What Are the Rules for Entity Structures in 2026?
Digital nomads often use companies, trusts, or sole proprietorships in South Africa. Two changes in 2026 are particularly relevant: the alteration of ring-fencing of business losses and increases to VAT registration thresholds. (sars.gov.za)
Ring-fencing of Losses (Section 20A)
- For years of assessment starting 1 March 2026, the loss restriction (or ring-fencing) under section 20A now applies to taxpayers reaching a marginal tax rate of 39%, instead of the previous top rate of 45%. (sars.gov.za)
- If you’re a high-income nomad or establishing an entity that earns substantial profits, your ability to deduct business losses against other income may be limited under the new rule.
VAT Registration Thresholds
- As per the Rates Bill, compulsory VAT registration threshold increased from R1,000,000 to R2,300,000 annual turnover. Voluntary registration threshold climbs from R50,000 to R120,000. These apply from 1 April 2026, retrospectively for registration and deregistration. (sars.gov.za)
Choosing Your Legal Entity
| Entity | Pros for Nomads | Considerations under New Rules |
|---|---|---|
| Private Company (Pty Ltd) | Limited liability; easier to scale or sell contracts abroad | Must monitor turnover for mandatory VAT; loss deductions may be restricted if income hits higher brackets |
| Trust | Valuable for asset protection; tax benefits for distributees | Trusts must file ITR12T; third-party data, vesting events (IT3(t)) matter; ring-fenced losses may affect trusts too |
| Sole Trader / Individual | Simpler setup; fewer compliance steps | ST income taxed as personal; may trigger limited loss deductions; VAT registration thresholds still apply if selling goods/services widely |
Practical Steps for Digital Nomads
- Estimate projected turnover to know whether VAT registration is mandatory or optional. If your business will break R2.3 million/year, register and charge VAT.
- Monitor income sources: If income is above marginal brackets, ring-fencing rules might restrict deductions; plan contracts and expenses accordingly.
- Set up bookkeeping systems that track involuntary loss events and vesting in trusts; maintain clear relations for third-party reporting (IT3(t)).
- Consult with tax professionals to structure contracts and payments (e.g. via trusts/company) for maximum benefit under updated legislation.
Case Example
Example: Alex is a nomadic software consultant residing outside South Africa but earns income from both SA clients and clients abroad. If Alex forms a company in SA and expects gross turnover of ZAR 2.5 million, it is now required to register for VAT. If profits accumulate such that Alex reaches a marginal rate of 39%, business losses from early years may be ring-fenced. Structuring income via a company and claiming expenses carefully will be critical.
Summary: For digital nomads, South Africa’s 2026 changes mean alternative thinking is needed around tax efficiency. Whether through companies or trusts, staying on top of thresholds & loss deductions will help avoid surprises.