Going freelance? Becoming a contractor? Starting your own business? Get the low-down on setting up as a sole trader in South Africa.

There’s no denying it: being your own boss is pretty great. You have higher earning potential, the freedom and flexibility to choose your own hours, and you’ll build something of your very own. If that sounds enticing, you’re not alone: approximately 80% of South Africa’s economy is made up of small micro medium enterprises (SMMEs).

However, there are some less glamorous parts to being self-employed, and most of it has to do with paperwork. And whether you’re starting a business or taking the freelancer route, one of the first things you’ll need to do is register as a sole trader with the South African Revenue Service (SARS).

Although you’re on the road to self-employment, don’t worry — you’re not alone. In this guide, we take you through everything you need to know about setting up as a sole trader in South Africa.

In this article, we will discuss:

• What is a sole trader?
• Sole proprietorship vs company: what’s the difference? 
• Advantages and disadvantages of a sole proprietorship 
• How to register a sole proprietorship in South Africa 
• Step 1: Business name registration
• Step 2: Register for statutory requirements
• Step 3: Understand tax and legal responsibilities
• Step 4: Set up insurance
• Step 5: Opening a bank account
• Step 6: Obtaining relevant licenses to ensure compliance
• How to set up as a sole trader via SARS eFiling or Mobile App 
• Registering as a sole trader in the SARS branch
• Managing tax year-end as a sole trader

What is a sole trader?

According to SARS, a sole trader (more commonly referred to as a “sole proprietorship”) is a business that’s owned and operated by one individual. It’s the most simple and straightforward type of business you can own, because there’s no division between the owner and the business as an entity. 

This means you won’t need to register it as a separate company with the Companies and Intellectual Property Commission (CIPC). However, you will need to register with SARS to file tax returns.

This is so SARS can accurately determine how much you need to pay in taxes at the end of the financial year. You can do this under your own name, or under a trading name.

Sole proprietorship vs company: what’s the difference?

If you’re new to the world of being self-employed, you might be confused at the difference between a sole proprietorship and a company. Essentially it’s all about legal and financial liability.

As a sole proprietor, you and your business are regarded as one and the same. It means you don’t need to formally set up a separate company, but all of the responsibility and risks fall to you as well. If the business fails, your assets could be seized to pay any debts that are owed. Sole proprietors are also limited in the amount of capital they can raise.

On the other hand, a company is its own legal entity and is separate from the individuals that run the business. The company is registered as a taxpayer, has its own rights and duties, and its own liabilities. It also has its own ‘life’ — shareholders may change, but the company will remain the same.

For most SMMEs starting out, the sole proprietorship route is the more common way to go as it’s simpler to form and there’s minimal paperwork involved.

Advantages and disadvantages of sole proprietorship in South Africa

Here are some of the advantages and disadvantages of sole proprietorship in South Africa:

How to register a sole proprietor with SARS?

As we touched on already, you need to formally register as a sole proprietor with SARS to get an income tax number. Sole traders are required by tax law to register their business with SARS within 60 days of commencing business operations. 

If you already have a tax number, you can use this and declare your income in your personal tax return. 

If you don’t have a tax number, it’s easy to get one — just visit a SARS branch, or do it online using SARS eFiling. 

Follow the following steps to register:

Step 1: Business name registration

To register a business name in South Africa, you have several options. The first is to register online with the Companies and Intellectual Property Commission (CIPC). Alternatively, you can register through a bank, such as First National Bank or Nedbank.

Step 2: Register for statutory requirements

South African law requires new businesses, including sole proprietorships, to meet certain statutory requirements.

• With CIPC: As part of the South African Department of Trade and Industry, CIPC handles registration and intellectual property rights.
• With SARS: Registering with the South African Revenue Service (SARS) is essential for meeting statutory and regulatory obligations. Interestingly, SARS registration is automatic when registering a business name with CIPC.

Businesses earning over R 1 million in revenue annually must register for VAT. Those with a more modest income exceeding R 50,000 can voluntarily enroll. VAT-registered businesses operate under a 15% standard rate, contributing to economic growth through transactions involving goods and services.

Step 3: Understand tax and legal responsibilities

Those looking to start or expand a sole proprietorship in South Africa should familiarize themselves with SARS rules and regulations to understand the tax and legal requirements for their business.

Sole proprietorships in South Africa come with their share of responsibilities. For example, if employees earn over R40,000 annually, the company must register for the Pay As You Earn (PAYE) system. If the payroll exceeds R500,000 annually, the company must secure a Skills Development Levy (SDL).

Step 4: Set up insurance

When setting up a sole proprietorship in South Africa, it's crucial to protect your venture with business insurance. Consider comprehensive policies that cover natural disasters, theft, and fire, as well as legal liability. Additionally, ensure you have product and public liability coverage to protect against potential legal disputes.

Step 5: Opening a bank account

To open a sole proprietorship bank account in South Africa, you'll need to meet certain requirements:

• Valid ID for the business and business owner
• Proof of address
• Three months of business statements
• Proof of CIPC registration

Step 6: Obtaining relevant licenses to ensure compliance

The final step is to obtain relevant licenses needed to carry out your business operations to ensure your business is compliant with South African business laws. Once you have the necessary SARS permits, you can conduct commercial activities in the country.

How to set up as a sole trader via SARS eFiling or MobiApp

The easiest way to register with SARS is to visit the eFiling website. Once you’re on the site, simply click “Register Now” to get started.

Alternatively, you can do this via MobiApp, which can be downloaded on the Play Store or App Store.

Once you’re registered, SARS will automatically issue you with a tax reference number. This is the number you’ll use to submit your tax return at year-end.

If you’d like to know more about SARS, see this information about what is SARS.

Registering as a sole trader in the SARS branch

Previously, sole traders were required to fill out the ‘IT77 registration form for individuals’ to officially register as a sole trader. This has been discontinued, but you can still register by popping into a SARS branch where the staff will help register you in the system.

Before heading to your nearest branch, you’ll need to prepare a couple of documents including proof of identity, proof of address and proof of bank details. For more details, visit the SARS website here.

SARS will then give you a tax number, which you can use to register for eFiling.

Managing tax year-end as a sole trader

Because there’s no division between you and your business entity, filing your taxes is fairly straightforward. When year-end rolls around, the income you make from your business as a sole proprietor needs to be filed as part of your personal income tax. 

When it comes to expenses, be mindful that business expenses and personal expenses can both be claimed as deductions from your personal tax return. It’s a good idea to keep track of both in separate, comprehensive lists to make it easier when filing your taxes. 

One of the best ways to do this is with specialized accounting software for sole traders, such as QuickBooks. Easily track your income and expenses in one place with QuickBooks Online — making tax time a breeze.

Try QuickBooks free for 30 days!

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