In this article, I’ll be going over everything you need to know about tax filing for your business and avoiding South African Revenue Service (SARS) penalties.
Your business has tax requirements that must be met in order to comply with SARS and avoid unnecessary penalties and interest from SARS. Just so you know, these penalties are costly – easily reaching thousands (or even millions) of Rands.
Hence, in this article, I’ll break down the most common types of taxes and due dates you need to know in order to avoid SARS penalties and keep your business tax compliant.
Note: This is not a comprehensive analysis of all the aspects of your business tax so please don’t look at it in isolation. For information specific to your business, I advise you to consult your Accountant, tax practitioner, or accounting firm.
What is Tax?
Tax is a compulsory contribution to the government based on your business’s profit that you’ve made in any given year in South Africa. Tax is collected by SARS on behalf of the government. So as a bare minimum every company should be registered for corporate income tax.
When you register your business, you automatically get registered for corporate income tax. Generally, the standard corporate income tax on income for registered companies in South Africa is currently a flat rate of 28% and is collected by the South African Revenue Services (SARS), though there are different tax rates for micro or different kinds of companies.
From 1 April 2022, the flat corporate income tax rate for SMEs will lower to 27%.
So below I’m going to cover the 6 common types of taxes that you need to be aware of – Corporate Income Tax, VAT, PAYE, Dividend Tax, SDL, and UIF.
1. Corporate Income Tax
What Is Corporate Income Tax?
Corporate Income Tax is a tax imposed on companies resident in the Republic of South Africa i.e., incorporated under the laws of, or which are effectively managed in South Africa, and which derive income from within or outside South Africa. Non-resident companies which operate through a branch or which have a permanent establishment within South Africa are subject to tax on all income from a source within South Africa.
Who Is Corporate Income Tax For?
Corporate Income Tax is applicable (but not limited) to the following companies which are liable under the Income Tax Act, 1962 for the payment of tax on all income received by or accrued to them within a financial year:
- Listed public companies
- Unlisted public companies
- Private Companies
- Close Corporations
- Co-operatives
- Collective Investment Schemes
- Small Business Corporation (s12E)
- Body Corporates
- Share Block Companies
- Dormant Companies
- Public Benefit Companies.
When Should Corporate Income Tax Be Paid?
Provisional Tax
- First payment – within six months from the beginning of the year of assessment
- Second payment – on or before the last day of the year of assessment
- Third payment – seven months after the year of assessment for taxpayers with February year-end and six months after the year of assessment for all other cases.
Tax on Assessment
Payment of tax upon an assessment notice issued by SARS must be done within the period specified in such notice.
2. Value Added Tax (VAT)
What Is VAT?
Value-Added Tax is commonly known as VAT. VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for the government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as the agent for the government in collecting the VAT.
VAT is charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.
VAT increased from 14% to 15% from 1 April 2018. VAT is levied on the supply of most goods and services and on the importation of goods. The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at a zero rate or are exempt from VAT.
Who Should Register for VAT?
Any person that carries on a business may register for VAT. The term person is not only limited to companies but also includes, amongst others, individuals, partnerships, trust funds, foreign donor-funded projects, and municipalities.
It is mandatory for a person to register for VAT if the taxable supplies made or to be made is, in excess of R1 million in any consecutive twelve-month period.
A person may also choose to register voluntarily if the taxable supplies made, in the past period of twelve months, exceeded R50 000. A person who is obliged to register for VAT is referred to as a vendor.
When Should I Submit Returns and Make Payments?
A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) in accordance with the tax period allocated to the vendor. The VAT returns and payments are normally submitted or made on or before the 25th day after the end of the tax period. Late payments of VAT will attract a penalty and interest.
3. Pay As You Earn (PAYE)
What Is PAYE?
PAYE refers to the tax required to be deducted by an employer from an employee’s remuneration paid or payable. The process of deducting or withholding tax from remuneration as it is earned by an employee is commonly referred to as PAYE.
When Should PAYE Be Paid?
It must be paid within seven days after the end of the month during which the amount was deducted. If the last day for payment falls on a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.
4. Skills Development Levy (SDL)
What Is SDL?
SDL is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill.
The funds are to be used to develop and improve the skills of employees.
Who Must Pay SDL?
SDL is payable by employers, who have been registered. Where an employer expects that their total salaries will be more than R500 000 over the next 12 months, that employer becomes liable to pay SDL.
How Much Do You Need to Pay?
1% of the total amount paid in salaries to employees (including overtime payments, leave pay, bonuses, commissions, and lump-sum payments).
When Should SDL Be Paid?
It must be paid within seven days after the end of the month during which the amount was deducted. If the last day for payment falls on a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.
5. Unemployment Insurance Fund (UIF)
What Is UIF?
The Unemployment Insurance Fund (UIF) gives short-term relief to workers when they become unemployed or are unable to work because of maternity, adoption leave, or illness. It also provides relief to the dependants of a deceased contributor.
Who Is UIF For?
All employees, as well as their employers, are responsible for contributions to the UIF. However, an employee is excluded from contributing to the UIF if he or she–
- Is employed by the employer for less than 24 hours a month
- Receives remuneration under a contract of employment as contemplated in section 18(2) of the Skills Development Act, 1998 (Act No.97 of 1998)
- Is employed as an officer or employee in the national or provincial sphere of Government
- Entered South Africa for the purpose of carrying out a contract of service, apprenticeship, or learnership within South Africa. If upon termination, the employer is required by law or by the contract of service, apprenticeship or learnership, or by any other agreement or undertaking, to send home that person, or if that person needs to leave South Africa
- Is the President, Deputy President, a Minister, Deputy Minister, a member of the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member of an Executive Council or a member of a provincial legislature or
- Is a member of a municipal council, a traditional leader, a member of a provincial House of Traditional Leaders, and a member of the Council of Traditional Leaders.
How Much Do You Need to Pay?
- The amount of the contribution due by an employee, must be 1% of the remuneration paid by the employer to the employee.
- The employer must pay a total contribution of 2% (1% contributed by the employee and 1% contributed by the employer) within the prescribed period.
When Should UIF Be Paid?
It must be paid within seven days after the end of the month during which the amount was deducted. If the last day for payment falls on a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.
6. Dividend Tax
What is Dividends Tax?
Dividends Tax is a tax on shareholders (beneficial owners) when dividends are paid to them, and, under normal circumstances, is withheld from their dividend payment by a withholding agent (either the company paying the dividend or, where a regulated intermediary is involved, by the latter).
A dividend is in essence any payment by a company to a shareholder in respect of a share held in that company, excluding the return of contributed tax capital (i.e., consideration received by a company for the issue of shares). It is triggered by the payment of a dividend by any:
- South African tax resident company; or
- Foreign Company whose shares are listed on a South African Exchange.
Dividend payments by headquarter companies are not subject to Dividends Tax.
Who Should Pay Dividends Tax?
Dividends Tax is payable by the beneficial owner of the dividend but is withheld from the dividend payment and paid to SARS by a withholding agent. The person liable for the tax, however, remains ultimately responsible to pay the tax should the withholding agent fail to withhold the correct amount of tax.
How Much Will Be Paid?
The rate of Dividends Tax increased from 15% to 20% for any dividend paid on or after 22 February 2017 (irrespective of declaration date), unless an exemption or reduced rate is applicable.
When Should Dividends Tax Be Paid?
Dividends Tax applies to any dividend declared and paid from 1 April 2012 onwards, and the withholding agent (either the company or the regulated intermediary) should pay the tax withheld to SARS on or before the last day of the month following the month in which the dividend was paid. Penalties and interest may be levied for late payments of dividends tax or the late submission of Dividends tax returns.
Conclusion
I understand that taxes can be complicated for most business owners given the different types of taxes to be paid to SARS, the different due dates and etc. Hence, I highly recommend you hire a reputable accounting firm to help you stay compliant with SARS and significantly save the stress, time, and money you could otherwise incur over time.
