Upon registering your business, you become eligible for specific tax obligation. These obligations requires you to declare your business’s taxable income (filing tax returns) and pay the required taxes to the South African Revenue Service (SARS). To fulfil these obligations, you have to register your business for taxes, file your tax returns, and pay the taxes by the due date on the assessment. Given that taxes are influenced by two major factors: the type of tax and the forms of the business, it can be challenging for you to know how to navigate the South African tax regime, hence this guide. Read through this guide to learn how to register your business for tax, file your tax returns, and pay your taxes as a small business owner.
How to Register for Taxes
A new business is supposed to be registered for taxes within 60 days of conducting business operations. Registering a business for taxes is done at the local South African Revenue Service (SARS) office or online by filling out an IT77 form that varies depending on your business type.
How the Type of Your Business Influence the Business Tax
The most defining factor in business taxes is the form of the business. As a business owner, you need to understand the type of business you run and its legal classification to know the tax obligation you need to satisfy. Essentially, there are four main types of businesses operating in South Africa, that is, a sole proprietorship, a partnership, a public or private company, or a corporation.
Most small businesses in South Africa take the form of a sole proprietorship or proprietorship. A sole proprietorship is a business in which the owner is the manager and director of the daily business operations, including businesses in the informal sector.
Legally, sole proprietorships are not considered separate entities from the owners. This means that businesses registered using this form are not taxed separately from the business owners by the government (through SARS). Only one tax is imposed on the income of the owner from the business.
Tax Obligations of a Sole Proprietorship
A sole proprietorship is required to register for the Personal Income Tax(PIT) upon registering the business. Personal Income Tax returns are filed annually under the Income Tax Returns for Individuals (ITR12). To file tax returns, visit the e-filing website for SARS.
After filing your returns, SARS will send you a Notice of Assessment(ITA34) that indicates the amount of taxes your business is supposed to pay and by what date. In case you do not agree with this assessment, you should dispute it with SARS.
The codes ITR12 and ITA34 are used by the South African Revenue Service (SARS) as names for filing systems and documents. In this guide, all codes are stated with the filing systems or documents they stand for and their purpose.
A partnership is a type of business in which two or more owners run the day to day activities of the business. The owners manage and direct the business dealings. Similar to proprietorships, owners are not taxed separately from the business because they are not considered separate legal entities from the business. Instead, the partners are taxed according to their share in the profits and losses of the business.
Tax Obligations of a Partnership
A partnership is required to register for the Personal Income Tax(PIT). PITs are filed annually under the Income Tax Returns for individuals (ITR12). If you are required to pay taxes, you must do so by the deadline indicated on your Notice of Assessment (ITA34).
Private/Public Companies and Close Corporations
Public companies have their shares registered in the stock market. Private companies do not trade their shares publicly in the stock market. Close corporations are businesses in which the shares are held by people closely associated with the business.
Although these three forms of company are very different in their structures, organisation and management, for taxation, the three are grouped in the same tax bracket by SARS.
These businesses have the business owners and the business as separate entities and are thus taxed separately. Revenues are taxed, while the owners’ dividends are also taxed.
These forms of businesses are known as companies. Companies are required to register with the Company and Intellectual Property Commission (CIPC). This is not the case with proprietorships and partnerships. After which, they receive a company registration number with the CIPC.
Small businesses rarely take these forms, but in case you decide to go with this, you will have the following tax obligation.
Tax Obligations or Private/Public Companies and Close Corporations
The companies that fall under this category are required to pay several taxes for which they must first file returns. Essentially, when you register your company under these forms with the CIPC, it automatically registers for Corporate Income Tax(CIT). Corporate Income Tax(CIT) Returns are filed yearly on ITR14.On the other hand, you must register for Value Added Tax(VAT), Pay-As-You-Earn(PAYE), Employment Incentive Tax(ETI) and other taxes exclusive to small businesses. But only if your company qualifies for these taxes. This is discussed in greater detail under “Types of Business Taxes.”
A cooperative is a company that caters to its members’ economic, social, and/or cultural needs.
Cooperatives are also companies and are thus required to be registered with the Company and Intellectual Property Commission (CIPC).
Tax Obligations for Cooperatives
Cooperatives in South Africa have tax obligations similar to private/public companies and close corporations discussed in 3 above.
Types of Business Taxes
The types of business forms outlined in the previous topic have brought to light the variety and complexity of the different types of taxes imposed on a business. These taxes include Personal Income Tax, Corporate Income Tax. Value-Added Tax (VAT) and Pay-As-You-Earn (PAYE) tax.
As a small business owner, there are also other taxes exclusive to small businesses that you should know. For example, taxes like Turnover tax, Small Business Corporation tax and Employment Incentive Tax will help you with the management and organisation of your business.
As one of the taxes exclusive to small businesses, the turnover tax makes it simpler for small businesses to file their taxes. Therefore, it is the most important tax system to consider as a small business owner. It is only applicable to businesses with an overall revenue (or a turnover) that does not exceed R1 million.
If you pay turnover tax, the system allows you to opt-out of Corporate Income Tax, Personal Income Tax, value-added tax (VAT), Capital gains Tax, Provisional Tax, and dividend tax.
If your business qualifies for this tax, you will pay one tax (turnover tax) that replaces the others (Corporate Income Tax, Personal Income Tax, Value-Added Tax, Capital gains Tax, Provisional tax and Dividends tax). You will also only start paying this tax when your annual turnover surpasses R335,000. Unless there is a VAT and PAYE option added to the tax system during filing
The Turnover tax returns (TT03) filing is done once every year, but it has two different submissions depending on whether it is filed as a company or as an individual. A company is expected to file their returns before the end of the financial year, while individuals are expected to do it between 1 July and 31 January of the following year.
Personal Income Tax
Personal Income Tax is the only tax obligation on sales for small businesses – proprietorships or partnerships.
The periods for filing Personal Income tax returns are announced by the South African Revenue Service (SARS). Individuals whose business income proceed from proprietorships and partnerships should file their returns annually as Income Tax Return for Individuals (ITR12).
After filing the Income Tax Return, SARS will serve you with a Notice of Payment(ITA34) that will show you the deadline by which you are supposed to pay this tax.
Corporate Income Tax
Companies pay corporate Income tax. Companies should file their returns within 12 months after a financial year ends. They do this by submitting the Company Income tax return (ITR14) form. The annual flat tax rate paid by companies in South Africa is 28%.
To avoid overpaying or underpaying taxes, be keen to ensure you state precise income and expenses when filing the returns for this tax.
Value-Added Tax (VAT)
A compulsory Value-Added Tax (VAT) is imposed on taxable supplies of products and services from companies that have an overall yearly revenue of R1 million and above. These taxable supplies are given a VAT of 15%.
Conversely, with overall yearly revenue of below R1 million, this tax is optional up to R50,000. Below R50,000, no Value-Added Tax is payable. The value-added tax is submitted every two months before the 25th of the second month.
As a business owner, you are required to deduct Pay-As-You-Earn (PAYE) from the employee salaries, but only if they earn a salary above R83,100 annually. As soon as you register an employee in your business, you have 21 business days to register with SARS for PAYE. After that, PAYE is paid every month within the first seven days following the end of the month.
You are also required to register the employee for the Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) for their contributions to SARS.
Provisional tax allows businesses to pay income taxes in advance to avoid having large accumulated income tax payment obligations.
Usually, only companies are registered automatically for provisional tax. This automatic registration is triggered upon registration for corporate income tax. Otherwise, if your business takes the form of a sole proprietorship or partnership, you must register for provisional tax.
For this tax, you will make two advanced payments to estimate the income taxes you expect your business will accrue in the course of the year. The first of these two payments is made within six months after the start of the financial year. The second payment is made before the end of the financial year for companies. For individuals, including proprietorships and partnerships, the first payment is due on 30 August each year and the second payment on 28/29 February the following year.
The returns for this tax are filed by filling the Return for Payment of Provisional Tax (IRP6) form. However, if you are registered for Turnover tax, you do not need to file this tax return.
Skill Development Levy (SDL)
The business or the business owner is required to pay an additional tax that contributes towards educating employees. This is the Skill Development Levy (SDL). You are only liable to this tax as an employer if you earn above R100,000.
Government Tax Incentives for Small Businesses
As a small business owner in South Africa, you will want to take advantage of the taxing systems the government has put in place to help small businesses in South Africa. They include:
The most beneficial tax system for small businesses is the turnover tax, which is discussed in greater detail in the “Types of Business Taxes” outlined above. Using this tax, you will only have to fulfil only one tax obligation that encompasses more than five other tax obligations. Therefore, if you choose turnover tax, you will only have to file one tax and not the others(in the list).
Small Business Corporation (SBC) Status
After turnover tax, the second most important business incentive for small businesses is the Small Business Corporation (SBC) status, which qualifies a small business for lower tax payment.
A small business should have an overall yearly revenue (or turnover) of R20 million and above to qualify for this status. The status is automatic, and it’s triggered when filing the Income-tax returns (ITR14). It is not something the business owner applies for. Upon indicating on your business’ Income Tax Return (ITR14) that you are a small business, your business will become viable for the SBC status. Even so, you will only qualify if your business meets all the requirements.
How to Pay Business Taxes
You can pay your small business taxes at your local SARS customs branch, at selected banks, online using the e-filing system on the SARS website (the same as on the SARS mobile app) or using an Electronic Funds Transfer system.
This guide has equipped you with the right information to help you fulfil your tax obligations. It is against the law to disregard your tax obligations, whether or not you do it knowingly. Additionally, taking advantage of the tax incentives for small businesses and choosing the best way to organise and fulfil your tax obligations will save you time and money.
Disclaimer: Please note that the information provided herein is for educational purposes and not a substitute for professional tax advice. Seek professional opinion from a Certified Public Accountant and a tax lawyer.