So you have registered your PTY with CIPC, what are your tax implications?
Well unless you qualify as an SBC you will be taxed at a flat rate of 28% (which is quite high). A lot of new business owners are convinced that because they do not “make enough”, they do not need to declare anything, this is most certainly not the case, any and all income must be declared to SARS
Qualifying as an SBC means that your tax rate will be progressive, the higher your profit the higher the tax rate, this means your profit may qualify from anywhere between 7% to 28% on the tax tables vs the flat rate of 28%. Its also important to note that each year the tax tables change.
Did you know that not all PTY’s qualify as an SBC? and there are certain criteria that one needs to fall into in order to benefit from the progressive tax rate.
- Shareholders/ Members must be natural persons that do not hold an interest in any other PTY/CC or Co-Op
- Gross Income doesn’t exceed R 20 Million
- Not more than 20% of gross income and capital gains consists collectively of investment income and income from the rendering of personal service
- INVESTMENT INCOME: Annuity, Interest, rental income from immovable property, royalty or any income similar in nature, local dividends, foreign dividends
- PERSONAL SERVICE PROVIDER: Accounting, Actuarial Science, Architecture, Auctioneering, Auditing, Broadcasting, Consulting, Draughtmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, performed personally by any person who holds interest in the PTY, Co-Operative, CC
- AN EXCEPTION IS MADE TO THIS WHEREBY: The business employs 3 or more unconnected full-time employees for core operations throughout the year of assessment
This is one way to motivate small businesses to create employment opportunities within their business, always make sure that you are aware of your tax responsibilities and that your taxes are accounted for correctly
(Source: PKF Tax Guide – 2021)