Starting a small business in South Africa can be challenging because of the complex regulations. However, becoming a Small Business Corporation (SBC) can simplify things for entrepreneurs. In this article, we will explore the benefits of being an SBC, how to qualify, register, and comply with SARS regulations.
What is an SBC?
An SBC is a type of company designed for small businesses with a turnover of less than R20 million. It is owned by individuals, not companies or trusts. The benefits of being an SBC include reduced corporate tax rates, accelerated depreciation, and exemptions from Secondary Tax on Companies (STC) and Skills Development Levies (SDL).
The Benefits of Being an SBC
The benefits of being an SBC include a reduced corporate tax rate, accelerated depreciation, and exemptions from STC and SDL. These benefits can free up cash flow that can be used to invest in growth.
Moreover, SBCs benefit from accelerated depreciation, which means that they can claim higher deductions on certain assets, such as machinery and equipment, reducing their taxable income. Other tax benefits include exemptions from STC and SDL.
Being an SBC is an attractive option for small business owners because it frees up cash flow that can be used to invest in growth and development.
Qualifying as an SBC
To qualify as an SBC, a company must have a turnover of less than R20 million per year. It must be owned by one or more individuals, not by a company or trust. Additionally, the company must be actively engaged in a trade or business, which excludes passive investment activities.
Registering as an SBC
Registering as an SBC is a straightforward process, but it requires some paperwork. To register for tax as an SBC, you will need to complete and submit an IT77C form South African Revenue Service (SARS). Additionally, you will need to provide supporting documents, such as your ID, proof of address, and company registration documents. The deadline for registration is within 60 days of starting your business.
Compliance Requirements for SBCs
Once you are registered as an SBC, there are certain compliance requirements that must be met. SBCs must comply with all tax submitting VAT returns and paying taxes on time. Additionally, SBCs must maintain accurate accounting records and keep them for at least five years. Finally, SBCs must file their tax returns on time, or risk facing fines.
Comparison of SBCs with other types of companies
Before delving into SBC tax rates, it’s essential to understand how SBCs compare with other types of companies available for small business owners. Sole proprietorships and partnerships are common options for small businesses that want to avoid the red tape associated with establishing a company. However, they come with the downside of unlimited personal liability for the business’s debts. Private companies, on the other hand, provide limited liability protection, but come with increased regulatory requirements.
Compared to these options, registering as an SBC provides small businesses with a simpler tax regime and limited liability protection without the regulatory requirements of private companies.
Changes in SBC regulations
SBC regulations can change over time, and it’s essential for small businesses to stay up-to-date with these changes. In recent years, there have been numerous changes to SBC regulations that small business owners need to be aware of. In 2020, for example, the government introduced a new small business tax regime that simplified the tax compliance requirements for SBCs. Small business owners need to keep track of such changes to ensure that they maintain their status and comply with all the relevant regulations.
Financing options for SBCs
Financing is essential for small businesses to grow and expand. Fortunately, there are several financing options available for SBCs. Small businesses can apply for grants or loans from government agencies such as the Small Enterprise Finance Agency (SEFA) or private financial institutions. Additionally, SBCs may qualify for tax incentives, such as tax breaks for hiring new employees or investing in research and development.
SBCs and BEE compliance
Broad-Based Black Economic Empowerment (B-BBEE) is a program that aims to address economic imbalances caused by apartheid in South Africa. As part of this program, companies are rated on a scorecard that measures their BEE compliance. SBCs can benefit from BEE status, provided they comply with the relevant regulations. Compliance requirements include ownership, management, and control of the company by black people, as well as procurement from black-owned suppliers.
How to Maintain SBC Status
Maintaining SBC status is essential for small business owners who want to continue benefiting from reduced and other advantages. To do so, SBCs must continue to meet the ownership, activity, and turnover requirements, and comply with all tax and accounting obligations.
In conclusion, becoming a Small Business Corporation in South Africa can be a wise choice for small business owners who want to simplify their tax obligations and benefit from reduced tax. By meeting the ownership, activity, and turnover requirements, and complying with all tax and accounting obligations, small business owners can ensure that they continue to enjoy the benefits of being an SBC.