Businesses operating in South Africa may be subject to several forms of taxation depending on their legal structure, activities, income, turnover and employees.
Tax obligations differ between companies, sole proprietors, partnerships and other forms of enterprise.
Income Tax
Companies are generally subject to corporate income tax on their taxable income.
A sole proprietor is not taxed separately from the individual who owns the business. Business profits are generally included in the owner’s taxable income and taxed according to the personal income tax rules.
Different rules may apply to partnerships and other entities.
Corporate Income Tax
South African resident companies are generally taxed on their worldwide income, subject to exemptions and applicable international tax provisions.
Non-resident companies may be subject to South African tax on income from South African sources and, in certain circumstances, income attributable to a permanent establishment in South Africa.
Small Business Corporations
Qualifying small business corporations may benefit from special tax provisions, including different rates of income tax.
Specific requirements must be met before a company or close corporation qualifies for this treatment.
Turnover Tax
Turnover tax provides a simplified tax system for qualifying micro businesses.
Eligibility is subject to prescribed requirements and turnover limits. Businesses considering turnover tax should compare its consequences with taxation under the ordinary income tax system.
Provisional Tax
Companies and many other businesses pay income tax through the provisional tax system.
Provisional tax generally involves payments during the tax year based on estimated taxable income, followed by final determination of the liability when the income tax return is assessed.
Value-Added Tax
VAT is an indirect tax imposed on the supply of goods and services by registered vendors.
Businesses meeting the compulsory registration requirements must register for VAT. Businesses below the compulsory threshold may qualify for voluntary registration where the applicable requirements are satisfied.
Registered vendors generally charge VAT on taxable supplies and may claim qualifying input tax incurred in carrying on their enterprises.
Employees’ Tax
Businesses employing staff may have obligations relating to employees’ tax, commonly known as PAYE.
Employers may also have responsibilities relating to the Unemployment Insurance Fund and Skills Development Levy.
Amounts deducted or payable must be declared and paid to the relevant authorities within the prescribed periods.
Capital Gains Tax
Capital gains tax forms part of the income tax system and may apply when a business disposes of assets.
The tax consequences depend on factors including the nature of the asset, its tax cost, the proceeds received and whether the gain is capital or revenue in nature.
Dividends Tax
Dividends tax may apply when dividends are paid by South African companies.
The tax is generally withheld from the dividend, although exemptions and reduced rates may apply in certain circumstances, including under applicable double taxation agreements.
International Business
Businesses operating across national borders may encounter additional tax considerations involving residence, source, permanent establishments, transfer pricing, withholding taxes, foreign tax credits and double taxation agreements.
International transactions can create tax obligations in more than one jurisdiction.
Tax Returns and Records
Businesses may be required to submit income tax, VAT, PAYE, provisional tax and other returns depending on their circumstances.
Proper accounting and supporting records should be maintained for the periods required by law.
Official Information
Tax rates, thresholds, registration requirements and administrative procedures change from time to time. Current requirements should therefore be confirmed from SARS and the legislation applicable to the relevant tax period.