How can customers report binary options income to tax authorities? This is an issue we encounter often and try to help customers with some basic guidelines for their countries.
However, it is important to note that in many cases we are in the dark as much as customers are, so we try to research as much as possible to deliver some basic information or guidelines that will make the issue of binary options taxation clearer.
Here are some of the most relevant topics:
Binary Options South Africa Is Not a Tax Adviser
Binary Options South Africa does not provide consulting services, nor are we a licensed tax advisor.
We do not employ tax specialists and advisors. Information we provide should be seen as guidelines that can help customers when they are researching the way to pay taxes on their earned income.
Tax Authorities Mostly Undecided on Binary Options Trading
Binary options are becoming a widespread way to take part on the financial market, have fun and educate people about technical and fundamental analysis. In this respect, it is weird that authorities have not devised a more detailed way to understand reporting and taxation of this kind of income.
Regulatory Frameworks Often Set Up Too Late
In a way, this shows the fact that regulators are late to the game, as they are in most other industries.
Companies are fast to innovate, however, authorities are late with providing an appropriate regulatory framework to strengthen the market.
In some cases they are unaware this needs to be done. in others they don’t have the capacity and in third case they do it and eventually wreck the market by imposing too many restrictions on the very innovation that created the market for the product or service.
Below, we’ll explain in more details about paying taxes on binary options.
From Country To Country, Taxing Binary Options is Different
Different countries have different ways they design their tax policy and different ways they define certain categories in their tax codes. They all have one thing similar – taxes are complicated for the ordinary person.
So when, as in the case with binary options income taxation, the issue of a complicated tax system meets the lack of clear taxation code for this category. For some customers, who do not want to risk fines when withdrawing their profits just because authorities are slow, this is frustrating.
International Tax Treatment When Withdrawing Profits From Binary Trading
Another problem with the tax code is that binary options income is usually withdrawn from the trading account at the broker to the customer’s bank account. This is required and enforced by the international anti-money laundering framework. We have already written about scam in binary options industry here.
For traders who invest and later on profit from binary options traders have to pay taxes on binary options income. Tax treatment differs from country to country.
Broker’s and the banks that they use to conduct their business are in most cases outside of customer’s country of tax residence.
This means that, other than the local tax code, binary options income taxation sometimes can involve specific regulations that arise from international relations and tax treaties (and absence of such treaties. This further complicates everything.
Tax Codes Are Complicated, Find Help If you Are Overwhelmed
Many of the provisions will be triggered depending on the size of the profit (or even losses if the tax code treats them as a form of deductible). This is why customers must decide, depending on the size of the income flow, if they want to take a specialized tax consultant or are they going to try to report the income as part of their own efforts.
How You Report Binary Trading Income Depends on The Definition Your Tax Authority Uses
Much of the confusion stems from the inability of customers, but in some cases, tax authorities themselves, to understand binary options trading in relation to their county’s tax code. Some countries see binary options as a form of gambling income, others see it as a form of capital income. Sometimes one’s own country sees binary options as gambling, however, the country where the broker resides classifies it as capital income.
Some countries define binary options differently, they do not allow one kind of market structure and allow for another one. This also influences how the income earned by trading binary options is going to be defined and taxed.
European Union: Single Market for Many Tax Codes
In the EU, the regulation by CySEC, enforced across the Union through the MIFID directive should make things easier. However, that is not the case. Individual countries and their tax authorities have specified binary options in ways that are not always consistent with the spirit of the single market directives.
While MIFID ensures customers are protected because they can trade with regulated binary options broker even if it is regulated by Cyprus and not by their own country’s authority, incomes are treated as capital gains or gambling, depending on the country in questions.
Also, some countries do not have a clear definition what binary option constitutes in term of the tax code, so they cannot determine if this is capital income or gambling income, or some other form of income.
Make Sure to Be Mindful of Currency Conversion When Stating the Amount for Taxing
Since the trading is conducted online and income will have to be withdrawn from another country, to national bank account traders need to see how that influences the way they report taxes. One practical matter can be simply determining the appropriate exchange rate since taxes are paid in the national currency of the country.
In any case, as usually with taxes, there are many things to consider and traders should make sure they check their country’s tax code for more information or find a specialist consultant to get proper information before risking a fine for improper reporting.
Popularity of Binary Options in South Africa
South Africa is a large country with population close to 55 million people. As regards to participating on financial market, a lot of South Africans are interested to invest on global markets. Latest and widespread industry which is very popular among people in South Africa is binary options trading.
Binary options, also known as digital options, are type of online investment with fixed payout in predetermined period of time.
Trading binary options has only two possible outcomes; will asset price go up or down. South African investors find binary options trading as an excellent way to maximize profit and achieve high payouts. In this article, you can find more information on how to proclaim capital gain in South Africa with regard to online investment in South Africa.
Trading Binary Options in South Africa
In the last few years, it is visible how binary options trading experienced great popularity and boost among traders in South Africa. There are no regulatory bodies who oversee brokers, available on South African market.
South Africa does not allow domestic binary brokers to offer their services, but offshore brokers, who are registered outside South Africa, are allowed to be present on this market, by offering trading instruments and services to traders in South Africa.
Regulatory Status in South Africa
According to Securities Service Act in 2004, binary options industry is classified as a derivative instrument. In 2007, The Bond Exchange of South Africa (BESA) with its partners developed a platform that allows traders in South Africa to trade with underlying assets on Johannesburg Stock Exchange (JSE).
Shortly after, binary options become a popular field of interest among traders who wanted to earn money with binary options, knowing risk level where it is not possible to lose more money that amount invested at the beginning.
As mentioned above, industry of binary options isn’t currently regulated by Financial Services Board.
Binary options industry is a new market and trading binary options is defined as a right, not as obligation, to invest in trade with fixed payout in future time. Due to low protection of investors, numerous brokers are allowed to offer trading services on South African soil. This is the reason why it is important to trade with reliable binary brokers.
Trading Binary Options with Reliable Brokers
Traders in South Africa are able to trade with brokers, who are recognized as trustworthy in binary industry. Brokers, such as Banc de Binary, Daweda Exchange, 24option, IQ Option and many more try to offer a safe trading platform with a wide selection of trading features and services.
Taxes on Binary Options in South Africa
As a trader who invest in binary options and earn money, taxes should be payed. As mentioned above in the text, paying taxes on binary options should be conducted properly.
To know the exact category under trader’s earning fall into, check policy of taxation in South Africa. It is advised to contact tax adviser to make sure all tax liability are conducted properly.
Taxes on binary options are filed alongside with other earned income in the past year. South African traders first have to determine their overall income per year and afterwards they can see tax bracket they fall into, because for each category, a different tax rate is paid. Traders should also pay attention to tax laws of broker’s country.
To pay taxes, proper documentation has to be delivered. Traders have to fulfill Application for Registration as a Taxpayer.
Our advice is to consult a tax specialist who can assist traders in South Africa to determine tax liability.
*Legal Disclaimer: Binary Options South Africa website is not official site of Tax Administration nor is it authorized to provide any tax advices. This article is for information purposes only and we advise to contact your tax advisor before tax application.