Wondering what your 2024/25 tax obligations are in South Africa? Small business owners need to keep up with changes in tax law. This tax year, several changes to the tax system may affect small businesses. 

In this article, you will learn:

• What is a tax law? 
• How does the South African tax system work?
• How do tax laws affect small businesses?
• Turnover-based tax for micro businesses 
• Dividends tax
• South African tax laws for offshore workers
• South African tax law for expats
• How to file a tax return in South Africa 

What is a Tax Law?

Before we get into the nitty-gritty of South Africa’s tax system and its new tax laws, if you’re new to tax laws altogether, you’ll need to know what this means for you first. 

Tax law has to do with the many rules, regulations, and laws that guide the tax system. This includes making payments for income, transactions, estates, licences, and property to the South African government. 

Tax law impacts both personal tax planning for individuals and business tax planning for companies. At least three levels (National, Provincial and Municipal) of government receive direct and indirect tax payments regulated by these laws. 

The government charges indirect taxes on the goods and services you buy through a 3rd party. Direct taxes are charged on things like income, personal property, and real estate, these are paid to the government directly. 

How Does the South African Tax System Work?

If you’re a South African resident, you must pay taxes on all domestic and foreign income, it doesn’t matter where the money is received or where it comes from.

So, whether you were born in South Africa or are an expat who considers South Africa as your main residence, you will probably have to pay income tax in South Africa. 

However, non-residents only need to pay South African-sourced income tax on cash they earn in South Africa. 

Most of the country's income comes from corporate and personal taxes, with 23.9 million of its 59 million citizens eligible for personal income tax. Nonetheless, indirect taxes, like Value-Added Tax (VAT), account for almost a third of the government's revenue.

How Do Tax Laws Affect Small Businesses?

Starting on 1 March 2024, South Africa’s new tax rules will take effect until 31 March 2024. The current effective tax rates for corporate income are a flat rate of 27% for tax years ending on or before 28 February 2024. This applies to both resident and non-resident companies' corporate income. 

However, the government will reduce this rate to 27% for the new tax year. For businesses that meet the requirements, a small business corporation (SBC) can have significant tax advantages. 

There are certain requirements your business should meet for it to qualify as a small business corporation.

These include: 

1. It must be a corporate entity, i.e. private company, personal liability company, and close corporation. 
2. The company's annual revenue cannot exceed R 20 million. 
3. It cannot be a personal service provider. 
4. It must have only natural persons as shareholders. 
5. The company’s shareholders cannot own shares in another company. 

Small business corporations that meet these requirements should pay the following income tax rates for tax years that will end before 28 February 2025: 

For small business corporations, your taxable net profit is your total tax revenue minus any special allowances and qualified deductions. This does not include capital gains.

Also, businesses must pay a capital gains tax rate of 21.6%. The Unemployment Insurance Fund (UIF) also involves indirect tax. This fund is a benefit for people who work for at least 24 hours per week but have become sick, unemployed, or taken maternity leave. 

This benefit is funded by 2% of the employee's income in contributions, 1% from the company and 1% from the employee. 

Turnover-based Tax for Micro Businesses 

A turnover-based presumptive tax is offered to micro businesses to lower compliance costs. Businesses with annual revenues below R1 million can choose to pay this tax over the standard corporate income tax (CIT) at a rate that varies from 0% to 3%, based on the size of their business. 

Dividends Tax

All resident and non-resident corporations that declare and pay dividends on shares listed on a South African market, like the Johannesburg Stock Exchange (JSE), have to pay a 20% dividends tax.

If a South African residence corporation, a retirement fund there, or another exempt person is the dividend's beneficial owner, the dividend will be exempt from tax. 

If a 'regulated intermediary' pays the dividend, the tax will be collected on behalf of the company paying the dividend. This generally applies to listed shares. 

The beneficial owner of a dividend does not have to pay dividend tax if the declaring corporation does not pay the amount in cash.

Treaties only allow exemptions from dividend taxes and lower tax rates if the person who owns the dividend has given the paying business or a regulated intermediary the required declaration and undertaking.

South African Tax Laws for Offshore Workers 

At the moment, South African tax residents who work overseas don't have to pay taxes on their pay for work done overseas during a certain time. This is only if they are physically in another country for more than 183 days, and more than 60 of those days are in a row.

This change, which went into effect on March 1, 2020, had a big effect on the taxes South Africans have to pay when they work abroad. This is especially true for countries with a lower income tax rate than in South Africa or no personal income tax at all. 

South Africa's tax exemption law states that some income from services done outside of the country is not subject to income tax. This exemption is limited to R1.25 million per year. However, the offshore worker must meet certain requirements to be exempt from paying income tax. 

South African Tax Law for Expats 

As mentioned before, if you’re a foreign resident with a company based in South Africa, the government there expects you to pay corporate taxes in South Africa alongside its local citizens. 

There are several countries that South Africa has tax treaties with for expats moving there. These include countries like Thailand, the United States, Japan, the United Kingdom, Australia, and many more. This can help you eliminate the chance of double taxation in your home country. 

Let’s say you own a non-resident corporation with an establishment or branch in South Africa but are tax-based elsewhere. In this case, you only need to pay company taxes in South Africa on the income you earn within the country. 

For the 2024/25 tax year, this tax is applied at a standard rate of 27% unless you qualify for turnover tax or are an SBC.

How to File a Tax Return in South Africa 

South African residents who pay taxes must complete a tax return form every year and submit it to the South African Revenue Services (SARS). The tax year in South Africa lasts from 1 March until 29 February. 

Based on the filing method, people will file their tax return forms during the tax season, which runs from July through to November. During this time, business taxpayers and individuals will make their necessary payments and file their South African tax returns. 

This includes any amount owed to you that has not yet been paid through the Pay-as-you-Earn (PAYE) system, where tax payments are automatically taken out of your salary. 

If you have large tax payments, you can make these payments to SARS using the following methods: 

1. Via the SARS eFiling. 
2. Going to the bank. 
3. By transferring funds electronically. 

It’s important to be prepared and organised when tax time comes. By using QuickBooks’ accounting software, managing your taxes and finances can become much easier. QuickBooks also provides valuable resources about available tax tables for 2024 and how much SMBs pay in taxes. 

What are the tax rates for taxable income in South Africa?

• Income up to R95,750 is not taxed.
• Income between R95,751 and R365,000 is taxed at 7% of the amount exceeding R95,750.
• Income between R365,001 and R550,000 is taxed at R18,848 plus 21% of the amount exceeding R365,000.
• Income over R550,000 is taxed at R57,698 plus 27% of the amount exceeding R550,000.

How is tax calculated for small business corporations in South Africa?

For small business corporations, the total tax payable is based on their taxable net profit.

What is the tax rate for taxable income over R550,000 in South Africa?

Income over R550,000 is taxed at R57,698 plus 27% of the amount exceeding R550,000.