South African Business Taxes - 101

South Africa levies quite a range of taxes on local businesses. This is a brief guide to what all of them are, and what to expect in any given tax year.

First up: What's your business?

If you're operating as a sole proprietor (meaning: you're just a regular South African citizen with a personal bank account, doing business and making money), then you're effectively only subjected to PAYE (Pay as you Earn) taxes. You'll also usually be registered as a provisional taxpayer, meaning you're paying taxes every 6 months.

But that's simple - let's get into business taxes!

CIPC Annual Return

If you've registered a Pty Ltd (handy checklist here!), you'll already have paid some money to the CIPC to register your entity, and will have received a notice that your entity has been auto-registered for income tax with SARS.

From this point on, you're immediately liable for the CIPC Annual Return. This is an annual process: you submit a form to the CIPC to let them know that you're still alive as a business, and pay an annual fee of between R100 and R3000 depending on your annual turnover.

Assuming your business does absolutely zero trading (which is a possibility!) then you'll just be paying R100/year to keep the entity alive. If you fail to file your annual return, the CIPC starts a deregistration process which eventually shuts down your entity.

Now let's assume you're making some money.

Corporate Income Tax

Corporate Income Tax is levied on the profits of your business in a given financial year. Essentially, if you generated gross income over R1,000 in a year, or any taxable income (the definitions get tricky), you're liable for the annual CIT return.

As of 31 March 2023, the CIT rate is 27%, meaning that for a given financial year:

  • If you generated R100,000 in revenue
  • Your total expenses were R90,000
  • Meaning your annual profit was R10,000
  • You'd owe (R10,000 x 0.27) = R2,700 to SARS

But that's not all! CIT taxes operate the same as provisional taxes - you pay 3 times per financial year:

  • First, within 6 months of the start of your financial year, based on your projected profit for the year
  • Second, before the end of the financial year, to account for any differences, and
  • Third, within 6 months of the end of the financial year, if any amounts are outstanding

And there's more to it than a simple revenue-minus-expenses calculation: Assets, depreciation and other factors can affect your final total tax calculation. This is where you 100% need to hire a registered accountant to help you navigate everything.

What happens when you start making R1 million/year or more?

Value Added Tax

You can optionally register for VAT when you're making at least R50,000/year in revenue, but this is an awful idea and no sane accountant would recommend that. Registering for VAT becomes mandatory at R1 million/year. What does that mean?

From that financial year onwards, you are responsible for collecting VAT on your sales and remitting those amounts to SARS on an every-2-months basis.

In practice, the high-level math is:

  • Keep 15% of every invoice that comes in from your customers (output VAT)
  • Keep track of all the VAT on invoices you pay to your suppliers (input VAT)
  • If input > output (you paid more than you collected) you get that amount refunded by SARS
  • If output > input (you collected more than you paid) you pay that amount to SARS every 2 months

You also need to keep documentation for absolutely everything, so at this stage, you really want to have a solid bookkeeping platform in place, as well as a regular recon process to make sure all your documentation is up to date!

This hypothetical company doesn't have any employees yet though - let's add some.

Independent Contractors

If you hire independent contractors (or freelancers), there's generally nothing for you to do other than pay their invoices, since independent contractors are entirely responsible for their own tax. If your business is entirely made up of independent contractors, there's not much else to do here.

That said, the Personal Service Provider rule does apply to you. Even if your business technically has no full-time employees and it's all contractors, if any of those contractors earns 80% or more of their annual income from you, SARS considers you the defacto employer and will require you to collect PAYE!

Employees

This is where the fun begins! An "employee" has two definitions from different parts of our law:

  • In terms of the Labour Relations Act an employee:

    • Forms part of the orgamization, or
    • Is subject to working hours that the employer sets, or
    • Has worked an average of 40 hours/month over the last 3 months, or
    • Only provides their services to one employer, or
    • Is economically dependent on the employer, or
    • Is provided with tools of trade by the employer

  • In terms of the Income Tax Act:

    • If the duties are mainly performed subject to the client's control or supervision, or
    • If the person renders a service directly and would otherwise be considered an employee, or
    • If the person derives more than 80% of their income from the one client

So generally speaking, if someone's working for you, taking your instructions and rendering the services you train them to render, they become employees, which opens up a set of new taxes:

Pay As You Earn (PAYE)

As the employer, you're now responsible for deducting PAYE from your employee's salaries and paying it over to SARS on a monthly basis, via an EMP201 filing. The amount you deduct basically assumes that 100% of the employee's income comes from you (so you'd look at their monthly salary against a tax deduction table, for instance).

If the employee runs a side hustle and makes extra income, that's their responsibility to declare to SARS (generally under code 3616, for independent contractor income), and pay the extra PAYE taxes themselves (usually around 30% of whatever extra income they made).

Unemployment Insurance Fund

Now that you have an employee, you're both required to pay a certain amount in UIF every month. The employee contributes 1% of their monthly income, and the employer matches that 1%, up to a maximum of R177.12 each per month (as of 2023).

So in practice: If an employee earns R15,000 every month, then:

  • You deduct R150 from their payslip, show the deduction on it and include it in the EMP201
  • As the employer, you match that R150 (which doesn't show on their payslip) and include it in the EMP201

We're not done yet though!

Skills Development Levy

If your total salary bill for your company is less than R500,000 for the tax year, you're exempt from paying SDL. If not, then you need to pay a total of 1% of the total employee remuneration.

In practice - if you have 3 employees each earning R15,000/month (for an annual total of R540,000/year), then you need to pay a total of R5,400 in SDL for that year. Note that this is NOT a deduction! This doesn't come off your employee's payslip, it comes out of your company profits.

Just one more to go!

Compensation Fund

Formerly known as "Workman's Compensation". Once you have employees, you also have to register for the Compensation Fund, which is entirely separate from the Unemployment Insurance Fund. Depending on which type of business you run (they have a whole range of classes and sub-classes) the rates will vary.

As an example, for a subclass 2210 business ("Admin Consultants") the rate as of 2023 is 17% per R100 earned.

In practice - if you have 3 employees earning a total of R540,000 for the year, and they work in some sort of administrative or clerical role (ie, no heavy machinery, no chemicals, no factories) you can expect to pay ((R540,000 / 100) * 0.17) = R918 to the Compensation Fund that year.

Putting it all together

So here's a fully-fleshed-out scenario, based on a real tax year from Amberstone's history:

  • With annual revenue exceeding of R3 million,
  • And 7 full-time employees working remotely around South Africa

My full tax and compliance burden for the year was:

  • A R450 CIPC annual return
  • 2x CIT payments that totalled 27% of my profits for the year
  • 6x VAT returns which ended up bringing in some money
  • 12x EMP201 returns, each with PAYE, SDL, and UIF components
  • 1x Compensation Fund submission
  • Around R40k total in accountant and bookkeeping fees for the year

If you have any questions, suggestions, comments or feedback here feel free to email me directly at [email protected] - I try keeping this page up to date as things move!

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