The digital world has introduced new technologies like digital wallets, digital twins and advanced multimodal artificial intelligence models. All this new tech is fun and exciting to work with but like any other new thing, there needs to be regulations and laws in place to ensure it’s used ethically.
One of the things that needs to be highly protected now is intellectual property. Artificial intelligence (AI) has made the need for the protection of original work extremely vital. However, even AI creations are considered original and need to be protected as digital assets.
A digital asset is anything created and stored digitally, is identifiable and discoverable and provides value. These assets can be anything from photos, documents and videos to cryptocurrencies and tokenised assets.
In South Africa, the digital assets market is expected to generate a revenue of $380,9m in 2025. The total number of users in the digital assets market (South Africa) is projected to reach over six million users by 2025 while user penetration is predicted to reach 10,60%.
With an increase in blockchain and cryptocurrency, the tax laws need to be revamped to fit digital assets. Luckily for South Africans, there are a few measures in place to regulate digital assets or specifically financial digital assets.
In this article, we look at the existing tax laws in South Africa as well as the provisions made for digital assets.
Tax Laws in South Africa
In South Africa, the South African Revenue Service (SARS) is in charge of administering tax laws. When SARS collects tax, it collects the following:
- Income tax: This is a tax charged on an individual’s earnings or profits from businesses.
- Value-added tax (VAT): VAT is a consumption tax levied on the value added to goods and services.
- Customs and excise duties: This is tax charged on imported and exported goods. In some cases, it’s also charged on some local goods.
- Pay-as-you-earn (PAYE): This is a tax charged on employment income.
Who Pays Tax in South Africa?
People who pay income tax are individuals who earn a taxable income. This can be anything from a salary, and commission to fees, subject to various exemptions and rebates. Corporate tax is paid by companies or closed corporations on their annual income. Deceased estates and insolvent estates also pay tax on any income they earn.
In South Africa, there is a residence-based tax system. This basically means residents are subject to certain exclusions, taxed on their worldwide income irrespective of where the income was made. In comparison, non-residents (non-South Africans) are taxed on their income from a South African source.
What are the Tax Laws on Digital Assets in South Africa?
In 2024, SARS released a statement saying it has noted the significant growth of the use of various digital currencies by many South Africans. The most prominent of the digital assets is crypto assets.
The organisation expressed concerns that crypto assets and trades are not being declared on the tax returns of individual taxpayers. To ensure this doesn’t get out of hand, SARS has started including crypto assets in its compliance programmes.
Additionally, the organisation is engaging with the Financial Sector Conduct Authority (FSCA) regarding the provision of information on registered Crypt Asset Service Providers.
How to Declare Digital Assets on Taxable Income
To declare your digital assets you will need to follow normal income tax rules, income received or accrued from crypto assets transactions can be taxed on a revenue account under ‘gross income’.
Alternatively, these gains may be regarded as capital in nature, as explained in the Eighth Schedule to the Act for taxation under the Capital Gains Tax (CGT) paradigm. Taxpayers can also 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.
Gains or losses in regard to crypto assets can be broadly categorised with reference to three types of scenarios mainly:
- Crypto assets can be acquired through ‘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 asset exchanges. These are essentially markets for crypto assets or through private transactions.
- Goods or services can be exchanged for crypto assets. This is regarded as a barter transaction and normal barter transaction rules apply.
These scenarios each potentially give rise to distinct tax consequences. If you want to avoid fines and any other tax consequences, ensure that you declare your digital assets properly.
For more information on tax laws for small businesses, visit SME South Africa’s guide on small business tax.
