falling within the CGT paradigm. Gains or losses in relation to crypto assets can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:
-Crypto assets can be acquired through so called “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms.
-Investors can exchange local currency for a crypto asset (or vice versa) by using crypto assets exchanges, which are essentially markets for crypto assets, or through private transactions.
-Goods or services can be exchanged for crypto assets. This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.

SARS guide

According to Taxtim (15), this government agency will implement crypto gains already existing South African tax laws - basic CGT or PIT tax rates depending on the type of income.

Based on Mondaq (16), “income received from crypto dealings in South Africa could be taxed on revenue accounts under gross income or the Capital Gains Tax Paradigm if capital in nature.”

According to PWC tax summaries (17) CGT for individuals is 18% and CGT for legal entities - 21,6%. Corporate tax has 27% flat rate and PIT has a progressive rate up to 45%.

Links

1) Chain analysis. Global Crypto Adoption Index.

2)Crime Index by Country 2023 Mid-Year

3)List of countries by intentional homicide rate

4)List of countries by firearm-related death rate

5) SARS. Official position of local tax service. Article

6)TaxTim. FAQ: Cryptocurrency and Tax. Article

7)IFWG Crypto Regulation Working Group. PDF-file

8)FSCA draft declaration on crypto regulation - October 2022. PDF-file

9)Declaration of crypto assets as a financial product FSCA PDF file

10)FSCA Press Release

11) Apexgroup. South Africa Classifies Crypto Assets as a financial product. Article