SARS is a legal tax collection institution in South Africa and manages the tax filing and collection of small businesses. It deals with all sorts of small, micro, and medium enterprises within the small business category. However, the endless flow of information and puzzling stats makes it impossible for businesses to know when and how to get registered with SARS.
This is why I am here with a complete guide on SARS small tax requirements. This will help you in understanding how tax collection and filing works when you have a small business with significant revenue. So, dive right in to know more.
What are the Tax Rates for Small Businesses?
The first thing you should know before diving into the tax requirements of SARS is to check what are the tax rates offered by the company. On average, any business with a turnover of less than R1 million per year qualifies for this turnover tax. This system of tax is designed by SARS and applies to sole proprietors, partners, close corporations, cooperatives, and companies.
SARS Small Business Tax Requirements
First, before you register your business with SARS, it is important to check what type of category it suits. Here is a list of criteria you must meet to get your business qualified as a Small Business Corporation or SBC. So, keep on reading to know more.
- Your business turnover must not be more than R20 million each year.
- The business must be shared with the original people as stakeholders.
- The company must have your sole ownership.
- Your business must not have more than 20% turnover in the investment income.
- Your business must not have more than 20% of your income in the personal service category.
Now, within a small business category, there is a registry for micro businesses. Here is a brief tax criterion you must fulfill to register your business in the micro category with SARS. Give this a quick read.
- The business you are filing for must not have a turnover not more than R1 million each year.
- Your business must not be in the category of personal service provider or labor broker.
- You must have the business trades registered as a sole proprietor, partnership, close corporation, or small company.
- All partners in the business must be individuals and will be assessed for the entire year.
- The business must not be a public benefit organization or a recreational club. They can also opt for the association of persons or a funding entity of a small size.
- The business partners, shareholders, members, and people within the company must have no shares or interest in any other business or company.
Small Business Tax Deduction
SARS has a number of tax-deductible expenses that are required to run a small business. You can pay them in installments as per the SARS policy. Here is a list of some common tax-deductible expenses from the organization.
- Routine office expenses including office rentals, equipment costs, phone bills, insurance, and other financial expenses
- Capital expenses like business operations, vehicle costs, hardware investment, and renovation.
- Educational expenses
- Business start-up expenses
- Entertainment expenses
- Net operational expenses
Tax Exemption for Small Businesses
The good thing is that SARS allows certain small businesses to not pay any other taxes than the desired threshold. In this case, you don’t have to pay income taxes or net operational taxes. This is only applicable to small business corporations with a net profit of not more than R70 700 per year and micro businesses with a profit of not less than R335 500 per year.
Tax Benefits for Small Businesses
SBCs or small businesses have the benefit of increasing their assets faster than other businesses. It also gives them the benefit of low tax rates and small business income tax rates. This further allows them to pay only a small amount of income through a comprehensive mechanism of salary and dividends.
Type of Small Business and Their Tax Responsibilities
Here is a complete guide to how many categories SARS offers for small businesses and their dedicated tax responsibilities. So, dive right in to know more.
Sole Owner/ Trader
The sole-owner businesses are micro-category businesses that allow self-employed individuals to run the informal companies. They usually have no requirements to get registered with the company and intellectual property commission.
If you are a part of this business, here is a list of taxes applicable to your companies.
- Personal income tax, also known as PIT
- Income tax return for individuals ITR12
- SARS payment, if applicable
- Notice of assessment ITA34
If two or more owners with common interests come together to run a company, this is the category where it belongs. Though they are not required to get registered with CIPC, each owner will have to pay personal taxes separately according to the amount of their shares in the company.
Here are some common tax responsibilities you have to pay under the partnership category of small businesses.
- The registration tax for personal income tax PIT
- Business income on the income tax return for individuals, also known as ITR14
- SARS income payment if applicable
- Notice of assessment ITA34
Private/ Public Companies
Businesses that are formal in nature and require the owner to register with CIPC through a valid registration number fall in this category. The company will be considered a separate entity from the owner. In this case, the owner is required to pay a personal income tax.
Here is a list of all the taxes you are required to submit in this category of business.
- Automatic registration for corporate income tax, also known as CIT
- Registration tax with CPIC and CIT on an annual basis
- VAT registration
- PAYE registration
- Turnover, SBC, ETI, and special taxes, if applicable
- Payment income tax
This type of business can be defined as a group of people coming together to commit for the purpose of achieving an economic, social, or cultural goal. The venture towards this goal will be a cooperative business.
Here are the common tax responsibilities for such businesses.
- Automatic registration for corporate income tax
- VAT registration
- PAYE registration
- Income tax payment
Special Taxes Category
If anyone has a business that qualifies for a turnover tax, a special category of taxes will also be applicable to this. Here is a breakdown of the tax incentives available in the form of TOTs and SBCs.
Turnover Tax TOT
This type of tax applies to any business with a turnover of around R1 million and aims to reduce tax compliance at the administrative level. It replaces all other sorts of taxes, including VAT, Provincial Tax, capital tax, gain tax, dividends, qualifying business tax, and Pay One tax.
Small Business Corporation SBC
If you are a small business and get a turnover of up to R20 million, you will pay the SBC tax. This is applied to individuals for the purpose of reducing the tax rate and the Tax return rate. This sort of tax applies automatically, based on your business profile, in accordance with SARS guidelines.
Value-Added Tax VAT
VAT tax works just like turnover taxes for small companies. This type of tax is applicable to businesses with more than R1 million turnover each year. According to the SARS policy, this tax will cost you around 15% of the original price of goods and services (taxable).
VAT is a type of tax that comes with compulsory as well as voluntary registration. In compulsory registration, employers have to register if their turnover is anywhere around R1 million in a period of twelve months. And if the amount of your turnover exceeds, the tax amount will also be increased, according to a written obligation in the contract.
In contrast, you can apply for a voluntary VAT tax, even if your annual turnover is less than R1 million for salable products and services. The sales threshold for the voluntary category is R50 000 or more in a period of twelve months. The good thing is that registration with SARS eFiling is easier, especially while applying for VAT.
Employers with a small business are required to pay a small fee under PAYE, and these candidates will also have to get themselves registered for SDL Skill Development Levy, and UIF Unemployment Insurance Fund. In this case, you are required to get your registration with SARS and payment done within 21 business days of them becoming an employee. A small amount will be cut from their wallet on a monthly basis.
- Do consider that employers with a yearly salary of around R83 100 are not subjected to getting registered or paying for the PAYE tax.
If you are a person with a small business and a source of revenue generation, it is required from you to pay the Provisional tax. Candidates get registered for this sort of tax automatically once the Company Income Registration is finalized. All they need to do is submit a return for payment documents after every six months, and the business will be considered for SARS Efiling.
Corporate Income Tax CIT
Last but not least, companies are required to pay their annual income tax, also known as Company Income Tax Return or ITR14. This is paid once the registration for the business is finalized. The declaration for this type of tax states all sorts of income, expenses, and under-assessment tax amounts, with an annual flat rate of 28%.
Contact SARS for Queries
If you still have some sort of queries and need urgent assistance from SARS itself, kindly use the following contacts
- Website: www.sars.gov.za
- Phone Number: 0800 007277
- Phone Number for International Calls: +27 11 602 2093
- Email Address: [email protected]
What qualifies as a small business corporation in South Africa?
According to SARS, any business run by one, two, or more people with a turnover of not less than R1 million qualifies as a small business in South Africa.
Can I apply for VAT tax even if I don’t qualify as a small business corporation?
Yes, you can apply for VAT even if your business turnover rate is less than R1 million per year. However, in this case, you will apply for Voluntary VAT tax.
When are you required to register with SARS?
Any self-employed individual or business is required to register on SARS for the purpose of tax filing and collecting. According to the Service ACt 34 of 1997, these entities are required to file their tax returns and pay on the taxable products and services.
It can be a little tricky to understand the unlimited information available on the SARS website, especially when you have just registered a new business. And I hope this guide has been helpful for you in understanding the SARS small business tax requirements.