Categories - SARS

1 June 2015. MY SMALL. BUSINESS. Small Business Categories 0800 00 7277. Introduction This leaflet provides an overview of the form of micro and small businesses in South Africa, namely: Sole proprietorship;. Partnerships;. Private companies (this includes Close Corporations and co-operatives);. Small Business Corporations; and Micro business registered for Turnover Tax. This leaflet also explains in general terms the tax responsibilities of each form of business. A person wishing to start a business must decide what type and form of business entity to setup (which will be best suited to their own specific circumstances and needs).

2 There are legal, tax and other considerations that can influence this decision. The legal and other considerations are beyond the scope of this leaflet while the tax consequences of conducting business through each form of business will be an important element in making such a decision. The purpose of this leaflet is not to provide advice on the type of business entity through which to conduct a business, but to provide entrepreneurs with a broad overview of the categorization of micro and small businesses by the South African Revenue Service (SARS). Type of business Description Tax responsibilities Sole proprietorship The business is owned and Liable for Income Tax, which operated by a natural person.

3 Must be reflected in the Income This is the simplest form of Tax Return (ITR12). business entity. Depending on the amount of The business has no existence taxable supplies for a 12 month (therefore it is not a legal period, such business may person such as a company register voluntarily for Value- as defined in the Income Tax Act) Added tax (VAT). If taxable separate from the owner who is supplies exceed R1 million called the proprietor. for a 12 month period VAT. The owner must include the registration is compulsory. income from such business in his or her own personal income tax return and is responsible for the payment of taxes thereon.

4 Only the owner has the authority to make decisions for the business. The owner assumes the risks of the business to the extent of all of his or her assets whether used in the business or not. 2. Type of business Description Tax responsibilities Partnership A partnership (or unincorporated Each partner is taxed on his or joint venture) is the relationship her share of the partnership existing between two or more profits. persons who join together to A partnership is regarded as carry on a trade, business or a separate person for VAT. profession. purposes as it is included in A partnership is also not a the definition of person in separate legal person or taxpayer.

5 Section 1(1) of the VAT Act. Each person may contribute money, property, labour or skills, and each expects to share in the profits and losses of the partnership. It is similar to a sole proprietorship except that a group of owners replaces the sole proprietor. The number of persons who may form a partnership agreement is limited to 20. Micro businesses Turnover Tax is a simplified tax Turnover Tax takes the place registered for system for micro businesses with of VAT, Provisional Tax, Income Turnover Tax an annual turnover of no more Tax, Capital Gains Tax, and than R1 million.

6 Dividends Tax. This tax system is applicable to A micro business may, however, sole proprietors (individuals), be registered for VAT whilst partnerships, close corporations, registered under the tax regime companies and co-operatives. for micro businesses A person qualifies as a micro Qualifying businesses pay a business if that person is a single tax instead of various o natural person (or the other taxes. It's elective so you deceased or insolvent estate choose whether to participate. of a natural person that was a registered micro business at the time of death or insolvency); or o company , And the qualifying turnover , of that person for the year of assessment does not exceed R1.

7 Million. 3. Type of business Description Tax responsibilities Private company A private company is treated by The company is responsible for law as a separate legal entity and the payment of taxes. must register as a taxpayer in its Shareholders have limited own right. liability, that is, they are It has a life separate from its generally not responsible for owners with rights and duties of the liabilities of the company . its own. However, certain tax liabilities The owners of a private company do exist. One such liability are the shareholders. is where an employer or The managers of a private vendor is a company , every company may or may not be shareholder and director who shareholders.

8 Controls or is regularly involved A private company may not have in the management of the an interest in a Close Corporation. company 's overall financial The maximum number of affairs shall be personally shareholders is restricted to 50. liable for the employees' tax, Value-Added Tax, additional tax, understatement penalty, penalty or interest for which the company is liable, that is, where the taxes have not been paid to SARS within the prescribed period. Any dividend declared by the company is exempt from income tax in the hands of the holder of the share (beneficial owner), but the dividend is subject to Dividends Tax in the hands of the holder of the share who is liable for dividends tax.

9 4. Type of business Description Tax responsibilities Close Corporation A CC is similar to a private For income tax purposes, a (CC) company . CC is dealt with as if it is a It is a legal entity and must company . register as a taxpayer in its own Every member and person who right. performs functions similar to The owners of a CC are the a director of a company and/. members of the CC. Members or who controls or is regularly have a membership interest in the involved in the management CC. There are no shareholders in of the CC's overall financial a CC. affairs, will be personally liable Members' interest in the CC is for employees' tax, Value- expressed as a percentage.

10 Added Tax, additional tax, Membership, generally speaking, penalties or interest for which is restricted to natural persons the CC is liable. or (from 11 January 2006) a The remuneration of members trustee of an inter vivos trust or of a CC is subject to employees'. testamentary trust. tax. The minimum number of The Close Corporation is members is one and the responsible for the payment of maximum number of members taxes. Any dividend declared by is 10. the close corporation is exempt As from 1 May 2011 from income tax in the hands (implementation date of the of the member (beneficial Companies Act No.))