By André Lubbe – Certified Financial Planner

Updated 25 July 2025

Discover how South African investors can reduce or eliminate taxes on investments using Tax-Free Savings Accounts (TFSAs), Retirement Annuities (RAs), and smart strategies. Learn what taxes apply and how to optimise your returns.

Tax season in South Africa often feels like a burden — but with the right investment strategy, it doesn’t have to be. Whether you invest in shares, ETFs (Exchange-Traded Fund), or property, understanding how tax works on investments in South Africa can save you thousands. Better yet, using tax-efficient investment vehicles like Tax-Free Savings Accounts (TFSAs) and Retirement Annuities (RAs) can help you build long-term wealth without the tax drag.

Let’s break down the different types of taxes investors face — and show you how to reduce or avoid them.

What Taxes Do South African Investors Pay?

If you’re investing in South Africa, you may be taxed on:

• Dividends (local and foreign)
• Interest income
• Rental income
• Capital gains
• Fees and transactions

1. Dividend Withholding Tax

• Local dividends: Taxed at a flat rate of 20%, deducted before the dividend is paid to you.
• Foreign dividends: Often taxed at source (commonly 15%), and SARS may tax the remainder depending on double-taxation agreements.

2. Interest Income Tax

• Exempt amounts:
  • Up to R23,800 per year (if under 65)
  • Up to R34,500 per year (if 65+)
• Any interest earned above this is taxed at your marginal tax rate.

3. Rental Income

• Fully taxable as part of your income.
• Deductions allowed for expenses such as maintenance, levies, rates, insurance, etc.

4. Capital Gains Tax (CGT)

• Annual exclusion: First R40,000 of gains are tax-free.
• Only 40% of your net capital gain is added to your income and taxed at your marginal rate.
  • Example: If you’re in the 45% tax bracket, your effective CGT rate is 18%.

5. Securities Transfer Tax (STT)

• 0.25% of the purchase price when you buy listed shares.
• Automatically deducted by your broker.

6. VAT on Investment Fees

• Most investment fees include 15% VAT, which is not reclaimable unless you are VAT-registered.

How to Pay Less Tax on Investments in South Africa

Now that you know what to expect, here’s how to legally reduce or avoid these taxes using tax-efficient accounts.

1. Tax-Free Savings Account (TFSA): Zero Tax, Maximum Growth

TFSAs are designed to encourage long-term saving by eliminating tax on investment returns.

TFSA Benefits:

• No tax on dividends, interest, or capital gains
• Annual contribution limit: R36,000
• Lifetime limit: R500,000
• Withdrawals allowed anytime, but they count against your lifetime limit (you cannot replace withdrawn funds)

Example: Long-Term TFSA Growth

If you:

• Contribute R36,000/year
• Reach the R500,000 limit in ~14 years
• Leave it invested for 20 years
• Earn an average of 10% return annually (4% dividends, 6% growth)

You’d end up with around R1.95 million — and save roughly:

• R60,000 in dividend tax
• R140,000 in CGT (if in the 45% bracket)
  That’s over R200,000 in tax savings — simply by using a TFSA.

2. Retirement Annuity (RA): Your Long-Term Tax-Saving Hero

An RA is ideal for salary earners looking to grow retirement funds while lowering taxable income.

RA Tax Advantages:

• Deduct up to 27.5% of your taxable income (max R350,000/year)
• No tax on interest, dividends, or capital gains inside the RA
• On retirement (55+), take up to 1/3 as a lump sum (first R550,000 can be tax-free)
• The remainder must be used to purchase a living or life annuity to provide income

Example: RA Contribution Tax Benefit

If you earn R400,000 annually and contribute R60,000 to an RA:

• Taxable income drops to R340,000
• Tax payable drops from ~R69,600 to ~R54,000
• Instant tax saving of R15,600
  Plus, that R60,000 grows tax-free for decades — potentially becoming R1 million+ by retirement.

3. No Extra Cash? Reallocate Smartly

Do not have spare cash for a TFSA or RA? Use this smart strategy:

1. Sell investments from taxable unit trusts or share portfolios — up to R36,000/year.
2. Transfer that amount into your TFSA.
3. Repeat annually until your taxable portfolio is fully shifted into tax-free investments.

 This strategy requires no new money — just repositioning your existing investments.

Key Tax Deadlines for South African Investors

• Tax year: 1 March – 28 February
• E-Filing opens: Every July
• Keep all tax certificates: From TFSA providers, RA administrators, and platforms like Allan Gray, 10X, or Momentum Wealth
• Always verify SARS pre-filled data: Ensure accuracy in your return

Final Tips: Make the Tax System Work for You

Paying tax is part of life — but overpaying is not. Use this priority list to minimise tax while maximising returns:

1. Max out your TFSA (R36,000/year)
2. Contribute to an RA (up to 27.5% of income)
3. Only then, invest in taxable unit trusts, ETFs, or shares
4. Use your interest exemption for emergency savings (R23,800 if under 65, R34,500 if older)

Want to pay less tax on your investments? Start repositioning today.
Tax-efficient investing isn’t just smart — it’s essential for building wealth in South Africa.