For self-employed workers and business owners, this guides explains corporate tax in South Africa, including corporate tax rates and dividend taxes.
If you are self-employed or a business owner, you will be liable to pay South African corporate tax. However, how much business tax you pay and what deductions you can claim will depend on the size and type of your business in South Africa.
This guide explains the essentials of corporate tax in South Africa, including:
- The corporate tax system in South Africa
- Who pays corporate tax in South Africa?
- Corporate tax rates in South Africa
- Small business tax South Africa
- Turnover tax in South Africa
- Corporate tax exemptions and corporate tax credits in South Africa
- VAT in South Africa
- Corporate tax year in South Africa
- How to file your corporate tax return in South Africa
- Other types of business tax in South Africa
- Foreign business owners
- Corporate tax advice in South Africa
- Useful resources
The corporate tax system in South Africa
The standard tax on income for registered companies in South Africa is a flat rate of 28% and is collected by the South African Revenue Services (SARS), though there are different tax rates for smaller or different kinds of companies.
In fact, the South African state collects most of its corporate income tax from foreign companies with a branch in South Africa and from personal service provider companies.
You can register for and pay your business taxes online or at a local SARS branch
Who pays corporate tax in South Africa?
Corporate, business or company tax in South Africa is payable by all registered businesses in the country to SARS. Generally, South African-based businesses will be liable to pay South African corporate tax on their worldwide income.
Companies that are based outside South Africa but operate in the country or have a branch there will pay tax on income derived from within South Africa only.
The type of companies that have to pay corporate tax in South Africa include companies such as:
- listed and unlisted public companies
- private companies
- close corporations
- collective investment schemes
- small business corporations
- share block companies
- corporate bodies
- public benefit companies
- dormant companies
Corporate tax for sole traders and partnerships
If you qualify as a self-employed or freelance worker in South Africa, or if your business trades as a sole proprietorship or a partnership (or unincorporated joint venture), then you will taxed as an individual and will have to submit a personal income tax (ITR12) rather than a business tax return in South Africa.
Partnerships can be between two or more people, where each partner will be taxed as an individual on their share of the partnership profits.
For more information, you can also check out our guide to Taxes for Self-Employed and Freelance Workers.
Corporate tax rates in South Africa
The corporate tax rate in South Africa is a flat rate of 28% for all companies. This is slightly below the average corporate tax rate for Africa overall, which is 28.45%, and above the global average of 24.18%. Trusts (excluding special trusts) in South Africa pay tax at a separate rate of 45%.
Small business tax South Africa
If you run a small business in South Africa, you have a number of options on how to register your business, which will affect how you pay business tax in South Africa.
If you run the business yourself, you may wish to operate as a self-employed sole trader. However, if you wish to register the company as a separate legal taxpaying entity, you have the following options.
Register as a standard private company
This will mean that the company will be responsible for paying corporate tax in South Africa at the standard rate. You can also register as a Close Corporation (CC) or a Cooperative but will still pay corporate tax in South Africa at the standard rate.
Register as a micro-business for Turnover Tax
If you qualify for turnover tax, then you can take this option to simplify the tax process for your business. This is an alternative to paying company tax in South Africa.
Register as a Small Business Corporation (SBC)
If you want to pay tax for small businesses in South Africa, you can register as an SBC if your annual turnover does not exceed R20 million, as well as meeting other criteria detailed on the SARS website. Generally, SBCs are taxed at a lower rate of corporate tax in South Africa than other companies.
These tax rates are as follows:
- 0 – R79,0000 – 0%
- R79,001 – R365,000 – 7% tax on income above R79,001
- R365,001 – R550,000 – R20,020 + 21% tax on income above R365,001
- R550,001 and above – R58,870 + 28% tax on income above R550,000
Turnover tax in South Africa
Turnover tax is an alternate simplified method of business tax in South Africa because it is a tax for small business in South Africa with an annual turnover of R1,000,000 or less. It replaces corporate income tax, VAT, capital gains and dividends tax in South Africa, although there is an option to remain in the VAT system.
The turnover tax rates in South Africa are progressive, as follows:
- 0 – R335,000 – 0%
- R335, 001 – R500,000 – 1% of each R1 above R335,000
- R500,001 – R750,000 – R1,650 + 2% of the amount above R500,000
- R750,001 and above – R6,650 + 3% of the amount above R750,000
Corporate tax exemptions and corporate tax credits in South Africa
Corporate tax exemptions in South Africa
Organizations operating as not-for-profit or as a public benefit organization are exempt from paying corporate tax in South Africa. For other business, the following charges can be deducted from taxable income as allowable business expenses:
- Business expenses: all outgoings that are incurred as part of running the business, including material and equipment costs, employee costs, administration costs, business rental costs, office supplies, travel, uniforms, wholesale purchase costs for goods resold, financial charges, utilities, legal fees, marketing, and promotion.
- Capital expenses: such as capital equipment, machinery, and renovation costs.
- Start-up expenses: expenditure incurred for business purposes in the period before the commencement of the first year of trade, provided these are expenses that would have qualified as deductible business expenses within the general operation of the business.
- Net operating losses: any losses carried forward from previous years.
Corporate tax credits in South Africa
In addition to these, the following credits and incentives are available for companies paying corporate tax in South Africa:
- Foreign tax credit: for South African residents, any taxes paid on foreign-sourced income can be claimed back as a tax credit, provided this income has been included on the tax return. Some countries have a tax treaty with South Africa to prevent double taxation.
- Research and development (R&D): R&D costs within South Africa are 150% deductible, subject to government approval.
- Headquarter company regime: certain exemptions and benefits offered to companies using South Africa as a headquarters location, subject to certain company requirements.
- Industrial policy projects: an incentive for manufacturing businesses (excluding those dealing in alcohol, tobacco, arms, and biofuels) participating in energy-efficient projects. Tax allowances include up to 55% of the cost of any manufacturing asset used in the project (not exceeding R900 million) along with a training allowance.
- Special Economic Zones (SEZ): for businesses operating in any of the country’s SEZs, there is a reduced corporate tax rate of 15% along with a 10% allowance towards new/unused building costs and reduction of employees’ tax.
- Energy efficiency savings: a deduction equating to R0.95 for each kilowatt-hour saved during the tax year.
- Venture capital companies: a tax incentive for investors in small and medium-sized businesses through venture capital.
VAT in South Africa
VAT is an indirect tay payable by some companies in South Africa. The VAT rate in South Africa is currently 15% on the supply of most goods and services (with some exemptions) and on imported goods.
Businesses must register for VAT if their annual turnover exceeds R1,000,000 but they can also register voluntarily if they wish.
Corporate tax year in South Africa
The tax year in South African runs from 1 March to the end of February of the following year. For businesses, you are required to submit an annual tax return between July and November for the previous tax year. You are also required to submit two provisional tax returns – one in the first half of the year, and the second by the end of the year – containing estimates of income earned for the current tax year.
All companies have to pay their taxes using the provisional tax system. This is completed in three installments. The first two payments are based on estimates and are made at six-monthly intervals during the tax year. The final payment is made along with the final annual tax return, consisting of the balance owed for that tax year.
Company tax in South Africa can be paid in the following ways:
- online banking
- electronic funds transfer
- bank payments
- SWIFT payment (available only for foreign payments)
How to file your corporate tax return in South Africa
To pay business tax in South Africa, you must first register your business or yourself as a taxpayer. In similar fashion to personal income tax, SARS assesses your business tax return.
You will need your Standard Industrial Classification (SIC) code when filing the business tax return form.
Other types of business tax in South Africa
Pay-as-you-earn (PAYE) for employees
This is an individual income tax on the salary of employees, taxed at a progressive rate dependent on the employee salary, but has to be withheld by the employer. If you have employees, then you will need to arrange their PAYE contributions and make the regular payments to SARS. You can get more information about registering for PAYE here.
For information about income tax rates and tax deductions for employees, you can also read the Expatica guide to income tax in South Africa.
Unemployment Insurance Fund (UIF)
The UIF is an unemployment benefit fund payable to those who have been in employment for at least 24 hours per week if they become unemployed, sick or take maternity leave. It is a short-term, contributions-based benefit and is funded through contributions of 2% of the employee’s salary (1% from the employer and 1% from the employee).
Skills Development Levy (SDL)
SDL is a tax in South Africa payable by employers to promote the learning and development of employees in South Africa. Employers become liable for SDL if their total annual salary bill is more than R500,000. It is charged to employers at a rate of 1% of the total salary bill.
Dividend tax in South Africa
Dividend tax in South Africa applies to dividend payments for shareholders at 20%. It is a tax levied on the payee but withheld by the company making the payment, so if your company has shareholders who receive dividends payments, you will be responsible for deducting tax from the payment and submitting it to SARS.
Foreign business owners
If you are a foreign resident with a business based in South Africa, you will be liable to pay corporate tax in South Africa on its worldwide income. However, if you have a non-resident company – a company that has a branch or establishment in South Africa but is based elsewhere for tax purposes – then you will only pay company tax in South Africa on income earned inside the country. This tax applies at the standard rate of 28% (unless you register as an SBC or for turnover tax).
If you are an expat who qualifies as a tax resident in South Africa, your home country may have a tax treaty with South Africa. If not, then you may be able to claim foreign tax credits on taxes paid on foreign income. Read more about the South African tax system.
Foreign business owners from the US who still have to meet annual tax filing obligations with the US Internal Revenue Service (IRS) can get support and advice from Taxes For Expats.
Corporate tax advice in South Africa
Corporate terminology and business taxes can quickly become complicated, even when you’re on native soil. When you’re operating a business in a foreign country, the stakes become much higher.
Avoid becoming overwhelmed by getting professional help. Also keep in mind that the time and money you save by sidestepping costly mistakes is impossible to quantify.
To find a tax professional near you, or to access a tax helpline, check out this link.