Many businesses are classified or are being labeled as Small to Medium sized enterprises (SME’s). Do you however know that SARS has a specific tax incentive scheme through which small business pay less tax and which businesses qualify?
I see myself as a Small Business. How do I know if I qualify?
Small Business Corporations (SBC’s) are only applicable to Close Corporations and Companies and has a favourable tax rate structure then compared to their regular counterparts.
I am a Close Corporation or Company. Do I automatically qualify?
You will qualify if you can meet the following criteria:
- The entire shareholding / membership is held, for the entire year of assessment, by natural persons, who hold no shares in any other private company or member’s interest in any other close corporation or co-operatives other than those which are inactive (dormant) and have assets of less than R5000;
- The gross revenue for the year of assessment does not exceed R14 million;
- Not more than 20% of the company’s gross revenue consists of investment income, and the rendering of personal services *, and
- Such companies / close corporation is not a personal service provider * (before 1 March 2009 not an employment company)
* “Personal service” is defined as any service which is performed personally by any person who holds an interest in the close corporation or company referred to in the definition of “small business corporation” except where such SBC employs three or more unconnected full-time employees for its core operations.
Great, I meet all the criteria, so what exactly will be my benefit?
As we mentioned SBC’s have a favourable tax structure that is made up as follows:
For the periods ending March 2013: Rate of Tax
|Taxable income up t R63 556||0%|
|Taxable income R63 557 to R350 000||7% of the amount above R63 556|
|Taxable income in excess of R350 000||R20 051 + 28% of the amount above R350 000|
Let’s use an example:
ABC Trading will have a taxable income as at 28 February 2013 of R500 000
If ABC Trading is a normal Company or Close Corporation, its tax would be calculated as follows:
|Taxable Income x Corporate Tax Rate||R500 000 x 28%|
If ABC Trading however qualifies as a Small Business Corporation, its calculation would be as follows:
|Taxable Income according to the sliding scale|
|28% of the amount above R350 000||(R500 000 – R350 000)= R150 000|
|R150 000 x 28% = R42 000|
|Plus: R20 051||R42 000 + R20 051 = R62 051|
By qualifying as a SBC, ABC Trading saved R77,949 in income tax!