Before you start a new business in South Africa, one of your major considerations should be business tax. It is mandatory that you pay taxes as a business regardless of your mode of operation. In this post, we will provide insight into the business tax rates in South Africa and the requirements of the SARS. SARS is an acronym for the South Africa Revenue Service.
You should note that when we refer to any external company, it is of foreign origin and has a branch in South Africa. Without further ado, let’s get to the crux of this post.
Business Tax in South Africa
Annual Tax Returns for Companies
Every company in South Africa, whether close corporations or external companies, is required to furnish the CIPC with details of their annual returns. This should be done at least once every year.
The annual returns are statutory and it is a major requirement stated by the Companies and Close Corporations Acts. As a result of this, you must comply with these dictates else, the Commission believes the business is not in operation. If you continue to operate in this manner, there is a chance of being de-registered by the Commission.
Filing of annual returns
According to the Act, there is a clear distinction between external companies and local companies. The content of their returns prescription is completely different. As a result, the annual return lodgment avenues are divided into:
- Local companies
- External companies
- Close corporations
For local and external companies, the annual returns should be filed within 30 business days of the incorporation anniversary. A fee is charged if the filing is done at a later date. This fee should be paid else non-compliance will lead to deregistration. The annual return fees are stated in the table below:
|Annual Turnover||Filing within 30 business days after the anniversary||Filing more than 30 business days after the anniversary|
|Less than R1 million||R100||R150|
|R1 million but less than R10 million||R450||R600|
|R10 million but less than R25 million||R2000||R2500|
|R25 million or more||R3000||R4000|
Business Tax Rates in South Africa
The tax rate for a Normal Company is 28%, the same goes for branches of the company. Below is a table that shows the tax rates for small business corporations in South Africa.
|Small business corporation||Tax Rates|
|R0 – R67 111||0 %|
|R67 112 – R365 000||7 % above R67 111|
|R365 001 – R550 000||R20 852 + 21 % Above R365 000|
|R550 001 and above||R59 702 + 28 % Above R550 000|
The Commission defines a small business organization as one that has a turnover threshold of about R20 million per year.
Other Business Tax Rates
As a foreign entrepreneur with a business visa, you are mandated to employ a minimum of 5 South Africans. On the other hand, you can employ holders of a permanent residency in South Africa. Also, you are required to withhold certain taxes from the remuneration of your employees. This will be paid to the tax authorities in South Africa.
PAYE is the main tax you will be paying on behalf of your employees. Just like in other countries, the PAYE is deducted from the gross pay of the employee which is then paid to the tax authorities.
It is also prescribed that the employer retains 1% of the remuneration of each employee. This is paid into the UIF which is a type of benefit and unemployment fund.
Based on the prescriptions by the Commission, the employer pays a 1% tax as an additional fee. This cost is equal to the remuneration of their employees. The payment is made to the UIF on behalf of the employee.
An employer is not mandated to pay into retirement or medical schemes on behalf of their employees. Again, the employer is not saddled with the responsibility of paying into any other kind of benefit for their employees.
For both local and external companies, it is required that an auditor and company secretary is employed. This is necessary for accountability purposes regardless of the ownership of the company.
Once the business has a turnover of equal to or less than R20 million and assets of less than R5 million, it doesn’t have to be audited. However, some companies still choose to be audited. On the other hand, you must employ an auditor. However, the audit only covers the income in South Africa and no balance sheets are required.
Please note that this audit is specifically to calculate and supervise income tax. Internally-owned companies also make use of the reports to assist their international auditors.
Costs of auditing and accounting
As a business owner, you must find out the costs of accounting and auditing. This will help in preparing your budgets and choosing an audit firm to work with. The challenge is that there is no prescribed price for companies that provide these services.
For simple accounting procedures, you can have an in-house accountant handle personal accounts. However, we suggest that if you have the means, you should employ an accountant or accounting company.
The usual charge is around R500 to R700 for an hour for accountants. For auditors, the price is between R1,200 and R2,400. You should note that the prices may slightly differ from one location or company to another.
As a business owner in South Africa, there is so much to learn. It goes beyond the regular tax rates and spreads into regulations governing business operations. Doing things the right way saves you from unnecessary embarrassment and ensures the smooth running of your business. Other things you should research include personal taxation, business tax registration, the importance of external auditors, etc.
The information in this article shows you how much you are required to pay as tax. It also tells you the requirements as a local or external business as well as the requirements for employers. Do you have any questions about these, ask them in the comments section.