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In this blog post, we look at how starting your own business, requires you to know your Taxes!
There are many daunting tasks for entrepreneurs and business owners when starting a new business.
Managing a business can become overwhelming, but not more daunting than navigating one’s way through the world of TAX.
Tax is something that everyone has to pay and is levied on income and profit received by a taxpayer.
Taxes are the government’s main source of income. Individuals and companies that do not comply with tax regulations are penalized.
Entrepreneurs who want to start a business need to be aware of their tax obligations. Running a business requires tax savvy knowledge. It does not matter whether it is in the form of a legal entity or in a personal capacity.
Once you have decided to start a business, you must also decide what type of business entity you will use.
There are legal, tax, and other considerations that can influence your decision. Your business model will determine the tax obligations to adhere to.
There are several different types of business entities in South Africa. Also in every other country in the world and this complicates corporate taxes globally.
It is also important to note the various options to reduce administrative requirements. This is to ensure tax compliance is easier. Different tax incentives and rates may also apply in certain instances.
In South Africa, you have to choose the business model you would like to establish. Then decide if it is a legal entity, before you can understand its tax obligations.
Once you decided to register a legal entity, the FIRST STEP is to register your business entity with the Companies and Intellectual Property Commission (CIPC).
The SECOND STEP is to register this legal entity as a Taxpayer for Corporate Income Tax purposes.
When registered with CIPC, SARS automatically generates an Income Tax reference number.
you may qualify for certain tax incentives and rates in terms of the Small Business Corporation incentives.
Alternatively, if your business operates as a natural persona or a micro company and you meet specific criteria requirements, you may also qualify for the Turnover Tax System (Micro Entity)
After receiving a Tax Registration Reference number, taxpayers must then register on eFiling to transact electronically.
Turnover tax is a simplified tax system for Micro Small Businesses with a qualifying turnover of less than
R1 million per annum.
It is a tax based on the taxable turnover of a business and is available to
Turnover tax takes the place of the following Tax Type Profiles:
It’s elective – so you choose whether to participate. For Tax Tables visit here.
In the future, as a Small, Micro, or Medium Enterprise (SMME), providing your Tax Clearance information to another entity is required.
This could be to apply for a tender, new contract, good standing, or in respect of Foreign Investments.
To obtain your Tax Clearance Certificate from eFiling, you can request the help of an expert professional such as a Tax Practitioner or you can view the steps here on how to do it yourself.
Corporate Income Tax (CIT) also known as Business Income Tax, imposing on businesses incorporated under the laws of the Republic of South Africa. These entities derive income locally or globally but operates within the borders of South Africa.
CIT is applicable (but not limited) to the following businesses and liable under the Income Tax Act, 1962 for the payment of tax on all income received by or accrued to them within a financial year:
Every registered taxpayer should submit an Income Tax return. This is to declare the income received over a twelve-month period at the end of the financial year, in the prescribed form.
Payment of Tax upon an assessment notice issued by SARS is payable within the period specified in the notice.
As soon as business commences, you become a Provisional Taxpayer. Your business then registers with a local SARS office as a provisional taxpayer. This registration happens within 30 days after the date upon which you become a provisional taxpayer.
Companies are automatically registering as provisional taxpayers.
In addition to annual returns, every business submits a provisional tax returns.
The payment of provisional tax intended to assist taxpayers in meeting their normal tax liabilities.
NOTE: For a tax year ending on the last day of February, the optional third payment is due within seven months after the end of the tax year.
Any person who owns or manages a Business and whose total value of taxable supplies (taxable turnover) exceeds, or is likely to exceed, the compulsory VAT registration threshold must register for VAT.
The threshold is currently R1 million in any consecutive 12-month period.
A person can register as a vendor if that person runs a Business in which the total value of taxable supplies (taxable turnover) exceeds R50 000 (but does not exceed R1 million) in the preceding 12-month period.
A small business that is registered as a micro-business under the Sixth Schedule of the Income Tax Act may also register for VAT and may elect to submit returns and payments every four months, ending on the last day of June, October, and February
NOTE: For requesting VAT liability date backdating, expect to provide invoices, signed contracts, or financial statements to motivate the backdating.
According to law, an employer must register with the South African Revenue Service (SARS) within 21 business days after becoming an employer, unless none of the employees are liable for paying normal tax.
There you have it, all the important taxes for running your business efficiently and keeping it compliant.
If you need the help of a Tax Practitioner to register your business for any of these tax types at SARS, you are welcome to reach out to me for a free discovery session to determine the right compliance route for your business.
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