The structure you trade under determines what you pay. Many South African small businesses are in the wrong one and do not know it.
Sole proprietor
You and the business are the same legal person. Business profit is added to your personal income and taxed at individual rates on a sliding scale.
Simple to run, no separate company return, but no limited liability and no separation between business and personal assets.
Private company
The company is a separate legal person taxed at the corporate rate on its profit. Money you take out as salary is taxed in your hands through PAYE. Dividends attract dividends tax.
More admin, but limited liability and the ability to bid for work that requires a registered entity.
Small Business Corporation
Companies meeting specific requirements may qualify as a Small Business Corporation, which is taxed on a progressive scale considerably more favourable than the standard corporate rate at lower profit levels.
The requirements cover shareholding, turnover, and the nature of the income. It is worth checking whether you qualify, because many eligible companies never claim it.
Turnover tax
A simplified system for very small businesses, taxing turnover rather than profit at low rates. It replaces income tax, and in some cases other taxes.
It suits businesses with high turnover and thin margins poorly, and low turnover with good margins well. Run the numbers rather than assuming simpler is cheaper.
What you file
| Structure | Returns |
|---|---|
| Sole proprietor | Personal income tax, provisional tax |
| Company | Company income tax, provisional tax, CIPC annual return |
| Either, if registered | VAT, PAYE, UIF, SDL |
Choosing badly costs real money
Sole proprietors with strong profits often pay materially more than they would in a company. Companies with minimal activity carry admin cost they do not need.
The decision depends on your profit level, risk exposure and whether you need a registered entity for customers or tenders. It is worth one conversation with an accountant rather than a guess.
Stop chasing your own numbers
Monthly bookkeeping, VAT and payroll calculations, management reporting and a financial health score. From R1,200 a month.
General information, not tax advice. Thresholds, rates and deadlines change. Confirm current requirements with SARS or a registered tax practitioner before acting.