Now You Know Your Taxes: All the Important Info for Small Business Owners in South Africa
Maneuvering the tax environment is a very critical part of running a small business. Any entrepreneur has the opportunity to avoid penalties or exploit potential benefits by being conversant with taxation obligations. Here’s a comprehensive guide on the essential tax information for small businesses in South Africa.
Business Registration
Before you can conduct your business, the first thing you should do is register your business with CIPC. This is compulsory for legal entities like private companies, close corporations, and cooperatives. Once you are registered with CIPC, you will automatically be registered for income tax with the South African Revenue Service. After you have registered with SARS, you need to register on SARS eFiling to keep your tax affairs online.
Types of Taxes
Income Tax
All businesses pay income tax. The rate is, however, different depending on the type of business entity:
- Sole Proprietorships: The income is included in the owner’s personal income tax
- Partnerships: Each partner declares a plus in their taxable income, according to the share of the profits.
- Private Companies and Close Corporations: These entities pay corporate income tax
Value-Added Tax
- Compulsory registration: if a business’s annual turnover is more than R1 million, you are required to register for VAT.
- Voluntary Registration: If your business turns over more than R50 000 per annum, you may register for VAT on voluntary basis.
VAT returns should be submitted bi-monthly, and small businesses may elect to file a VAT return every four months.
Turnover Tax
Turnover tax is a simplified taxation system for small businesses with an annual turnover not exceeding R1 million. It is in lieu of income tax, VAT, provisional tax, capital gains tax, and dividends tax for easing tax compliance.
Tax Incentives and Reliefs
Small Business Corporations (SBC)
- SBCs pay less corporate tax and have expedited depreciation on a number of your assets. These decreased rates are subject to your business meeting the associated criteria regarding the type of entity and ownership structure.
Employment Tax Incentive (ETI)
- The ETI is designed to incentivise employers to hire young workers by reducing the PAYE payable to SARS.
Record-Keeping and Compliance
One should maintain proper and detailed financial records. All records of income, expenses, and ledgers of supporting documents of invoices and receipts need to be maintained by businesses. These documents should be retained at least for five years as they may be required for auditing purposes.
Registering Employees
If your business has employees, you are required to register for PAYE, UIF as well as the Skills Development Levy. PAYE is deducted from employees’ salaries and you, the employer, pay that money over to SARS every month.
The UIF contributions provide relief to workers in the short term when they become jobless or unable to work due to maternity, illness or adoption leave. The SDL is a levy paid to fund employee training and development.
How to Stay Compliant
Keeping up to date with SARS means you have to register on time, keep accurate records, file returns regularly, and pay related taxes. To make things simple, most of these processes are facilitated through the SARS eFiling system, an online facility offering services for filing tax returns, making payments, and checking on submitted returns.
Final Word
It is through understanding and observing these tax obligations that small business owners will steer operations smoothly and generally leverage tax benefits towards the success of their business.
Also read: How the GNU Affects Interest Rates in South Africa
