Before opening up or starting your business you need to establish what kind of business entity would best suite your business. There are generally three (3) options, that is:

• A sole proprietorship also known as a sole trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. This entity does not enjoy separate personality and as a result does not have to be registered as a tax payer.
• A partnership is also not a separate legal person or taxpayer. Each partner is taxed on his or her share of the partnership profits.
• A private company is treated by law as a separate legal entity and must also register as a taxpayer in its own right. This means that private companies bear their own obligations and duties related to tax. It needs to be noted that Close Corporations (CC) also fall under this category since the coming into operation of the new Companies Act , CC can no longer be registered  with the Registrar of Companies .

How do I register for Tax?

Before a private company can be registered for tax it needs to be registered with the Registrar of Companies.  A private company needs to be registered within 60 days after having commenced business by completing an IT77 form (available from your local SARS office or their website). After registration the CC or private company will then be registered automatically as a taxpayer. There are also further registrations that may apply depending on how much turnover a company makes and whether the company has employees such as VAT, PAYE, and Customs, Excise, SDL and UIF contributions.

What kind of tax am I supposed to pay?

• Provisional tax

Provisional tax is a method of paying tax due, to ensure the taxpayer does not pay large amounts on assessment, as the tax liability is spread over the relevant year of assessment. It requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income.

As soon as you commence business you will become a provisional taxpayer and will be required to register with your local SARS office as a provisional taxpayer within 30 days after the date you become a provisional taxpayer.

The first provisional tax payment must be made within six months after the commencement of the tax year and the second payment not later than the last day of the tax year.

• Employee tax

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee’s wages. This is paid on a monthly basis.

A business (an employer) that pays salaries, wages and other remuneration to any of its employees above the tax thresholds, must register with SARS for employees’ tax purposes. Registration of same is done by completing the EMP 101 form and submitting it to SARS.

How much tax do I have to pay?

A sole proprietor or each partner in the case of a partnership is subject to income tax on his or her taxable income. Income tax (normal tax) is levied at progressive rates ranging from 18% to 40%. Unlike individuals, a company or CC pays 28% income tax on its taxable income for the tax year and 10% secondary tax on companies (STC) on the net amount of dividends declared.

Tips:

• Always consult a tax professional regarding all your tax matters.
• Keep all your records (save all related documents)
• Pay your taxes ( like Benjamin Franklin said “ there are only two things that are certain in life that is death and taxes)