As a business, you’re liable to pay corporate income tax, which is calculated based on your total income over the tax period. Under the traditional company income tax system for small business corporations, the threshold for paying income tax starts at R79,001, although rates vary depending on a number of factors, including:

• Your annual turnover
• Whether you’re based in South Africa, or have a branch in the country
• How many employees you have

All companies registered under the ordinary small business tax system are required to pay tax using the provisional tax method, which spreads out the tax liability over the assessment period. This system requires at least two amounts to be paid in advance, and calculating what you owe is crucial to making sure you’re not left with a large bill at the end of the year.

However, SARS has also introduced an additional tax type for qualifying small businesses. Known as turnover tax , this is a simplified system aimed at making it easier for micro businesses to meet their tax obligations. Currently, the threshold for tax under turnover tax is R335,001, making it an attractive option for certain businesses.

Small business tax requirement

To ensure proper tax compliance, businesses should identify which small business tax they qualify for and maintain precise financial records every year. This can be achieved by using suitable small business accounting software. Meeting the following criteria is required for a business to be classified as a Small Business Corporation (SBC) by SARS:

• Annual business turnover must not exceed R20 million.
• All business shareholders must be natural persons.
• The business should not own any other businesses.
• Less than 20% of the business's turnover should come from investment income.
• Less than 20% of the business's income should come from providing personal services.

Criteria for small business turnover tax qualification:

• Annual business turnover must not exceed R1 million.
• The business should not be a personal service provider or a labor broker.
• The business can operate as a sole proprietorship, partnership, close corporation, co-operative, or company.
• All partnership partners must be individuals throughout the year of assessment.
• The business cannot be a public benefit organization, recreational club, association of persons, or small business funding entity.
• The business owner, partners, shareholders, members, and the business itself should not hold any shares or interests in a close corporation, company, or cooperative.

Small business tax rate

Small businesses play a critical role in the South African economy, contributing to job creation and economic growth. Understanding the tax rates and regulations that apply to small businesses owner is essential for compliance and financial planning

Learn about the SARS tax brackets and tax tables in South Africa

Types of taxes small businesses pay

Companies in South Africa may be liable for a number of different tax types, depending on the nature of their business. These include:

Income Tax – an annual tax company must pay, based on their profit.

1. Provisional tax – a twice (or thrice) annual tax payment used to break up the income tax liability over the course of the year, avoiding one large payment.
2. Capital gains tax – in general, capital gains tax is levied on the sale or disposal of company assets, such as property, where the proceeds of the sale are greater than the asset’s base cost. Capital gains tax is not a separate tax: it forms part of income tax.
3. Dividends tax – this is a tax imposed on dividend payments to shareholders. 
4. VAT – value-added tax is a tax on the consumption of goods or services. Companies with an annual income of over R1 million must register for VAT. For companies with lower incomes, VAT registration is optional.

Simplified Tax: Turnover Tax

All of these tax requirements can place a large administrative burden on small businesses whose major focus is staying profitable and keeping new business coming through the door. This is why SARS introduced a simplified taxation system: turnover tax.

Who qualifies for turnover tax

The turnover tax takes all the above payments and combines them into a single payment. To qualify for this simplified taxation system, you’ll need to meet certain qualifying criteria: 

• To qualify for turnover tax, a small business must be registered with SARS and have a turnover of less than R1 million per year.
• Turnover tax is applicable to sole proprietors, partnerships, close corporations, companies and co-operatives 
• Certain government grants qualify for turnover tax under the Income Tax Act

Turnover tax is also elective. You’ll be able to choose this payment type if you’re self-employed, in a partnership, or if you are a close corporation (CC), company, or cooperative. Otherwise, you’ll be liable to pay the standard small business tax rates as outlined by SARS at the beginning of each tax year. 

Higher incomes place businesses in higher tax brackets. Standard small business tax brackets currently range from 7% to 28%, in addition to a lump sum payable.

If you’re unsure, ask your accountant which tax type would be right for you.

Preparing your Tax Return

In order to be as organized as possible when it comes to filing your own business tax return, you should always keep clear, accurate records of your income, expenses, and resulting profit/loss throughout the year to determine how much tax you need to pay. 

Since companies only pay tax on their profits, making sure you accurately include all your expenses is an important way of keeping your tax bill as low (and accurate) as possible.

According to South African tax law, the following can be deducted from taxable income as allowable business expenses:

Regular business expenses

This includes all financial outgoings that are incurred as part of running the business. It includes things such as material and equipment costs, employee costs, and administration costs, but also covers business rental costs, office supplies, travel, uniforms (if needed), wholesale purchase costs for goods resold, financial charges (such as bank fees), utilities, legal fees, marketing, and promotion.

Capital expenses

This relates to the cost of buying equipment and machinery, and also cover renovation costs.

Start-up expenses

This is an expenditure that was incurred for business purposes in the period before the commencement of the first year of trade, provided these are expenses that would have qualified as deductible business expenses within the general operation of the business.

Net operating losses

Any losses carried forward from previous years.

When preparing your tax return, it is important to do so accurately, as SARS can request substantiating evidence to show that the return has been completed correctly.

This means keeping accurate, complete records of your business activities during the course of the year.

Frequently Asked Questions