How Much is Small Business Tax in South Africa
If you run a small business in South Africa, you're subject to corporate income taxes. But how much will you end up paying?
Unfortunately, if you run a small business in South Africa you're going to be liable for corporate income tax. This means your accounting needs to be spot on, and you need to understand the tax laws. In addition to the rates, you need to understand the tax process.
Figuring out your tax liability can be tricky, though. There's a corporate tax rate that applies to all your taxable income. What's more, you don't even have to be a business owner to be liable for this tax. Corporate income tax in South Africa also applies to the self-employed. That's right, even as a sole proprietor you'll be on the hook for corporate income tax.
Let's take a deep dive and learn all you need to know about your income tax liability in South Africa.
Here’s What We’ll Cover:
What is the Corporate Income Tax Rate in South Africa?
In South Africa, the corporate tax standard rate is 28%. This means that any profit earned by a company sees a tax at 28% of its value. The tax rate gets applied on top of whatever other taxes you might owe. That is a lot of money to pay in taxes! The good news is that tax years after April 2022 will see the rate reduced to 27% on taxable turnover. While this isn't a huge drop, any savings is a good thing.
The basic formula to calculate your tax liabilities is as follows:
Taxable Turnover x 0.28 Total Tax Liability
So imagine you see ZAR 800,000 in profits over the course of one year. This would also be your taxable turnover. Multiply that by 0.28 and you get ZAR 224,000. That's the amount you'd owe in taxes.
This tax rate also applies to both resident and non-resident companies, but the two have some different rules. One difference is that a resident company will pay the corporate income tax on all income. A non-resident company is only taxed on income on business done in South Africa.
There are also some special rates available for particular industries. Mining companies who deal in gold are eligible for a special rate. So, too, are long-term insurance companies.
What Does "Business" Mean in South Africa?
In South Africa, you are a business if you earn money in any way other than salary. A private company, of course, qualifies. But, this means the self-employed are also classified as businesses. This is the case even if you do nothing to register yourself as a business. Under the law, you are a business simply by acting as a self-employed individual.
You may find it odd to consider a single individual to be a "business" but it does make some sense. After all, if someone is self-employed they are providing goods or services without the aid of an employer. They are charging money, just like a company would. If they were working for an employer, that company would be paying income tax on their behalf.
Here is a comprehensive list of entities that are liable for corporate tax in South Africa:
- Listed or unlisted public companies
- Close Corporations
- Private Companies
- Collective Investment Schemes
- Public Benefit Companies
- Share Block Companies
- Body Corporates
- Dormant Companies
- Small Business Corporations
However, some caveats will allow certain businesses to pay a lower tax rate. If your business is small with an income of less than 20 million South African Rand (ZAR), you can register as a Small Business Corporation (SBC). An SBC pays tax at the following rates, rather than the 28% flat corporate rate:
Income LevelTax Rate
First ZAR 87,300
0%ZAR 87,301-365,0007%ZAR 365,001-550,00021%ZAR above 550,00028%
This can be a significant saving for a small business. So, it often makes sense to register as an SBC in South Africa.
Let's look at a quick example of this. Let's say you are an SBC and see ZAR 500,000 in taxable turnover. How much would you owe in taxes?
Well for the first ZAR 87,300 you would owe nothing. You make more than that, though, so you go to the next bracket. For your income from ZAR 87,301-365,000, you pay 7%. So this means you end up paying ZAR 19,439 on this income. However, you make more than ZAR 365,000 too. So you will now pay 21% in taxes on income from ZAR 365,001 to ZAR 500,000. This equates to ZAR 28,350 for this income. Finally, you tally your tax liability for each bracket together. This gives you a total amount due of ZAR 47,789.
This also applies to a Sole Proprietorship. You don't have to form a corporation to avoid the corporate tax rate. Instead, you can register as a Sole Proprietor and pay a much lower rate. In fact, the first ZAR 87,300 by either individuals or corporations have no tax. You'll be saving yourself money and positively impacting your bottom line.
What Other Business Taxes are There?
Unfortunately, the tax liability doesn't end with corporate income tax. Many countries have a laundry list of taxes for businesses. South Africa is no different. For businesses in South Africa, there are several other taxes to contend with.
When a resident company of South Africa declares and pays dividends, another tax comes into play. This dividends tax gets charged at 20% on the amount of the dividends. For non-resident companies, this dividend also applies to shares on the African Stock Exchange.
There are a few scenarios when the dividend tax does not apply. If the dividend's beneficial owner is a South African resident company the tax doesn't apply. Aside from this unique situation, you will always owe the dividend tax.
Capital Gains Tax
South Africa also has a capital gains tax. It's levied on profits made through the sale of assets. You calculated this tax based on the gain made on the asset sold. This rate for a business is 22.4%.
Let's say your total purchase price on assets is ZAR 400,000. During the year you sell those assets for ZAR 450,000. This means you saw capital gains of ZAR 50,000. Therefore, your capital gains tax would be ZAR 11,200.
Fortunately, here are some exclusions that you may be able to take advantage of:
- ZAR 2 million gain or loss for primary residence disposal
- The majority of assets for personal use
- Long-term insurance policy payments
- ZAR 40,000 annual exclusion on capital gains for special trusts and individuals
If you're not able to take any of the exemptions, expect to be the full 22.4%. This means if you buy an asset for ZAR 150,000 and sell for ZAR 200,000 your capital gain is ZAR 50,000. This means your tax would be ZAR 11,200.
If you're selling goods or services in South Africa, you'll have to pay VAT. This is a sales tax that's added to the price of the product or service.
It's calculated at a rate of 15%. However, there are some exceptions where the rate is different. For example, exports and many food items, and other supplies are not subject to VAT.
A small business that sells goods should register to collect VAT. Cost of goods should then have 15% added to collect the VAT to pay the tax. This way you collect the tax from the consumer rather than hurting your profits.
Taxation of Foreign Income
Foreigners who own property in South Africa must file a return for their foreign income. They must report all income earned from sources outside of South Africa.
For example, if they receive rental income from a property in South Africa, they must include this income in their returns.
When to File and Pay Corporate Income Tax in South Africa
Nobody likes tax time. Not only is it money out of your pocket, but it's tedious. Think about all the steps involved. You have to figure out your taxable income. Then you need to figure out how much you owe. Next, you need to fill out the tax return form to send to the government. Of course, you always double-check to make sure you're not making any mistakes.
Sure, there are ways to avoid this process. If you're running a small business, you can use an online tax calculator to determine what you'll owe in taxes. This way, you don't have to worry about filling out forms or calculating your taxable income manually. Instead, you just enter some information into the calculator. It then calculates everything for you. Still, it's a lot of work to do just to give away a big chunk of your money.
In South Africa, tax returns are due within one year of a business’s tax year-end. The final payment is due no later than 6 months after the tax year-end. Furthermore, in South Africa, advance payment is made bi-annually. The first payment must apply within the first 6 months of the tax year. The second payment is to be made before the end of the tax year.
South Africa Revenue Services (SARS) offers several ways to pay corporate taxes. The following payment methods are all valid for settling corporate tax dues:
Electronic funds transfer
- Online Banking
- Bank payments
- Swift payment method (applicable only to foreign payments)
In addition to the above, it's important to note that South Africa imposes a penalty for late filing. The penalty for an overdue tax filing ranges anywhere from ZAR 250 up to ZAR 16,000 per month. This continues every month until you file the past-due return. In other words, it's critical to file your taxes on time.
If you're a small to medium business, you probably have accounts that keep up with this stuff. If you're a sole proprietor, though, it will be more difficult. The best way to ensure that you file your taxes on time is to set reminders on your calendar. Set them as far ahead as possible so that you won't forget. Set multiple reminders for a month before tax day if you have to.
If you're still having trouble with paying your taxes, contact SARS directly. They offer free assistance to help you get through the process. After all, they want to get paid. That can't happen if you're struggling with the process.
South Africa has quite a few taxes you should be aware of when you own a small business. Not only is there corporate tax, but there are dividend taxes. There are also capital gains taxes, and VAT to deal with. These taxes are something you need to be aware of whether you're a business or a sole proprietor, too.
Also always ensure you keep up with filing and payment deadlines to avoid admin fees for late filing. These fees are charged for each month late, so they can add up. Again, the government wants to be paid. SARS will be willing to assist if you have difficulty with the process. They won't be quite as forgiving with fees if you don't put in the effort to file.
Above all, it's critical to ensure your bookkeeping is in order. You always want to ensure that you have 100% accurate information on your finances. Being off even by a small amount can have a big impact on your tax burden, particularly if you underpay.
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