SMEs are the lifeblood of the South African economy, but it’s common knowledge that getting started and headed in the right direction is an upward battle. From difficulty accessing startup capital, to lack of technology and a weak economy due to COVID-10, building a business is tricky enough as it is, without the stress of navigating the tax space.
With the help of the small business corporation tax break, SMEs who qualify get access to a much needed financial break to up their chances of success during this tough economic climate. While SARS still requires all businesses and individuals to register, pay and submit their tax returns each year, small businesses can pay less in taxes if they qualify.
What is the small business corporation tax benefit?
Unlike a larger company or close corporations, who are taxed 28% from the first R1 of the profit they receive in a financial year, small business corporation taxes are calculated a little differently. Based on the financial year ending on a date between 1 April 2021 and 31 March 2022, small business corporation tax will be calculated as follows:
Source: South African Revenue Services
Small business corporations will therefore be taxed less than larger corporations, based on the amount of their taxable income .
Who qualifies for the small business corporation tax benefit?
Small businesses have to meet a number of requirements to qualify for this tax benefit, according to BDO South Africa. These requirements include:
- The company must be a close corporation, co-operative, private company or personal liability company.
- The shareholders must be natural persons within the year of assessment
- The gross income of the small business corporation must not exceed R20 million
- Shareholders must not hold shares in any other companies
- No more than 20% of the total receipts and accruals of the small business corporation may be attributed to “investment income” and income from “personal service”.
- The small business corporation may not be personal service provider and employ less than three employees
Read more: Guide to company registration
If you feel you are eligible for this tax benefit, speak to your accountant or bookkeeper to ensure your taxes are submitted to SARS accordingly. While starting up costs and cash flow are a concern for small businesses, this tax benefit is a way for small businesses to save money during this climate.