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Guide to Business Tax in South Africa

Table of content

Overview
Why do Businesses Pay Tax?
Understanding the Types of Businesses and Tax Responsibilities
Types of Business Taxes
Special Taxes for Small Businesses
Overview
When it comes to business, there’s no talking about compliance without talking about business tax. Tax compliance is non-negotiable for South African businesses, making it crucial for businesses to stay updated on tax laws.

What Does It Mean to Be Tax Compliant?

Tax compliance refers to the process, application, and preparation, as well as the submission of taxes within timeframes stipulated by the South African Revenue Services. By being tax compliant, businesses get to avoid the repercussions, such as heavy penalties that come with interest, and in some instances, jail time.

SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.

SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.

Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.

Why do Businesses Pay Tax?
South Africa has a strong history of economic exclusion, resulting in millions of South Africans still living in poverty and playing economic catch-up. According to Naicker, Y., and Rajaram, R., 2019, tax compliance is necessary as part of the objectives set out by the government. Taxes play a fundamental role in generating revenue for countries classified as developing countries. The National Planning Commission (NPC) places a major emphasis on the contribution from the SMME sector in generating 90% of all the jobs in South Africa. The tax system relies heavily on businesses to serve essential aspects such as improving infrastructure, ensuring citizens have access to healthcare, paying grants, poverty reduction, and more. The tax wheel starts and ends with businesses. SMEs are accountable for the bulk of taxes in the country, including income tax, provisional tax, dividends tax, capital gains tax, value added tax, pay-as-you-earn tax, contributions towards the unemployment insurance fund (UIF), and donations tax, as well as industry-specific taxes like carbon tax and sugar tax.

SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.

SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.

Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.

Understanding the Types of Businesses and Tax Responsibilities
Depending on the size of your business and its nature, there are different types of taxes your business can be liable to pay. However, all businesses must be registered with SARS, whether you’re self-employed or own a business with other individuals. Here is a list of the types of businesses, along with their tax responsibilities: 1. Sole Trader Sole traders, also known as owners, are businesses that operate by self-employed individuals who work on a small scale. Sole traders have the tax responsibility to register for Personal Income Tax (PIT), which requires an annual declaration on the income tax return for individuals (ITR12). This is where good record-keeping comes in. Good record-keeping allows you to efficiently explain what your business declares in the income tax return. SARS requires that when sole traders owe SARS, they must ensure they pay before the deadline allocated on the notice of assessment (ITA34). Additionally, you are not required to register with the Company and Intellectual Property Commission (CIPC) for this business. 2. Partnership A partnership is a business that has two or more people running it. Just like a sole trader business, a partnership is not required to register with the CIPC. In this business, each partner must register for personal income tax, as SARS taxes each partner of the business based on their share of the business. The individuals in the business must annually declare their income tax return for individuals (ITR12). Additionally, just like a sole trader would, when individuals of a partnership owe SARS, they must pay before the deadline displayed on the notice of assessment (ITA34). 3. Private/ Public Companies or Close Corporations Private and public companies are considered formal businesses that must register their businesses and obtain a registration number with the CIPC. In such businesses, the owner is considered a separate entity from the business and is considered an employee of the business who must submit a personal income tax return. Public and private companies are required to conduct due diligence and find out if they qualify for Value Added Tax (VAT) and Pay-As-You-Earn (PAYE). Other tax responsibilities include special small business taxes such as Small Business Corporation (SBC), Employment Tax Incentive (ETI), and turnover tax. 4. Co-operative Co-operatives are businesses formed from common interests and are formed by multiple people. The intent behind a co-operative is to boost the economic, social, and cultural needs of the co-operative’s members and its surrounding communities. The tax responsibilities for co-operative businesses use similar regulations of private and public companies or close corporations.

SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.

SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.

Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.

Types of Business Taxes
There are different types of business taxes, and it’s important to understand each one, as well as your tax obligations as a business owner. Here are the different types of business taxes: 1. Company Income Tax (CIT) Companies must submit a company income tax return (ITR14) to SARS annually. Businesses are required to submit information that declares all of the business’s income and expenses. That way, they can avoid instances of inaccurate tax assessments. Most companies are required to pay company income tax. The list of companies applicable for this tax, as specified by SARS, is as follows:
  • Public companies (Ltd)
  • Private companies (Pty Ltd)
  • State-owned companies (SOC)
  • Personal liability companies (Inc.)
  • Non-profit companies (NPCs)
  • Close corporations (CCs)
  • Co-operatives
  • Collective investment schemes
  • Small business corporations (under section 12E)
  • Body corporates
  • Share block companies
  • Dormant companiesPublic benefit organisations (PBOs)
2. Value Added Tax (VAT) Value Added Tax is the tax placed on the consumption of goods and services. Value Added Tax is levied on products throughout each stage of their cycle, from production to consumption. It’s not all businesses that are required to pay VAT. Businesses with a turnover that exceeds R 1 million must register for VAT and are required to comply with the 15% VAT charge on supplies that are taxable. Additionally, businesses that make less than an annual turnover of R 1 million may voluntarily register for VAT. Businesses that voluntarily register must have generated an income of over R 50 000 in the last 12 months. It’s crucial for businesses to familiarise themselves with VAT items that are zero-rated. These are as follows:
  • 19 zero-rated food items
  • Exports
  • Illuminating paraffin
  • Petrol and diesel
  • Farming inputs
  • International transport services
  • Sales of going concerns, and
  • Specified grants by the government
3. Pay-As-You-Earn (PAYE) Employers who are required to register for PAYE must also pay contributions to SARS for the Skills Development Levy (SDL) and the Unemployment Insurance Fund (UIF). If your employees make under R 83100 per year, they are not required to make contributions to PAYE. Businesses must ensure that within 21 days of being an employer, they are registered with SARS. Contributions for PAYE and UIF are deducted from employee salaries, unless they earn below the threshold set by SARS. 4. Provisional Tax When companies register for Company Income Tax, SARS automatically registers them for provisional tax. Provisional tax allows taxpayers, especially businesses and individuals with non-salary income, to pay their income tax in advance. SARS requires that two compulsory payments be made in a year. Businesses must submit a return for payment of Provisional Tax (IRP6). This kind of tax applies to sole proprietors, freelancers, trusts, close corporations, and companies.

SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.

SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.

Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.

Special Taxes for Small Businesses
Special taxes that are applicable to small businesses refer to the tax incentives that small businesses qualify for. These taxes are as follows: 1. Employment Tax Incentive (ETI) This incentive was introduced with the aim of encouraging business owners to hire younger employees, as well as employees who don’t necessarily meet their qualification requirements. The benefit of ETI is that it allows employers to spend less on the overall cost of employment, as it reduces the cost of the monthly PAYE liability. This financial relief encourages businesses to create more job opportunities, particularly for first-time job seekers and those from disadvantaged backgrounds. This is achieved by making it more affordable to hire. 2. Small Business Corporation (SBC) The Small Business Corporation (SBC) tax regime is a special tax incentive designed to reduce the tax burden on qualifying small businesses in South Africa. This initiative aims to stimulate growth, encourage job creation, and alleviate the financial strain on smaller enterprises. To qualify as an SBC, a business must meet specific criteria, including having a gross income not exceeding a certain threshold, all shareholders or members being natural persons, and a significant portion of its income not deriving from certain types of investments or services. SBCs benefit from lower tax rates compared to standard corporate income tax rates, particularly on their initial taxable income. This reduced tax liability allows small businesses to retain more of their earnings, which can then be reinvested into the business for expansion, new equipment, or hiring more staff, thereby fostering economic development. 3. Turnover Tax (TOT) Turnover Tax (TOT) is a tax system that aims to reduce the administrative tasks that tend to overwhelm SMEs. Thus, SMEs with a turnover of less than R 1 million can enjoy eased processes for their tax compliance. TOT removes the burden of calculating and paying income tax, VAT, and provisional tax separately and allows businesses to pay a single tax based on their annual turnover. Additionally, businesses that qualify will only start paying once their annual turnover exceeds R335 000.

SME South Africa is a leading business resource platform designed to empower South African entrepreneurs and small business owners. We understand the unique challenges and opportunities faced by SMEs in our country. Our platform equips you with the right resources and guidance you need to navigate every growth stage.

SME South Africa’s digital journey began in 2014 when digital media entrepreneur, Velly Bosega, acquired the platform and ushered in a new era. With a bold vision, SME South Africa transitioned to a fully digital platform, becoming the go-to resource for South African entrepreneurs.

Over the past decade, we’ve grown into a vibrant online community, attracting over 100,000 visitors every month. Through our ten core products and services, we remain laser-focused on our mission: equipping South African entrepreneurs with the tools, knowledge, and connections they need to start, manage, and grow their businesses. We connect you with the right resources, provide valuable education, and empower you to navigate every stage of your entrepreneurial journey.

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