Forex trading is becoming increasingly popular in South Africa, and brokers are sprouting there weekly.
Both global brokers and local brokers are looking to attract South African traders to deposit funds and to begin trading. We recommend choosing a broker regulated by the Financial Services Conduct Authority (FSCA) in the Republic of South Africa to ensure that your funds will be entirely secure.
Trading Accounts & Deposits in South Africa
There are complex regulations regarding moving your money offshore from South Africa. It is relatively easy to deposit funds into a trading account in South Africa but the broker then must make sure to comply with the rules when purchasing other forms of currency and moving it around. This is where the government has put most of the restrictions. Each South African citizen is given a limit of 4 million Rand that is allowed to be exchanged. Then each person can apply for an extra 1 million in a discretionary allowance which is doable but requires a tremendous amount of paperwork.
Trading Regulations in South Africa
The South African government doesn’t seem to be looking to outlaw Forex trading but it does have tight regulations on trading to make sure that all transactions are appropriate for both the trader and the broker, and to try to keep as much money within the country as possible, by making it difficult to trade with offshore Forex brokers. This isn’t an uncommon restriction, but Forex traders in South Africa should consider the reasons and the applications carefully when choosing a Forex broker.
The best advice we can offer if you are setting up an offshore brokerage account is probably to open a bank account offshore first because credit card use is much more restricted for overseas investing than bank transfers. Getting permission to do the bank transfer can then be done once and you can use that bank account to fund your brokerage accounts.
Is Forex Trading Legal in South Africa?
The short and happy answer to this question is, yes – Forex trading is legal in South Africa. There are no specific laws in South Africa pertaining to retail Forex / CFD trading, although of course there are some laws and regulations which touch and have a bearing on it, so it is worth taking a closer look at this topic.
While Forex trading itself will not be illegal, failing to report any profit you make from it as a South African taxpayer to the SARS (South Africa Revenue Service) certainly is. Small offenders who simply cannot be bothered to report small gains are unlikely to face maximal penalties if caught, but the fact remains that the intentional evasion of tax is a criminal offence subject to a maximum penalty of five years imprisonment plus a fine. So, Forex traders resident in South Africa do not have to worry about getting into trouble for trading, but do have to make sure they pay taxes on the profits. Small-time tax evaders are relatively unlikely to be sentenced to jail, but you can be sure that the fine imposed will be larger than any profit made from trading – judges make sure of that.
It is also possible that a retail Forex trader could fall foul of laws against money laundering if he or she used the proceeds of crime or funds which should have been declared to SARS but were not to fund their initial deposit.
The bottom line is that the basically law-abiding Forex trader in South Africa has nothing to fear, although he or she should take care to use only a well-regulated Forex broker, as completely unregulated Forex brokers do exist in South Africa and are unfortunately able to continue operating without being closed, provided they do not engage in any criminal activity.
Forex Trading Tax in South Africa
South Africa, like most countries, has a residency-based taxation system. This means that if you live in South Africa, you are legally required to pay tax on any profits you make trading Forex or CFDs, even if you use a broker located outside South Africa and even if your trading funds are sourced from outside South Africa.
The question as to whether you are resident in South Africa will be extremely easy to answer for most people. In a nutshell, if you spend at least 91 days in a tax year physically present in South Africa, you will be deemed to be resident for tax purposes over that tax year and accordingly liable to tax.
The basis of taxation of Forex trading profits in South Africa is relatively simple. If your trading account is in your personal name, profits over a tax year are subject to income tax. If you trade as a corporation, profits are subject to corporate income tax (at a rate of 28% for the 2020/2021 tax year). However, small business corporations (SBCs) are taxed more gently, at graduated rates, like income tax.
You can deduct expenses from profits to arrive at your taxable profit. This means that if you have dedicated computer equipment which you use mainly for trading, you might be able to claim the cost of it as a deduction.
Some good news for South African traders paying income tax is that you must earn a total income (including your trading profits) of at least Rand 83,100 (assuming you are under the age of 65) before you are liable to pay. Income tax then begins in graduated tranches, starting at an 18% charge on income under Rand 205,900 as at the tax year 2020/2021.
Forex Trading Times in South Africa
The retail Forex market is open twenty-four hours per day, five weekdays per week – although some brokers freeze operations for a few minutes at about 5pm New York time to settle their books. This means that wherever you are in the world, you can trade Forex, if it is between Monday morning in New Zealand (or maybe Japan) and Friday evening in New York. Forex is a global market.
Despite the fact that Forex is a twenty-four hour market, it is well-known that there are certain times of the day which are the best times to trade Forex. This is because the hours of the highest market liquidity tend to see the greatest price movement, and more movement in the price means more opportunity to generate profit. The two major global Forex centers are London and New York, so the best hours to trade happen between 9am London time and 5pm New York time, with the three-hour overlap between the two the best time at all – day traders often focus on trading during this time window.
The good news for Forex traders in South Africa is that the country happens to be in a relatively convenient time zone related to London and New York business hours. South Africa is only two hours ahead of London time, so it is easily possible to follow the London session during South African daylight hours. Even better, the London / New York overlap usually begins at 4pm South Africa time – so if you can be home from your day job by 4pm, you are perfectly placed to day trade for a few hours as a hobby, hopefully helping to earn a second income without interfering with your salaried work.
Choose the Right Forex Broker
Unfortunately, there are many Forex brokerages in South Africa that operate under the radar of the regulatory bodies. Be careful to check references, read reviews and trust your instincts when considering investing with a brokerage that is offering you something that sounds too good to be true. Because of the fear of these scams, it is that much more important to educate yourself before getting involved in Forex trading, especially in South Africa. Luckily, the educational resources available have increased as the number of people involved in the currency market has grown. Make sure to take advantage of all of the opportunities to learn about Forex that you can before you put in any money.
The South African government restricts the amounts you are allowed to invest in Forex Trading, no matter which country your brokerage account is in. This means that there are limits to your investment but not your profits, so invest wisely and you can still be just as profitable as you might be investing without these limits.
South Africa has joined Forex Market relatively recently as compared to many other countries so make sure you are aware of the long-term story before you enter the currency market.