Paying tax is a legal obligation for businesses in South Africa, but the threshold and type of tax depend on the structure and turnover of your business. Here’s a clear guide to understanding the income levels at which your business becomes liable for tax, with insights directly from SARS.
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How Much Must a Business Make to Pay Tax in South Africa – Types of Businesses
Tax for a Sole Trader
As a sole trader, there’s no need to register your business with the Companies and Intellectual Property Commission (CIPC). You’re taxed under personal income tax rates, which apply once your annual income exceeds R95,750 (for individuals under 65).
Tax for Partnerships
A partnership is similar to a sole trader, except it involves two or more people pooling resources. Each partner is taxed individually based on their share of the profits and their respective income tax rates. No CIPC registration is needed.
Tax for Private Company
Private companies must register with CIPC and are automatically issued a corporate income tax number. Businesses are required to file their annual tax return (ITR14) 12 months after the end of their financial year.
Corporate income tax applies at 27% for private companies, regardless of turnover. However, small businesses may qualify for tax incentives.
Tax for Cooperatives
Cooperatives, registered with CIPC, are taxed according to corporate income tax rates. These entities often serve economic or community purposes, such as agricultural projects or stokvels.
Tax Thresholds and Incentives for Small Businesses
Turnover Tax (TOT)
For small businesses with an annual turnover of R1 million or less, turnover tax simplifies the compliance process. The tax is calculated based on your business turnover rather than profits, and the rates vary depending on turnover levels.
Small Business Corporation (SBC) Tax
Small businesses with a turnover of up to R20 million can benefit from reduced corporate tax rates. To qualify, businesses must indicate their SBC status on the ITR14 form.
Employment Tax Incentive (ETI)
If your business hires youth aged 19 to 29, you can reduce your PAYE liability through the ETI. This incentive encourages youth employment and eases the tax burden on employers.
What Happens If You Don’t Register or Pay?
Failing to register for tax when your business income meets the thresholds can result in serious penalties. SARS will estimate the tax you owe, add penalties, and charge interest.
Key SARS Recommendations
- Stay Compliant Early:
Register for tax as soon as you start generating income or foresee hitting turnover thresholds. - Use Incentives:
Explore SARS incentives like TOT, SBC tax, and ETI to reduce your tax burden. - File Returns on Time:
Filing late or failing to file can lead to penalties and unnecessary complications.
Tax compliance is essential not only to avoid penalties but also to position your business for growth opportunities. If you’re unsure about your tax obligations, consulting a tax professional or reaching out to SARS for guidance can save you time and money.
Would you like more specific details about applying for incentives or registering with SARS?