Get to grips with your small business taxes and navigate the different types of business tax that are essential elements of running any organisation, with this easy to follow business tax guide.
This comprehensive business tax guide will walk you through your tax obligations as both a business and as an employer.
Corporate Income Tax
What is Corporate Income Tax?
Corporate Income Tax (CIT) is also known as a business tax which is a tax imposed on businesses in South Africa and who make income from within South Africa’s borders or through either a branch or permanent business within the Republic.
Related: Managing your finances
Who should be aware of the Corporate Income Tax?
CIT applies to the following businesses which are liable for the payment of tax on all income received:
- Listed public companies
- Unlisted public companies
- Private Companies
- Close Corporations
- Collective Investment Schemes
- Small Business Corporation
- Body Corporates
- Share Block Companies
- Dormant Companies
- Public Benefit Companies.
How to register for CIT
Register as taxpayer: Every business that is liable for taxation must register with SARS as a taxpayer.
Submit annual tax return: Every registered taxpayer must submit a return of income twelve months after the end of the financial year.
Submit provisional tax returns: In addition to annual returns, every must submit provisional tax returns. These must be submitted every six months and must contain estimated figures of total revenue earned for that period.
VAT was introduced on 30 September 1991 at 10% and increased to 14% on 7 April 1993. The VAT system is made up of three types of supplies:
- Standard-rated supplies: Supplies of goods or services subject to the VAT rate.
- Exempt supplies: Supplies of certain goods or services not subject to VAT.
- Zero-rated supplies: Supplies of certain goods or services subject to VAT at zero percent. For example, certain basic food items are zero-rated.
Who must register for South African VAT?
South African entities:Any person who carries on a business or ‘enterprise’ and whose value of taxable supplies exceeds, or is likely to exceed ZAR 1 million in a 12-month period.
An enterprise means any activity that is continuously or regularly carried on in where goods and services are supplied to another person and specifically includes:
- branches or main businesses of a non-resident business if the non-resident business is separately identifiable and maintains a separate accounting system;
- welfare organisations;
- the supply by a non-resident, from a place outside South Africa, of specified electronic services to a resident of South Africa, if payment for the services originates from a bank registered or authorised in terms of the Bank’s Act; and
- foreign donor funded projects
Non-South African entities:Value-added tax (VAT) is due on any supply of goods or services made by a VAT vendor. Supply includes all forms of supply, whether voluntary compulsory or by operation of law, irrespective of where the supply is affected.
The standard rate of VAT is 14%.
Here are some examples of zero-rate supplies:
- The export of goods
- The supply of an enterprise as a going concern
- Certain foodstuffs and fuel
- Some services supplied to non-residents, provided the services are not rendered directly to any person in South Africa
- Services physically rendered outside of the RSA
- International transport of goods and passengers
- Municipal rates
- The supply of certain financial services
- The rental of residential accommodation
- The supply of some educational services
- The supply of fare paying passenger transport services.
Compulsory vat registration
From 1 April 2014, only businesses that have exceeded the R1 million threshold value of taxable supplies over a continuous period of 12 months will be obliged to register for VAT.
Voluntary vat registration
A person who has not yet made any taxable supplies or who has made less than the R50 000 threshold and is reasonably expected to meet the requirement after a period of 12 months to apply for voluntary registration.
On-board entertainment supplied as part of a taxable transport service.
Related: Overview of small business tax
Vendors that supply entertainment as part of their taxable transport service will be allowed to deduct the VAT incurred provided the supply of entertainment is part of or in conjunction with the taxable transport service.
When must a business issue a tax invoice?
Generally if it is a registered vendor making taxable supplies it is required to issue a tax invoice.
A tax invoice should contain the following data:
- The words ‘tax invoice’ must appear in a prominent place
- The name, address, and VAT registration number of the supplier
- The name, address, and VAT registration number of the recipient
- A serialized number and the date
- Full description of the goods or services supplied
- The quantity or volume of the goods or services supplied
- The value of the supply, the tax charged and the consideration for the supply. If only the consideration is shown, either the amount of tax charged, or a statement that it includes VAT and the rate.
In 2007, the Minister of Finance announced that Secondary Tax on Companies (STC) would be replaced by Dividends Tax (DT).
What is Dividends Tax?
Dividends Tax is applicable to all South African resident companies as well as non-resident companies listed on the JSE.
Dividends Tax is a tax charged at 15% on shareholders when dividends are paid to them, and is withheld from their dividend payment by a withholding agent.
A dividend is any payment by a company to a shareholder for a share in that company. It is triggered by the payment of a dividend by any:
- South African tax resident company; or
- Foreign company whose shares are listed on the JSE.
Dividends Tax replaced STC in order to:
- Align South Africa with the international norm where the recipient of the dividendis liable for the tax
- Make South Africa a more attractive destination for international investment by eliminating the perception of a higher corporate tax
Who should pay Dividends Tax?
Dividends Tax is payable by the owner of the dividend, but is withheld from the dividend payment and paid to SARS by a withholding agent. The person liable for the tax ultimately remains responsible to pay the tax if the withholding agent fails to withhold the tax.
Who is exempt from Dividends Tax?
Cash dividends paid to beneficial owners who are Dividends Tax exempt entities are not subject to the Dividends Tax as well as payments to regulated intermediaries.
Securities Transfer Tax
Securities Transfer Tax is a tax levied on every transfer of a security. STT is levied at a rate of 0.25% on the higher of the consideration paid and the market value in respect of the transfer or redemption of listed or unlisted securities, including that of members’ interests in close corporations.
A security in means any:
- Share in a company;
- Member‘s interest in a close corporation (CC); or
- Any right or entitlement to receive any distribution from a company or CC.
Only the following securities are taxable:
- Securities issued by companies incorporated, established or formed inside the Republic; and
- Securities issued by companies incorporated, established or formed outside the Republic, which are listed on an exchange
Who is liable to pay Securities Transfer Tax?
Purchase of listed securities through or from a member:
- The member is liable for the payment of the tax to SARS.
Transfer of listed securities affected by a participant:
- The participant is liable for the payment of the tax to SARS.
Transfer of any other listed securities:
- The person to who the listed security is transferred is liable for the tax payable. However, it must be paid through the member or participant holding the listed security in custody.
Transfer of unlisted securities:
- The company which issued the unlisted security is liable for the payment of the tax to SARS.
Donations Tax is payable at a rate of 20% on the value of any property disposed of gratuitously by a South African resident (natural person, corporate entity or trust) excluding donations exempt from the tax. The tax is payable within three months of the donation taking effect.
Who must pay Donations Tax?
Donations tax applies to any individual, company or trust that is a resident as defined in section 1 of the Income Tax Act, 1962. Non-residents are not liable for donations tax.
The person making the donation (donor) is liable for the tax but if the donor fails to pay the tax within the set period the donor and donee are jointly and severally liable for the tax (section 59).
Public companies and public benefit organisations amongst others are exempt from donations tax (section 56(1) (h) and (n)).
Donations Tax exemptions
Exempt donations include:
- Donations by natural persons up to R100 000 per year (2006 : R50 000)
- Donations by corporate entities not considered to be public companies up to R10 000 per year
- Donations between spouses
- Bona fide maintenance payments
- Donations to PBO’s and qualifying traditional councils and communities
- Donations where the donee will not benefit until the death of the donor
- Donations made by companies which are recognised as public companies for tax purposes
- Donations cancelled within six months of the effective date
- Property disposed of under and in pursuance of any trust
- Donation of property or a right in property situated outside South Africa if acquired by the donor:
- before becoming resident in South Africa for the first time
- by inheritance or donation from a non-resident
- Donations between companies forming part of the same group of companies.
Donations Tax rates
Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less. A micro business that is registered for turnover tax can also elect to remain in the VAT system (from 1 March 2012).
Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business. The rates are as follows for 1 April 2015 to 31 March 2016:
Who is Turnover Tax for?
Micro businesses with an annual turnover of R 1 million or less. This includes:
- Individuals (sole proprietors)
- Close corporations
Employment Tax Incentive
In order to encourage the employment of workers between 18 and 29 years old a special incentive is allowed as a credit against the employer’s monthly PAYE payment. The ETI is an incentive aimed at encouraging employers to hire young work seekers. It was implemented with effect from 1 January 2014.
What are the benefits of the Employment Tax Incentive for businesses?
- It will reduce the employers cost of hiring young people through a cost-sharing mechanism with government, by allowing you to reduce the amount of Pay-As-You-Earn (PAYE) you pay while leaving the wage received by the employee unaffected.
- For example, employers who are registered for PAYE, and who employ a person for the full month of February 2014 and earns R2000, will get R1 000 off their monthly PAYE liability (provided that the employee is a qualifying employee based on all the other remaining requirements). For more information on how the ETI works, click here.
- Employers will be able to claim the incentive for a 24 month period for all employees who qualify. Click here for more information.
- The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed during the first 12 months or second 12 months of the ETI programme. Click here for more information.
- This incentive will complement existing government programmes with similar objectives e.g. learnership agreements.
- The aim of the ETI is to facilitate the increased employment of young work seekers.