There’s a common saying that states that only two things in life are certain: death and taxes. Although this may be true, there is a significant amount of uncertainty around the latter. However, despite the complexities of navigating taxation as a small business, it remains one of the most critical to your business operations.
Even so, understanding and navigating South Africa’s tax system doesn’t merely have to be a regulatory obligation but also a strategic advantage. Here’s everything you need to know about small business taxation in South Africa and how to efficiently manage your small business’s taxes.
Understanding South African taxation
Let’s start with the basics. Small business tax falls under Corporate Income Tax (CIT). According to the South African Revenue Services (SARS), it’s a tax imposed on companies resident in the Republic of South Africa. To clarify, this means that the tax is charged if a business operates in South Africa, regardless of whether it is a non-resident business. All SMEs registered under the ordinary small business tax system must pay provisional tax. However, this small business taxation scheme has different types of taxes.
Here’s a brief overview of each:
| Employee Tax (PAYE) If you’re an employer, you must register each employer for pay-as-you-earn tax (PAYE). This is a withholding tax on employees’ income. In brief, SARS sees this as an advance payment of your employees’ income tax. If, upon assessment, there has been excess tax paid, the amount owed will be refunded to the taxpayer. | Provisional tax This tax is essentially your income tax. However, the annual tax payment is broken into separate payments, usually 2 or 3. Provisional tax aims to help small businesses avoid paying large lump sums on assessment. Instead, based on estimated tax due and financial forecasts, companies can make payments in advance before issuing the assessment by SARS. |
| Capital gains tax This is a type of income tax that is levied on company assets when sold. The tax is calculated on your profit, not the amount you sell it for. | Dividend tax Dividend tax is levied on any dividends a shareholder receives from the company. |
| Value-added tax (VAT) VAT is an indirect tax on the consumption of goods and services. It’s levied at each stage of the supply chain, and small businesses may be required to collect it on behalf of SARS and submit periodic return applications for VAT incurred on business expenses. | Turnover tax Turnover tax is a simplified taxation system introduced by SARS. Its aim is specifically at small businesses with an annual turnover of less than R1 million. This type of tax takes all the tax payments owed to SARS and combines them into a single payment as an optional payment mechanism for lower-earning small businesses. |
Business registration and compliance
As a small business, it’s essential to understand that just because you’re small doesn’t mean you’re off the radar. It is more important than ever to ensure you start on the right side of SARS. As your business grows and you begin attracting more prominent clients, you’ll need to obtain SARS tax clearance certificates to prove that you comply with your tax duties. So, where should you start? Here’s a look.
For starters, you must contact the Company and Intellectual Property Commission (CIPC) to register as a small business or company. It’s important to remember that companies must first register here before they can register at SARS for an Income Tax reference number. It’s also important to note that once a taxpayer is registered with CIPC, SARS will automatically generate an income tax reference number. The only additional step as a business would be registering on eFiling to transact electronically.
Staying compliant with your tax obligations relies on immaculate financial planning and insight. Fortunately, you don’t have to stress about the administrative burden of tracking and managing your revenue streams. Manage your commission and fees beautifully while handling your tax obligations in one fell swoop.
