Are you a small business owner in South Africa looking for an overview of Small Business Corporation (SBC) tax?
Then you’ve come to the right place.
In this blog post, we’ll be going over everything you need to know about small business corporation tax, from the benefits to the rates to the calculations and everything in between.
What is Small Business Corporation (SBC) Tax?
Small Business Corporation (SBC) tax is a type of income tax levied on companies registered as small business corporations in accordance with the Income Tax Act of South Africa.
It is designed to encourage and support small businesses, which play a vital role in the economy and job creation.
There are several benefits to being registered as an SBC, including a reduced tax rate and various tax deductions.
To qualify as an SBC, a business must meet certain requirements, such as having a gross income of less than R20 million.
The business can be a close corporation, co-operative, or private company. Any one of these business structures, including personal liability companies, can qualify as an SBC.
Benefits of a Small Business Corporation (SBC) Tax
There are several benefits and additional tax incentives to registering as an SBC.
The most obvious is the progressive rate that the company is taxed at which is lower than the standard 28% corporate tax rate.
This significance of the reduction in the tax rate is dependent on the amount of taxable profit the company has generated during the financial year.
This can make a huge difference to the bottom line of a small business.
Additionally, SBCs are eligible for a wide range of tax deductions, such as capital allowances, research and development expenses, and travel expenses.
This can help to reduce your tax liability even further.
As well as the additional tax relief and financial benefits, there are also several non-financial benefits of registering as an SBC.
These include simplified accounting and administration procedures, enhanced credibility with customers, and access to various government incentives.
Small Business Corporation (SBC) Tax Requirements
To qualify as an SBC, a business must meet certain requirements.
The following is the list of requirements that a company must meet to ensure they qualify as an SBC which will allow them to take advantage of the SBC benefits:
1. All shareholders in the company or members of a cooperative or personal liability company must at all times during a fiscal year be individuals or natural persons;
2. No shareholders or members may hold any shares or have any interest in the equity of another business, other than small businesses as defined in section 12E(4);
3. The firm’s annual income may not exceed R20 million;
4. Investment income, as defined in section 12E(4), including dividends and rental income, is not permitted to comprise more than 20% of the company’s total receipts and credits (other than capital) or capital gains; and
5. Personal service providers: personal services, as defined in section 12E(4), must not be offered by the firm – essentially a business should not be a personal service provider.
Small Business Corporation (SBC) Tax Rates and Tables
As mentioned above, an SBC qualifies for a progressive rate imposed by SARS with the rates being lower than that of a normal company of 28%.
The tax bracket or rate that will apply to your business would be dependent on the taxable income that your SBC has generated in that specific financial year.
The taxable income for your company, in its simplest form, would mean the gross income that the company has generated less expenses that are allowed as a deduction.
The company would likely generally have a tax liability when the company’s gross income exceeds expenditure.
Taxable income = Revenue less deductions (allowable expenditure)
The progressive rates imposed are illustrated in the tax tables below.
Please note: A change in the tax rate will occur from 31 March 2023 meaning any company with a year-end ending on any date on or after 31 March 2023 will be subject to the new rates.
As mentioned above, the SBC tax rate is also subject to certain deductions.
These include capital allowances, research and development expenses, and travel expenses.
The amount of these deductions depends on the type of expenditure and the amount of income earned.
The South African Revenue Service (SARS) publishes an SBC tax table every year, which outlines the tax rates and deductions for each year.
If you are looking for all the tax tables for all of the previous financial years, SARS has it available on their website.
How to Calculate Your Small Business Corporation (SBC) Tax Liability
Calculating your SBC tax liability is relatively straightforward.
Firstly, you need to calculate your total taxable income for the year.
This is done by adding up all your income from business activities, minus any allowable deductions.
Refer to the table below.
Once you have your total taxable income, you can then use the SBC tax table to calculate your tax liability.
The table provides the amount of tax payable for each bracket of taxable income.
To illustrate the above let us say ABC Ltd qualifies as an SBC and their taxable income is R1m with a financial year ending 28 February 2023.
The amount of tax that ABC Ltd would be liable for is R184,013 (R58,013 + 28% x (R1,000,000 – R550,000).
Small Business Corporation (SBC) Tax Deductions
As an SBC, you get to benefit from a multitude of tax deductions!
These include capital allowances, research and development expenses, and travel expenses.
The level of deductions you can claim depends on the type of expenditure and your income.
Exciting, right?
Capital allowances also allow you to deduct the cost of assets purchased for the business via accelerated depreciation allowance and wear and tear.
This includes everything from machinery and equipment to buildings and vehicles.
Research and development expenses are also deductible, as are certain travel expenses.
Small Business Corporation (SBC) Tax Calculator South Africa
If you’re looking for a quick and easy way to calculate your SBC tax liability, then our SBC Tax Calculator that we have created is the perfect tool.
This calculator is designed to make the process of calculating your tax liability as simple as possible and has been updated for the latest rates from the tables above.
All you need to do is enter your business’s taxable income that you have calculated and the calculator will calculate your tax liability for you.
It’s quick, easy, and accurate, so you can be sure of getting the best possible result.
Tips for Maximizing Your Small Business Corporation (SBC) Tax Benefits
There are a few simple tips you can follow to ensure you get the most out of your SBC tax benefits.
Firstly, make sure to take advantage of all available deductions.
These include capital allowances, research and development expenses, and travel expenses.
It’s also important to keep accurate records of all business expenses.
This will make it easier to claim deductions and ensure you don’t overpay your taxes.
Finally, make sure to use our SBC Tax Calculator to accurately calculate your tax liability.
Conclusion
Small Business Corporation (SBC) tax is an important tax levied on companies registered as small businesses in South Africa.
It is designed to encourage and support small businesses, which play a vital role in the economy and job creation.
There are several benefits to registering as an SBC, including a reduced tax rate and various tax deductions.
Do you meet the requirement of an SBC and need to calculate your small business’s tax liability?
Then check out our SBC Tax Calculator.
Updated for the latest tax rates (2023).
We hope this blog post has given you a better understanding of SBC tax and how to make the most of the benefits available.
If you have any questions or would like more information, or if you need assistance with your small business tax return, then don’t hesitate to get in touch.
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