South Africa is one of Africa’s largest economies, with a workforce across industries like mining, finance, manufacturing, and technology. Employers that want to expand into, or hire employees in South Africa must understand the payroll and income tax system. 

As a destination for foreign talent and investment, South Africa operates a residence-based tax system: individuals who live or work here most of the year are taxed on worldwide income. At the same time, non-residents pay tax only on South African–source income. The South African Revenue Service (SARS) runs the tax system, which funds public services and tackles social issues through specific payroll contributions.

This guide provides a clear overview of payroll and income tax in South Africa so you can stay compliant and run your business confidently.

What is Payroll Tax in South Africa?

The main payroll levies in South Africa are:

  • Unemployment Insurance Fund (UIF): A social security fund that provides short-term financial relief to workers who become unemployed or cannot work due to illness, maternity, or adoption leave. Employers register for UIF when they register for employee taxes.
  • Skills Development Levy (SDL): A levy imposed on employers to fund national education and training initiatives. Funds go to training authorities (SETA), and registration is done through SARS when the employer registers payroll taxes.
  • Compensation Fund (COIDA): All employers must register with the Department of Labour’s Compensation Fund (under the COIDA Act) and pay an annual assessment. The assessment is based on the total employee earnings and the risk level of the industry. Every April, the Compensation Fund issues an annual contribution notice based on reported payroll. Employers also submit an annual Return of Earnings to report payroll to the Fund.

Employer Payroll Contributions

  • UIF (Unemployment Insurance Fund): The employer’s share is 1% of the employee’s monthly salary, with a cap. Because employees pay the other 1%, the total UIF burden is 2% of payroll. The employer must withhold 1% and pay a matching 1%. No UIF is collected on earnings above R17,712 (Rands) per month.
  • SDL (Skills Development Levy): Employers with a payroll above R500,000 per year must pay SDL. The SDL is charged at 1% of total salaries (wages, bonuses, leave pay, commissions, etc.). Employers below the R500,000 threshold are exempt.
  • Compensation Fund (COIDA): There is no fixed rate for all; each industry is classified into a tariff. The employer calculates this as part of the annual Return of Earnings. At a minimum, all employers pay an annual baseline fee (for 2025, this is R1,621). Above that, risk-based rates apply. Employers refer to the Department of Labour’s tables for detailed tariffs.

Employers doing business in South Africa use SARS’s Client Information System to register all payroll tax types. All payroll taxes, including income tax, are combined on a monthly SARS payroll return known as the EMP201.

Employers must submit the EMP201 by the 7th of the next month, even if no tax was withheld, and remit payments to SARS. 

New employers with five or fewer employees can visit a SARS branch to file an EMP201 if needed. After the tax year, employers reconcile the monthly returns in an EMP501 annual return, filed by 31 October for the preceding March–February period.

Failure to deduct and pay employees’ tax on time can cause a levy of 1% of annual PAYE liability per month, up to 10%, and even refer the employer for prosecution. Similarly, not registering for PAYE, UIF, or not delivering tax certificates (IRP5/IT3s) to employees is punishable. 

Discover how probation periods work in South Africa and what employers and employees should know.

Employee Payroll Contributions

  • UIF: 1% of monthly earnings. Only the first R17,712 monthly (about R212,544 per year) counts.
  • PAYE: deducted from their salary according to SARS tax tables.

Employees do not contribute to SDL or the Compensation Fund.

Managing payroll and taxes in South Africa can be complex and time-consuming. Remote People’s payroll outsourcing service in South Africa ensures accurate, compliant handling of PAYE, UIF, SDL, Compensation Fund contributions, and monthly EMP201 filings. 

Companies and employers benefit from having an established local provider manage complex requirements and reduce risk and administrative burden. Our FREE Global Payroll Calculator gives employers and employees a clear estimate of total employment costs in South Africa, including employer taxes and deductions in seconds, helping with budgeting, comparisons across countries, and planning before hiring. 

Read more about average salaries in South Africa and gain insights into current pay trends across industries.

Income Tax in South Africa

Employers should understand personal and corporate taxes, capital gains, and other levies.

Personal Income Tax (PIT)

PIT or PAYE in South Africa is progressive. For the current tax year (1 March 2025 – 28 February 2026), the rates are as follows:

Taxable Income (R) Rate of Tax
0 – 237,100 18%
237,101 – 370,500 26%
370,501 – 512,800 31%
512,801 – 673,000 36%
673,001 – 857,900 39%
857,901 – 1,817,000 41%
1,817,001 and above 45%

Any business that hires staff must register with SARS for Employees’ Tax (PAYE) within 21 days of paying remuneration. PAYE must be paid monthly by the 7th day following the payroll month. An Employment Tax Incentive (ETI) for employers reduces PAYE liability for hiring young workers; this incentive is claimed on the EMP201. 

Discover the current minimum wage in South Africa and what it means for fair and compliant employment practices.

Tax Rebates and Thresholds

After calculating tax, all individual taxpayers are entitled to a reduction in their tax liability through a system of rebates. The primary rebate is available to everyone, with additional rebates for older taxpayers.   

For the 2025/2026 tax year, the annual rebates are:

Tax Rebate Type Amount (ZAR) Description
Primary Rebate R17,235 Available to all individual taxpayers.
Secondary Rebate R9,444 Additional rebate for individuals aged 65 and older.
Tertiary Rebate R3,145 Further rebate for individuals aged 75 and older.

These rebates create a tax threshold, the minimum income a person must earn in a year before paying any income tax. For the 2025/2026 tax year, these thresholds are:

Age GroupTax Threshold (ZAR)
Under 65R95,750
65 to 74R148,217
75 and overR165,689

Discover the main employee benefits in South Africa, from statutory leave to social security coverage.

Tax Rules for Foreign Employees

A person who is a SA tax resident is taxed on worldwide income, whereas a non-resident pays tax only on income sourced in South Africa. SARS uses two main tests to decide if someone is a tax resident.

  1. The “Ordinarily Resident” Test: This test looks at where a person’s true home is. It is not written clearly in law but comes from court rulings. A person is ordinarily resident in the country they would return to after traveling. SARS considers family location, property, business interests, and social ties. Because this test is subjective, it can cause uncertainty, so expatriates must carefully manage and record their ties to avoid being seen as residents by mistake.
  2. The “Physical Presence” Test: This test is based only on the days spent in South Africa. A person who is not ordinarily resident will still become a tax resident if they:
    • Stay in South Africa for more than 91 days in the current tax year
    • Stay for more than 91 days in each of the previous five tax years
    • Spend at least 915 days in total during those five years

If all three rules are met, the person becomes a resident from the first day of that tax year. When a person stops being a tax resident, a process called tax emigration—SARS treats them as if they sold all their worldwide assets the day before. 

The only exception is fixed property in South Africa. This “deemed sale” can create a Capital Gains Tax (CGT) charge on the profit from those assets, referred to as an exit tax.

Discover the main types of South African work visas and what employers need to stay compliant when hiring foreign talent.

Corporate Income Tax (CIT)

The standard CIT rate is 27%, and resident and non-resident companies are taxed at this rate. Certain industries have special rates (for example, gold mining companies use a different formula), but the default is 27%. There is a reduced “small business corporation” tax table for small businesses:

Tax RateTaxable Profit Range (ZAR)
0%Up to R95,750
7%Over R95,750 and up to R365,000
21%Over R365,000 and up to R550,000

Above R550,000, normal 27% applies. Smaller businesses with turnover under R1 million may opt for a simpler turnover-based tax.

Discover how executive search services in South Africa help businesses find qualified leaders across key industries.

Capital Gains Tax (CGT)

In South Africa, you don’t pay tax on the full capital gain; only a portion is included in taxable income.

  • Individuals: 40% of the net capital gain is taxed. Since the top personal income tax rate is 45%, the highest possible tax on a capital gain is 18%.
  • Companies: 80% of the gain is taxed. With the company tax rate of 27%, the effective rate on capital gains is 21.6%.

Individuals can get an annual exclusion of R40,000 per year and a larger exclusion at death or when selling some small business assets. Employers only need to worry about CGT if they are advising employees on equity compensation or if selling capital assets; it is not part of payroll tax.

Remote People Employer of Record (EOR) Services in South Africa

Like any unfamiliar territory, South Africa’s tax and labor laws are daunting for international companies and employees. The framework requires local knowledge and comes with penalties if done incorrectly. Setting up a brick-and-mortar business also takes time and money, which can delay your entry into the market.

An Employer of Record (EOR) service in South Africa provides a simpler and cost-effective option. At just $199 per employee per month, an EOR like Remote People becomes the legal employer for your team in South Africa and manages all aspects of local employment for you, including:

  • Legally hires and pays workers on your behalf, without setting up a local company.
  • Prepare payslips, issue tax certificates, and file monthly EMP201 and annual EMP501 returns for each employee. 
  • Manage payroll, calculate and pay salaries, withhold, and remit PIT, all taxes.
  • Ensure compliance with local employment and tax laws, reducing the risk of penalties.
  • Handle benefits administration, including standard and optional perks, per local regulations.
  • Provide payroll automation and tax calculation, adjusting quickly when laws change.

You can begin your journey by leveraging our recruitment agency in South Africa to find and attract top-tier talent. Once you’ve found your ideal candidates, our EOR quickly onboards staff in days.  

For organizations that employ independent professionals, Remote People helps you hire and pay contractors, handling invoices and contractor payments, and reducing the risk of misclassification under South African law.

When you already have a local entity, our PEO services combine HR and payroll processing into one streamlined solution, allowing you to maintain full control while reducing administrative workload.

Expand your business into South Africa without breaking the bank. Get Started today!