Government recognises the vital role of small businesses and budding entrepreneurs in the South African economy by providing for two categories of favourable tax dispensations for qualifying small businesses – these fall into two categories: (1) SMALL BUSINESS CORPORATIONS (with a gross annual income under R20 million) , and, (2) MICRO BUSINESSES (with annual turnover less than R1 million).
This article provides a brief summary of the qualifying requirements, and the applicable tax rates of the SMALL BUSINESS CORPORATIONS (“SBC”) under section 12E of the Income Tax Act 58, of 1962.
To qualify as an SBC the following requirements must be met:
1. The gross annual income of the business must be less than R20 million in the relevant tax period.
2. The business must be conducted as a private company, close corporation, co-operative or a personal liability company.
3. No member or shareholder of the business entity must hold any shares or have any interest in another company – subject to certain exclusions.
4. The business may not be a “personal service provider” as defined by the Act.
5. No more than 20% of the business receipts or accruals may consist of “investment income” and income derived from the provision of a “personal service.”
A “personal service” is broadly described as service provided by a holder of an interest in the business in his personal capacity – some examples are the services provided by accountants, lawyers, architects, teachers, real estate brokers and personal advisors.
The applicable tax rates for qualifying SBC’s are as follows:
In addition to the above SBC’s may also qualify for preferential accounting treatment of the capital business assets of the business.
We offer a complete service in establishing a new qualifying entity or company for you, as well as the requisite support and tax advice, for you to receive the full benefit from the relevant SBC tax rates.
Compiled By: NEIL RIEKERT (Senior Executive Consultant) (PMB Office)
Tel: 033 341 9100
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