Last updated: May 2026
Understanding tax is one of the most important and most misunderstood parts of running a small business in South Africa. Choose the wrong tax regime, and you overpay. Miss a deadline, and you face penalties. This guide covers everything South African small business owners need to know about tax in 2026, including the significant changes introduced in the February 2026 Budget.
⚡ Budget 2026 — Key Tax Changes Effective 1 April 2026
• Turnover Tax threshold raised: R1 million → R2.3 million — significantly more small businesses now qualify for the simplified Turnover Tax system
• Compulsory VAT registration threshold raised: R1 million → R2.3 million — businesses below this turnover are no longer required to register for VAT
• Voluntary VAT registration minimum raised: R50,000 → R120,000 — review your VAT registration status if you were voluntarily registered under the old threshold
The 6 Types of Tax South African Small Businesses Need to Know
1. Corporate Income Tax (CIT)
If your business is registered as a company (Pty Ltd or NPC) and does not qualify for the Turnover Tax system or Small Business Corporation (SBC) rates, it pays Corporate Income Tax at the standard rate of 27% on taxable profits. The CIT rate was reduced from 28% to 27% for all tax years ending on or after 31 March 2023.
If your company qualifies as a Small Business Corporation (SBC), you access reduced graduated tax rates — see the SBC section below.
2. Turnover Tax — The Simplified System for Micro Businesses
Turnover Tax is a simplified tax system that replaces Corporate Income Tax, VAT, provisional tax, and dividends tax with a single calculation based on your business’s total turnover. From 1 April 2026, this system is available to businesses with an annual turnover of R2.3 million or less, up from the previous R1 million threshold.
Who can use Turnover Tax:
- Sole proprietors
- Partnerships (where all partners are natural persons throughout the year of assessment)
- Close corporations
- Companies
- Co-operatives
Who cannot use Turnover Tax:
- Personal service providers
- Labour brokers
- Businesses where more than 20% of income comes from rendering a professional service
- Public benefit organisations, recreational clubs, or associations of persons
- Businesses where the owner, partners, shareholders, or members hold shares or interests in another close corporation, company, or cooperative
Turnover Tax rates (current — verify at sars.gov.za):
| Annual Turnover (R) | Rate of Tax |
|---|---|
| R0 – R335,000 | 0% |
| R335,001 – R500,000 | 1% of each R1 above R335,000 |
| R500,001 – R750,000 | R1,650 + 2% of the amount above R500,000 |
| R750,001 and above (up to R2.3 million) | R6,650 + 3% of the amount above R750,000 |
Note: The rate structure above applies up to the R2.3 million threshold introduced in Budget 2026. Businesses with turnover between R1 million and R2.3 million can access Turnover Tax for the first time from 1 April 2026. Apply by 28 February each year via SARS eFiling.
3. VAT — Value Added Tax
VAT is charged at 15% on all taxable goods and services in South Africa.
Compulsory VAT registration now applies only when your annual taxable turnover exceeds R2.3 million, raised from R1 million in Budget 2026 (effective 1 April 2026). If your business turnover is below R2.3 million, you are not required to register for VAT.
Voluntary VAT registration is available to businesses with a taxable turnover of R120,000 or more per year (raised from R50,000). Voluntary registration can be beneficial if you have significant input VAT costs (e.g. purchasing equipment or goods for your business), as you can reclaim VAT paid on business purchases.
4. PAYE — Pay As You Earn
If your business employs any person and pays them above the PAYE tax threshold, you must register as an employer with SARS and deduct PAYE from their salary each month.
As an employer, your PAYE obligations are:
- Submit a monthly EMP201 return and pay over deducted PAYE by the 7th of the following month
- Submit a bi-annual EMP501 reconciliation (February and August)
- Issue IRP5 certificates to employees annually
PAYE registration is done via SARS eFiling at the same time as your company income tax registration. Register before your first payroll run — not after.
5. Provisional Tax
Provisional tax applies to businesses not registered under the Turnover Tax system. It requires you to estimate your taxable income and pay tax in two (or optionally three) instalments during the year rather than one lump sum at year-end, which is easier on cash flow and reduces the risk of penalties for underpayment.
- First payment: 6 months into your financial year (based on estimated income)
- Second payment: At the end of your financial year (updated estimate)
- Optional third payment: 7 months after year-end, use this to top up if your estimate was too low and avoid the 20% penalty on underpayment
6. Capital Gains Tax (CGT)
CGT applies when your business sells a capital asset (property, vehicles, equipment, shares) at a profit. For companies, 80% of the capital gain is included in taxable income, then taxed at the standard CIT rate of 27%, giving an effective CGT rate of 21.6% for companies.
CGT does not apply if your business is registered under the Turnover Tax system, capital gains are excluded from Turnover Tax calculations.
How to Register for Tax With SARS
All registered companies receive an automatic income tax reference number from SARS once CIPC processes your company registration. You must then activate this on SARS eFiling within 60 days of starting operations and register for the specific tax types applicable to your business.
Step 1 — Register on SARS eFiling
Visit efiling.sars.gov.za and create a profile for your company using the income tax reference number automatically generated from your CIPC registration. You will need your CoR14.3 company registration certificate and the details of all directors.
Step 2 — Complete Biometric Verification
SARS requires biometric identity verification for all new eFiling registrations. This can be completed via a camera-enabled device (follow the prompts on eFiling) or in person at your nearest SARS branch. Complete this within 21 days of registering or your eFiling profile will be suspended.
Step 3 — Register for the Relevant Tax Types
Once your profile is active, register for the tax types that apply to your business:
- Income Tax (CIT): Mandatory for all registered companies
- Turnover Tax: Optional — apply by 28 February if your turnover qualifies (≤R2.3 million)
- VAT: Mandatory if turnover exceeds R2.3 million; voluntary from R120,000
- PAYE: Mandatory if you employ staff above the PAYE threshold
- Provisional Tax: Automatically applies to most companies unless on Turnover Tax
Step 4 — Obtain Your Tax Compliance Status (TCS) Pin
Your TCS Pin confirms to third parties (government departments, funders, corporate clients) that your business is tax compliant. It is required for all government tender applications and funding programmes, including SEDA, NYDA, SEFA, and NEF. Request it via eFiling → My Compliance → Tax Compliance Status → Request PIN. The PIN is valid for one year.
→ Need funding after getting compliant? Government funding guide for South African SMEs →
Tax Deadlines Every South African Small Business Must Know
| Tax type | Deadline | Consequence of missing |
|---|---|---|
| PAYE (monthly) | 7th of the following month | 10% penalty + interest |
| VAT (bi-monthly) | Last business day of every second month | 10% penalty + interest |
| Provisional Tax — 1st payment | 6 months into your financial year | 20% penalty on underpayment |
| Provisional Tax — 2nd payment | Last day of your financial year | 20% penalty on underpayment |
| Turnover Tax application | 28 February each year | Loss of eligibility for that tax year |
| Corporate Income Tax return (ITR14) | Within 12 months of the financial year-end | Administrative penalty |
| EMP501 Reconciliation | 31 October (interim) and 31 May (annual) | Administrative penalty |
The Small Business Corporation (SBC) — Reduced Tax Rates
If your company is registered as a Small Business Corporation, it qualifies for significantly reduced income tax rates compared to the standard 27% CIT rate. SBC status is worth applying for if you qualify — it can reduce your tax bill substantially in your growth years.
To qualify as an SBC, your business must meet all of the following:
- Annual turnover of less than R20 million
- All shareholders are natural persons (not companies or trusts)
- Shareholders do not hold shares in any other company or close corporation
- Less than 20% of turnover comes from investment income or the rendering of a personal service
- The business is not a personal service provider or labour broker
SBC tax rates (verify current year rates at sars.gov.za):
| Taxable Income (R) | Rate of Tax |
|---|---|
| R1 – R91,250 | 0% |
| R91,251 – R365,000 | 7% of taxable income above R91,250 |
| R365,001 – R550,000 | R19,163 + 21% of taxable income above R365,000 |
| R550,001 and above | R58,013 + 27% of taxable income above R550,000 |
The top SBC rate was reduced from 28% to 27% for all tax years ending on or after 31 March 2023, aligning with the standard CIT rate reduction. SBC thresholds are adjusted periodically, vverify the current year’s thresholds directly on the SARS website before filing.
Tax Deductions for Small Businesses
SARS allows businesses to deduct legitimate business expenses from taxable income before calculating tax. Keeping accurate records of all business expenses is essential — this is where good accounting software pays for itself.
Common deductible expenses:
- Operating expenses: Office rental, equipment, phone and data costs, insurance, bank charges, professional fees (accountants, lawyers)
- Capital allowances (wear and tear): Business vehicles, computers, machinery and equipment — deducted over the asset’s useful life
- Section 12E accelerated depreciation (SBCs only): SBCs can write off certain manufacturing assets at 100% in the year of purchase, and other assets at accelerated rates. This reduces taxable income significantly in years when you invest in equipment.
- Employee training and learnership allowances: Businesses that enter into SETA-registered learnership agreements can claim additional tax allowances on top of the actual training cost
- Home office expenses: If you operate from home, a proportional amount of rent, rates, electricity, and internet can be deducted based on the percentage of floor space used for business
- Business start-up expenses: Pre-trading expenditure incurred in setting up the business
- Bad debts: Debts proven to be irrecoverable in the year of assessment
- Net operating losses: Trading losses can be carried forward to offset future taxable income
How to Legally Reduce Your Small Business Tax Bill
- Choose the right tax regime. If your turnover is R2.3 million or less, compare your projected tax under Turnover Tax vs CIT/SBC — use both calculators before 28 February and choose the lower one. Many small businesses save significantly on Turnover Tax because it taxes turnover, not profit, and replaces several other taxes.
- Register as an SBC if you qualify. The difference between paying 27% CIT and paying 0–7% on the first R365,000 of taxable income is substantial. SBC registration costs nothing extra, it is a classification on your tax return.
- Maximise Section 12E allowances. If you are purchasing equipment as an SBC, time your purchases to maximise the accelerated depreciation deduction in the year you need to reduce taxable income the most.
- Run a learnership programme. If you employ staff, registering a SETA learnership provides an additional tax deduction over and above the actual training cost, reducing your taxable income while upskilling your team.
- Pay provisional tax accurately. Underpaying by more than the SARS threshold triggers a 20% penalty. Overpaying ties up cash flow unnecessarily. Use your actual year-to-date income to make accurate estimates rather than defaulting to the minimum.
- Keep your TCS Pin active. Non-compliance — even a missed return, suspends your TCS Pin, which locks you out of government tenders and funding applications until resolved. Set calendar reminders for every tax deadline.
Frequently Asked Questions
Do sole proprietors pay the same tax as companies in South Africa?
No. Sole proprietors pay individual income tax (at rates up to 45%) on business profits, not Corporate Income Tax. They can, however, register for Turnover Tax if their annual turnover is R2.3 million or less. Many sole proprietors benefit from converting to a Pty Ltd company to access SBC rates and separate their personal and business tax liability.
If my turnover is under R2.3 million, do I still need to register for VAT?
Not compulsorily, the Budget 2026 raised the compulsory VAT registration threshold to R2.3 million, effective 1 April 2026. Voluntary registration remains available from R120,000 in annual turnover, and can be beneficial if you have high input VAT costs. Speak to your accountant to assess whether voluntary registration makes financial sense for your specific business.
What is a Tax Compliance Status (TCS) Pin, and why does my business need it?
Your TCS Pin is proof from SARS that your business is fully tax compliant, all returns filed, all taxes paid, or arrangements made. It is required for all government tender applications and for every major government funding programme (SEDA, NYDA, SEFA, NEF, IDC). It is also increasingly requested by large corporate clients for supplier onboarding. Without an active TCS Pin, your business is locked out of a significant portion of South African procurement opportunities.
Can I switch between Turnover Tax and standard CIT each year?
You can elect to use Turnover Tax each year by applying by 28 February. You can also elect to stop using it. However, you cannot switch mid-year, the election applies to the full year of assessment. If your turnover exceeds R2.3 million during the year, you automatically exit the system and revert to standard CIT from that point.
What is the penalty for late PAYE submission?
A 10% penalty on the PAYE amount owed, plus interest calculated at the SARS prescribed rate. PAYE is due on the 7th of the month following payment to employees. Late payment is one of the most common compliance violations for growing SMEs. Set a recurring calendar reminder or automate via your payroll software.
Does my business need an accountant to file taxes?
Not legally, SARS eFiling is designed for self-service. However, as your business grows and tax complexity increases (SBC elections, provisional tax estimates, VAT reconciliations), the cost of a qualified accountant is almost always recovered in tax savings and penalty avoidance. For sole proprietors with simple structures, self-filing is manageable. For companies with employees and VAT, professional support is strongly recommended.
→ Next step: Get your B-BBEE certificate after getting tax compliant →
→ Ready to apply for funding? Government funding options for South African small businesses →
Information correct as of May 2026. Tax rates, thresholds, and regulations are subject to annual Budget changes. Verify current figures directly at sars.gov.za before making financial decisions.
