A Private Company (Pty) Ltd is treated by South African law as a separate legal entity and has to register as a taxpayer in its own right. The owners of a Private Company (Pty) Ltd are known as shareholders.
The name of a private company usually ends with the words ‘(Proprietary) Limited’ or ‘(Pty) Ltd’.
When your private company is registered with CIPC, it is also registered automatically with SARS as a taxpayer and will obtain its own tax reference number. The income tax number should reflect on the company's COR14.3 certificate (CIPC registration document) or you can call 0800 00 7277 to find out the Income Tax Number which is 10 digits and starts with a 9.
Private companies need to register for tax in the name of the company as it is seen as a separate legal entity all together.
Depending on other factors such as size of turnover, nature of relationship with staff who you employ, size of your payroll, whether you are involved in imports and exports etc. you could also be liable to register for other taxes, duties, levies and contributions such as VAT, PAYE and UIF, Customs and Excise and SDL
Unlike a natural person whose year of assessment always covers the 12 month period from 1 March to 28th February, a company will always have a year of assessment which coincides with their financial year (which may not necessarily run from March to February).
They can choose their company year end when the company is set-up and they can change it at any time online using the CIPC website.
Companies need to file their tax return (ITR14) annually, and this is due within 12 months of their financial year end.
For example, a company with a June year end will need to submit their 2021 ITR14 by 30 June 2022.
The following should be noted:
In most cases SARS does require Financial Statements to be submitted with the ITR14 – see more details on this below.
A taxpayer must retain all supporting documents related to a return for five years from the date upon which the return is submitted to SARS, since SARS may require these documents for audit purposes.
SARS will under certain circumstances, on request, still require the submission of documents for purposes of verification.
1. Corporate Tax
A company is required to pay Corporate Income Tax on its profits twice a year, via the provisional filing system and then any additional amount owing when filing their final income tax return (ITR14).
2. PAYE, UIF & SDL
Many small business owners do not realise that if they operate their business through a Company (Pty) Ltd, the company needs to be registered as an employer with SARS. This also means that it needs to deduct employee’s tax (PAYE and UIF) from amounts paid to Directors. It also is required to make monthly EMP201 submissions (this is the PAYE, UIF and SDL return) to SARS. This holds true even in the case of “owner managed” businesses where there is only one director and no employees. If the owner, who is a director, actively works for the company then they would be considered an employee and subject to PAYE etc.
Employers are required to pay UIF for all of their employees who work more than 24 hours per month. This is calculated at a rate of 2% of their total pay i.e. the employer and employee each contribute 1%. Note however, that the maximum earnings ceiling is capped at R 17 712 per month or R 212 544 annually. For employees who earn more than this amount, the contribution is calculated using the maximum earnings ceiling amount. Therefore the maximum contribution which can be deducted, for employees who earn more than R 17 712 per month, is R 177.12 per month.
The contributions was not always capped as per above, from 1 October 2021 to 30 May 2021 the maximum earnings ceiling was capped at R 14 872 per month or R 178 464 annually. Therefore, the maximum contribution to be deducted from employees was R 148.72 during this period.
An employer must pay Skills Development Levy (SDL) if the employer pays annual salaries, wages and other remuneration in excess of R 500 000.
Note: in addition to SARS, employers are required to register with the Department of Labour as well (www.labour.gov.za).
3. VAT
It is mandatory for any business to register for VAT if the Turnover generated in any consecutive twelve month period exceeded or is likely to exceed R 1 million. Any business may choose to register voluntarily if the Turnover generated, in the past twelve month period, exceeded R 50 000.
4. Dividends Tax
The Withholding Tax on Dividends is paid over by the company, on behalf of the shareholders and is levied at 20% of the dividend declared. If the company declares and pays a dividend, it needs to register for Dividends Withholding Tax so that it can file a Dividend Return and pay this tax to SARS. This can be done on SARS eFiling.
5. Customs Duty
Any company that imports goods to South Africa, or exports goods from South Africa, is required to be registered with SARS for Customs Duty.
In order to prepare the company’s corporate tax return, you will need to understand the basic steps in determining your business’s profit or loss. These steps are much the same for each type of business entity. Basically, net profit or loss is determined as follows:
Turnover – Cost of Sales = Gross Profit
Gross Profit – operating expenses = business profit/loss
These amounts should all reflect on your company’s Income Statement. You would then need to make the relevant tax adjustments in order to arrive at the corporate taxable income for the year. The current corporate tax rate is 28%, except for company’s whose year end is on or after 31 March 2023, their tax rate is 27% and no longer 28%.
A Small Business Corporation (SBC) is a private company which complies with various requirements per the Tax Act. If it meets the definition of a SBC, it can take advantage of progressive tax tables (as opposed to the standard corporate tax rate) and also shorter depreciation periods for certain assets. This means less tax paid in the early years.
Please refer to our SBC Decision Tree to confirm if the company classify as a Small Business Corporation.
The tax tables for SBCs are below:
Financial years ending on or after 31 March 2023:
|
Taxable income (R) |
Rate of tax (R) |
| 0 - 91 250 | 0% |
| 91 251 - 365 000 | 7% of taxable income above 91 250 |
| 365 001 - 550 000 | 19 163 + 21% of taxable income above 365 000 |
| 550 001 and above | 58 013 + 27% of taxable income above 550 000 |
Financial years ending on any date between 1 April 2022 and 30 March 2023:
|
Taxable income (R) |
Rate of tax (R) |
| 0 - 91 250 | 0% |
| 91 251 - 365 000 | 7% of taxable income above 91 250 |
| 365 001 - 550 000 | 19 163 + 21% of taxable income above 365 000 |
| 550 001 and above | 58 013 + 28% of taxable income above 550 000 |
Financial years ending on any date between 1 April 2021 and 31 March 2022:
|
Taxable income (R) |
Rate of tax (R) |
|
0 – 87 300 |
0% |
|
87 301 – 365 000 |
7% of taxable income above 87 300 |
|
365 001 – 550 000 |
19 439 + 21% of taxable income above 365 000 |
|
550 001 and above |
58 289 + 28% of taxable income above 550 000 |
Financial years ending on any date between 1 April 2020 and 31 March 2021:
|
Taxable income (R) |
Rate of tax (R) |
|
0 - 83 100 |
0% |
|
83 101 - 365 000 |
7% of taxable income above 83 100 |
|
365 000 - 550 000 |
19 733 + 21% of taxable income above 365 000 |
|
550 001 and above |
58 583 + 28% of taxable income above 550 000 |
Aside from the list of possible deductions for Sole Proprietors, the following special deductions and allowances are available as well and are commonly claimed by companies.
1. Section 11a pre-trade (start-up) costs
Sometimes new businesses may incur start-up costs prior to the commencement of trading i.e. before income is generated from operations. Such costs are not allowed as a tax deduction in the year/s where operations have not started. However, these start-up costs can be used as a deduction in the year that trading begins.
2. Section 11D research and development
Businesses are granted an s11D deduction if they have conducted Research and Development Activities which have been approved by the Minister of Science and Technology. This is an incentive to encourage companies to create innovative and new products, processes and services by investing in scientific and technological R&D activities. Check www.dst.gov.za for more details, but remember you can only claim for expenditure incurred once approval has been granted. For tax purposes, the company can claim 150% of total R&D expenditure (both revenue and capital), spent on its business activities, and provided it has the relevant approval from the Department of Science and Technology.
3. Section 11(e) wear and tear on machinery, plant, implements, utensils & articles
Wear and Tear or depreciation is the decrease in value of an asset. SARS allows businesses to write-off this decrease each year. It is calculated by applying a percentage to the cost of the asset. The percentages vary based on the type of asset and can be found in Interpretation Note 47 on the SARS website. The write-off must be apportioned for the number of months used if the asset is brought into use during the tax year.
It must be noted that assets which were purchased for less than R 7 000 can be written off in full during the tax year.
Refer to our wear and tear calculator to assist with your calculations.
4. Section 11(f) lease premium
This section is for companies that lease properties, and have to pay a lease premium in terms of their rental contact. A lease premium is a lump sum, normally paid at the start of lease, which is something in addition to regular rental payments.
Refer to our Lease Premium Calculator to assist with calculating the business’s s11 (f) deduction.
5. Section 11(g) leasehold improvements
If the company carried out renovations/improvements on its office premises that it leases AND it is stipulated in the lease agreement that it was allowed to carry out these renovations, it will able to claim the cost of the alterations for tax purposes.
A renovation is an improvement which adds to the income earning capacity of the building e.g. adding an additional office space. This is different from general repairs and maintenance which is usually to fix something that has broken or needs to be rebuilt.
Note however, that the alteration costs must be spread over the period of the lease and cannot exceed the cost of improvements as stipulated in the lease agreement. The deduction must start once the renovations have been completed.
Refer to our Lease Improvements Calculator to assist with calculating the business’s s11 (g) deduction.
6. Section 12C manufacturing assets
This allowance is for companies that own assets which are directly involved in the process of manufacture (or similar) or qualifying Research and Development (R&D) Activities.
A manufacturing process would involve converting raw materials into something substantially different e.g. manufacturing bricks or baking bread. Examples of processes that SARS considers similar to manufacturing include shoe repair, dyeing, dry cleaning, panel-beating and construction.
Section 12C provides for a special allowance in respect of these new or used assets that are owned by the taxpayer and were brought into use for the first time. Note that unlike the s11e wear and tear write-off, this allowance is granted in full each year and is not pro-rated if the asset is brought into use part way during the year.
Refer to our S12C calculator to assist with your workings.
7. Section 12E plant or machinery of small business corporations (SBCs)
SBC’s can claim a faster depreciation on their plant and machinery. This means the cost of the asset can be deducted against taxes owing much sooner which means less tax paid in the early stages of the business.
Use our SBC Wear and Tear calculator to help with your calculations.
A SBC can choose to either claim the wear-and-tear allowance under section 11(e) or the accelerated allowance (50:30:20 deduction) under section 12E.
8. Section 12H learnership allowance
This is an allowance the company may be able to claim if it is paying for training or an apprenticeship for any of its employees in terms of a registered learnership agreement. This is an agreement registered with SETA (Skills Education Training Authorities) in accordance with the Skills Development Act. Note, the company must complete IT180's in respect of all learnership agreements for which a tax allowance is claimed. The allowance will be higher for employees partaking in the learnership agreement who have a disability (compared to those without a disability).
For learnerships entered into before 1 October 2016:
It can claim a tax allowance of R 30 000 (R 50 000 for disability) per year for each registered learnership agreement it has between itself and an employee. If the agreement was not in effect for the full tax year, the allowance must be apportioned based on calendar months from the registration date of the agreement.
The company can claim a R 30 000 "completion allowance” (R 50 000 for disability) for each learner that completes their learnership during the year. If the Learnership exceeds 24 months, then R 30 000 is multiplied by the number of consecutive 12 month periods within the duration of that learnership.
For learnerships entered into after 1 October 2016 but before 1 April 2024:
The allowance will depend on the NQF (National Qualification Framework) level of the learnership. For NQF level 1-6, It can claim a tax allowance of R 40 000 (R 60 000 for disability) per year and NQF level 7-10, It can claim a tax allowance of R20 000 (R50 000 for disability) per year.
The company can claim a R40 000 "completion allowance" for NQF level 1-6 (R60 000 for disability) and R20 000 for NQF level 7-10 (R50 000 for disability).
If the Learnership exceeds 24 months, then the completion allowance is multiplied by the number of consecutive 12 month periods within the duration of that learnership.
9. Section 12J investments in Venture Capital Companies (VCCs)
The VCC acts as an "angel investor" and manages the investment into the smaller companies. Investors who wish to spread their risk and put money into a fund or a group of small start-ups will often invest into the VCC rather than a direct investment into the smaller entities.
Taxpayers can claim the amount incurred on venture capital shares as a deduction from their income if the investment was made before 30 June 2021. They need to ensure however, that they are in possession of a certificate which reflects the amount of the investment and the fact that the VCC is approved by SARS. For further clarification as well as a list of SARS approved venture capital companies (VCCs), refer to the SARS website.
10. Section 13 manufacturing building allowance
If the company owns a building which is used mainly for a process of manufacture it may be eligible to claim a Building Allowance based on the cost of the building and/ or improvements and the date it was erected. A manufacturing process would involve converting raw materials into something substantially different e.g. baking of bread or manufacture of bricks. Examples of processes that SARS considers similar to manufacturing include shoe repair, dyeing, dry cleaning, panel-beating and construction.
11. Section 13quin commercial building allowance
If the company owns a commercial building which it either build itself, or purchased brand new from somebody else, it may be able to claim a building allowance based on 5% of the cost of the building. "Commercial" means the company uses it for its trade, but this excludes residential purposes. An allowance is claimable on improvements (renovations) to the building as well. An example of a commercial building would be an office block.
12. Section 13quat UDZ building allowance
This allowance is for companies that have built, purchased or refurbished a building in an Urban Development Zone (UDZ) or purchased such a building from a developer. UDZs are designated areas within various cities in South Africa, which due to dereliction and decay, have been earmarked by government for renewal and development. There is also an accelerated write-off for low-cost houses that are built or purchased in a UDZ.
Many small business owners are unsure as to whether they need to engage an expensive professional to prepare their company’s financial statements, or if can they be drafted and signed internally by their accountant/bookkeeper. There also seems to exist some confusion around the requirement for an audit versus an internal review. Below, we try and clear up some of the confusion around this topic.
Prepare financial statements
The business owner or company accountant or any other employee (hopefully with some accounting knowledge!) can draw up the financial statements internally.
Alternatively, they can be compiled independently by an accounting professional on the basis of accounting records provided by the company. An independent accounting professional is someone who has no personal financial interest in the company, nor is an employee of the company. They would have no involvement in the day-to-day running of the company and would typically belong to a regulatory body (e.g. South Africa Institute of Chartered Accountants or the South African Institute of Professional Accountants).
Prescribed financial reporting standards are a particular format in which the financial statements must be drafted based on regulated accounting standards and policies. The Companies Act does prescribe certain financial standards for reporting – these include IFRS, IFRS for SMEs and SA GAAP. In the case of some small companies, who compile their financial statements internally, the company can choose to use its own financial reporting standards rather than one of the three mentioned above.
The financial reporting standard, which must be used, will depend on the category of company (i.e public – listed, public – unlisted or private) and its public interest score. It would be useful to work out the public interest score of your company so you can see if you need to prepare your financial statements based on prescribed standards or if the company can use its own financial standards.
In addition, the public interest score will also determine whether or not an audit or internal review will be required (more on this later).
There are four parts to the calculation. You need to allocate points per section and then add up the total. See example below for further clarification:
|
Description |
Example |
Points |
|
1 point per average number of employees per year |
10 employees |
10 |
|
1 point for every R1m (or portion thereof) in third party liability at year end |
R 5 000 000 |
5 |
|
1 point for every R1m (or portion thereof) in turnover at year end |
R 10 500 000 |
11 |
|
One point for every individual who at year end: |
|
|
|
1) in the case of a profit company: has a direct or indirect beneficial interest in the company's issued shares or, |
10 shareholders |
10 |
|
2) in the case of a non-profit company, is a member of the company or is a member of an association that is a member of the company |
N/A |
0 |
|
Total Points |
|
36 |
An audit is a detailed examination of the company’s financial records by independent external auditors who provide an audit report at the end of the audit in which they express an opinion on whether the financial statements fairly present the financial position of the company. Basically an auditor will sign off on whether the financial results are correct.
An independent accounting practitioner performs an independent review. Like an audit, this involves a review of the company’s financial records in order to arrive at an opinion on the financial statements of the company, however the review procedures are more high level and less onerous than an audit. This is a much quicker and cheaper process.
If a company requires an audit, it won’t require an independent review as well (and vice versa).
Small companies, with a Public Interest Score of less than 100 do not require, require an audit or an independent review – these are small, owner-managed companies with a public interest score of less than 100. These are generally companies with a couple of directors, who own all the shares and run the business themselves.
See the table below for a summary of requirements per category of company:
|
Category of Company |
Prescribed financial reporting standard |
Audit |
Independent Review |
||
|
IFRS |
IFRS for SMEs |
SA GAAP |
|
|
|
|
Public companies - listed on an exchange |
X |
|
|
Yes |
No |
|
Public companies - not listed on an exchange |
X |
X |
|
Yes |
No |
|
Companies with public interest score 350 and upwards |
X |
X |
|
Yes |
No |
|
Companies with public interest score at least equal to 100 but less than 350 |
X |
X |
X |
Yes, if financial statements were internally compiled |
Yes, if financial statements were independently compiled |
|
Companies with public interest score less than 100 (i.e 1-99) and financial statements are independently compiled. |
X |
X |
X |
No |
Yes, unless every shareholder is also a director (i.e owner managed companies) |
|
Companies with public interest score less than 100 (i.e 1-99) and financial statements are internally compiled. |
Reporting standards determined by the company |
No |
Yes, unless every shareholder is also a director (i.e owner managed companies) |
||
It is compulsory for small, medium and large businesses to submit signed financial statements to SARS on the submission of their ITR14 (company tax return). These are submitted via SARS eFiling when the ITR14 is submitted.
The financial statements must be signed off by the Public Officer.
The minimum requirement of the financial statements is that they contain a Balance Sheet, Income Statement and Notes.
The submission of financial statements is optional for companies classified as:
PROS
CONS
How do I run my business in the most tax efficient way?
The answer boils down to the level of earnings you expect from your business.
Individuals are taxed on a sliding scale, which means that the average rate of tax you pay increases as your earnings increase. This is called a progressive tax rate and applies to any individuals earning more than R 91 250 for the 2023 tax year (2022 : R 87 300).
This tax threshold means that as an individual, you benefit from a tax rebate, which brings down the amount of tax you owe by a flat amount, depending on your age. If you’re under 65 years, this is called the primary rebate. In addition to the primary rebate, there’s a secondary rebate for those over 65 years and an additional tertiary rebate for those over 75 years.
You can use our Salary Calculator to calculate the tax on your personal income.
In a company, profits are taxed at a flat rate of 28% (except for company’s whose year end is on or after 31 March 2023, their tax rate is 27%), irrespective of the level of earnings. In order for the owners (shareholders) to receive their share of the profits, the company needs to declare a dividend. This is taxed at a further 20%.
Let’s do a worked example of the difference this makes on R 100 000 profit between a registered company with a February year end and a sole proprietor’s tax position.
We’ll assume that ABC PTY Ltd didn’t pay out any profit in the year, and distributes a dividend the following year.
For tax year 2023:
|
ABC PTY Ltd annual taxable income |
R 100 000 |
|
Company tax at 28% |
(R 28 000) |
|
Net profit |
R 72 000 |
|
Dividends tax at 20% (20% x R 72 000) |
R 14 400 |
|
Effective rate of tax (R 28 000 + R 14 400) / R 100 000 |
42.4% |
Now, let’s look at the same situation for Lerato, a sole proprietor.
For tax year 2023:
|
Lerato’s annual taxable income |
R 100 000 |
|
Individual tax at 18% (SARS table for R 100 000 per annum) |
R 18 000 |
|
Less Primary rebate |
(R 16 425) |
|
Total tax (R 18 000 – R 16 425) |
R 1 575 |
|
Effective tax rate (R 1 575 / R 100 000) |
1.58% |
While we showed the full worked example above, you can take a short cut by using our Income Tax calculator!
In our example above, Lerato’s effective tax rate of 1.58% is significantly lower than ABC (Pty) Ltd’s at 42.4%. What we must remember though is that as Lerato’s business grows and becomes more profitable, she’ll move into higher tax bracket, increasing her effective rate of tax.
Let’s do another example, but this time where the taxable income is R 1 000 000 for the tax year. How does the tax situation change for Lerato?
Our company this time, XYZ PTY Ltd (with a February year end), has a sole Director, Billy, who draws an annual salary of R 360 000 (or R30 000 per month). This amount is deducted before corporate tax is applied.
For tax year 2023:
|
XYZ PTY Ltd income before Director’s salary |
R 1 000 000 |
|
Director’s salary |
(R 360 000) |
|
XYZ PTY Ltd’s annual taxable income |
R 640 000 |
|
Less corporate tax of 28% |
(R 179 200) |
|
Retained earnings |
R 460 800 |
|
Dividend Tax on future pay out at 20% |
(R 92 160) |
As Billy is drawing a salary of R 360 000, he’ll be liable for individual tax on this amount. The tax on salary as per TaxTim’s Income Tax Calculator is R 59 440.
Therefore, the total tax paid is:
|
XYZ PTY Ltd corporate and dividends tax (R 179 200 + R 92 160) |
R 271 360 |
|
Billy’s individual tax |
R 59 440 |
|
Total tax |
R 330 800 |
Now let’s have a look at Lerato’s tax for an income of R1 000 000 for the year. This amount puts Lerato into the 41% tax bracket, as per SARS tax tables for individuals. Her total tax as per TaxTim’s Income Tax Calculator is R 297 811.
Lerato is paying R 32 989 (R 330 800 - R 297 811) less tax in her own capacity than if she was operating through a company and drawing a salary of R30, 000 per month.
As there are numerous other deductions and allowances to consider for both an individual and a company, we’d have to perform detailed calculations for both scenarios to determine which is truly more tax efficient.
What is evident though, is that as an individual earns more and moves into the highest tax bracket, the difference in tax between a company and a sole proprietor decreases. At lower levels of taxable income, it’s far more tax efficient to operate as a sole proprietor and enjoy the benefits of sliding tax tables and rebates available to individuals. At higher income brackets, it’s likely that company registration would be more beneficial.
Provisional tax is not a type of tax. It is rather a payment mechanism which is intended to assist businesses in meeting their normal tax liabilities. Provisional tax payments are based on the estimated taxable income for the year. They are made by way of two instalments and an optional third payment after the end of the year of assessment. This system is intended to spread out the tax liability over the year and therefore avoid a single substantial tax payment after the tax year end. Note, that all companies and sole proprietors pay tax via the provisional tax system.
All companies are automatically registered for provisional tax as soon as they are issued with a tax number, but if they want to submit their provisional tax return via eFiling, then they need to do follow the following steps:
Log into their eFiling profile, select the applicable "Portfolio" and "Taxpayer" click on "Organisations on the top menu, then select "Organisation", "TaxTypes" and "Manage Tax Types" on the left menu bar then select the “Provisional tax” tax type, scroll down and click on “Submit”, this will be sent to SARS for approval and they will activate the tax type within 48 hours.
The first provisional tax return (IRP6) and payment must be made six months into the tax year, while the second return (IRP6) and payment is due at the end of the tax year. The timing of the provisional payments for companies will depend on the company’s year end which may not necessarily be February. There is an optional third payment, ONLY if amounts paid in previous payments were too little when compared to the actual tax owed. For companies with a year end other than February, the optional third payment must be made within six months from year end. If the company has a February year end, the optional third payment must be made within seven months from year end.
The provisional tax payments are based on an estimate of taxable income for the year. The actual tax liability for the business is calculated in the annual tax return and the provisional payments made during the year are then credited against the actual tax liability in order to arrive at a final amount due or owing to SARS.
In addition to the two provisional returns (IRP6s) per year, companies also need to submit an annual tax return (ITR14) that must be submitted within 12 months from year end.
Turnover Tax is a simplified tax system only available to sole proprietors, partnerships, companies or close corporations with a “qualifying turnover” of less than R1m per year. These types of entities are called micro businesses.
As the name implies, Turnover Tax is a type of tax, which is calculated against the turnover of a business, as opposed to a percentage of profit (i.e. income less business expenses) as per usual business tax. This difference reduces the administration burden on business owners as there’s less of a need to keep a detailed record of expenses and understand which are deductible for tax purposes.
Turnover tax isn’t available for just any business, though, and you’ll have to meet SARS requirements in order to register.
Read our "Turnover tax Explained" page for more information about turnover tax and if you qualify.
Company's no longer have a separate SARS eFiling login details, SARS has now created a shared platform on which the company's tax portfolio must be linked to your eFiling logins.
You will require the following company information (not your personal details) to be able to setup the company's eFiling portfolio:
Please refer to our eFiling for Companies blog for instructions with screenshots on how to setup the company's tax portfolio on eFilings. The below is a short summary of the registration process
STUCK AT REGISTRATION?
After registration, if SARS does not automatically register you and you are stuck, unable to start your tax return, it might be the case that SARS requires further documentation from you.
To find out, you need to login into eFiling, click on the "Organisation" tab at the top, then again on the left side menu and then click on "Pending Registration". Click this and you will notice a "Case Created" message. Clicking on that should display a letter from SARS asking for a certified ID, proof of address or similar document proof. There will be an option to upload digital copies of these documents directly. This message usually appears 24 - 48 hours after trying to register on eFiling. If you are still having hassles, call SARS on 0800 00 7277.
