Tax Consultation for Small Business Corporation

A Small Business Corporation (or SBC) may qualify for favorable tax treatment if it meets certain requirements in the South African Income Tax Act (ITA). In the section below we cover the requirements, benefits and most important questions South African Entrepreneurs have regarding Small Business Corporation.

Simply click on the sections below to view more information. 

To be classified as a Small Business Corporation (SBC) in South Africa, your business needs to meet certain requirements as per the Income Tax Act (ITA) of South Africa.

The Requirements for SBC are listed below:

• All the shareholders or members are natural persons.
• All the shareholders or members hold no shares/interests in any other private company or Close Corporation.
• Gross income for the year of assessment does not exceed R20 million.
• Not more than 20% of the gross income consist of investment income (e.g. dividends, interest, etc) and income from rendering a personal service.

A qualifying entity whose shares or members interest are held in a trust may qualify for SBC provided that the beneficiaries of the trust hold a right to those shares or the members interest throughout the year of the tax assessment and are all natural persons. A trust with trustees as the only natural persons and beneficiaries which are juristic persons will not qualify for SBC.

The following entities may qualify depending on if they meet the requirements:

• Close corporation
• Co-operative
• Private Company
• Personal liability company

1) Favorable Tax Rates:

All South African Companies (including Close Corporations) are generally subject to a flat rate income tax of 28%.

SBCs benefit from favorable tax rates on taxable income up to R550 000. See below SBC Tax Rates for 2021 & 2022 assessment years:

Financial years ending on any date between 1 April 2021 and 31 March 2022:

Financial years ending on any date between 1 April 2020 and 31 March 2021:

2) Accelerated depreciation allowance:

If a qualifying SBC owns plant or machinery and it is used directly in the process of manufacturing or another similar process, the full cost of the plant or machinery may be deducted from the company’s taxable income in the year of assessment in which it is used for the first time. 

Accelerated deprecation rates can also be applied to other movable assets, which can be regarded as wear and tear or depreciation. An SBC may reduce its taxable income by:

• 50% of the cost of the asset in the first year of assessment during which the asset is first used;
• 30% of the cost in the second year;
• 20% in the third year.

It is recommended that you get professional help to assist with your tax affairs to ensure that you are tax smart and save on Taxes. Not to mention, managing all the tax pitfalls. 

Whether you are a Small Business Corporation or medium to large business, ensuring the correct tax structure and receiving guidance from our Tax Experts can save your Company money!

Our Corporate Tax Experts can assist to assess your company structure and taxes to ensure you are getting all the Tax benefits your business is entitled to. 

Click here to book your Corporate Tax Consultation session Now!