top of page

Small Business Tax Rate in South Africa: What You Need to Know

Updated: Jun 1, 2023

As a self-employed individual, freelancer, or entrepreneur, navigating the world of taxes can be a daunting task. Tax compliance is important for any business, but it can be especially challenging for small business owners who may not have the resources to hire an accountant or tax professional. This guide aims to provide you with an authoritative and informative narrative on the small business tax rate in South Africa, so you can stay compliant and focus on growing your business.


small business tax
small business tax


What is a Small Business Tax in South Africa?


Small businesses are an important part of the South African economy, providing employment opportunities and contributing to economic growth. In fact, the World Bank estimates that small and medium-sized enterprises (SMEs) account for over 90% of all businesses in South Africa and contribute over 30% of the country's GDP.



There are many different types of small businesses in South Africa, ranging from home-based businesses to brick-and-mortar stores. Some examples include. We will look at a few examples below.


Small Business Type

Description

​Freelancers and consultants

Self-employed individuals who offer services such as writing, graphic design, or consulting.

​Online businesses

E-commerce stores, social media influencers, and other businesses that operate primarily online.

​Home-based businesses

​Small businesses that are run from the owner's home, such as daycare services, catering businesses, or online shops.

​Retail businesses

​Brick-and-mortar stores that sell physical goods, such as clothing stores, hardware stores, or grocery stores.

Service-based businesses

​Small businesses that offer services such as plumbing, electrical work, or cleaning services.

​Manufacturing businesses

​Small businesses that produce goods, such as artisanal products, furniture, or food products.

No matter what type of small business you have, it's important to understand the tax implications and compliance requirements in South Africa to avoid penalties and ensure that you are taking advantage of any tax benefits that may be available to you.



Understanding Income Tax


All individuals and businesses in South Africa are required to pay income tax on their earnings. This includes salaries, wages, and profits from a business. The income tax system in South Africa is based on a progressive tax system, which means that the more you earn, the higher percentage of tax you will pay.


For the tax year 2023, which runs from 1 March 2021 to 28 February 2024, the income tax rates for individuals according to SARS PAYE Tax Tables are as follows:


Individuals

  • Individuals earning up to R237,100 per year will pay 18% tax of taxable earnings.

  • Individuals earning between R237,101 and R370,500 per year will pay tax at a rate of 26% on the amount over R237,100 + R42,678.

  • Individuals earning between R370, 501 and R512,800 per year will pay tax at a rate of 31% on the amount over R370,500 + R77 3628.

  • Individuals earning between R512,801 and R673,000 per year will pay tax at a rate of 36% on the amount over R512,800 + R121 475.

  • Individuals earning between R673,001 and R857,900 per year will pay tax at a rate of 39% on the amount over R673,000 + R179,147.

  • Individuals earning between R857,901 and R1,817,000 per year will pay tax at a rate of 41% on the amount over R857,900 + R251,258.

  • Individuals earning over R1,817,001 and above per year will pay tax at a rate of 45% on the amount over R1,817,001 + R644,489.


Small Business Tax Rates


Small businesses in South Africa are eligible for certain tax benefits that can help reduce their tax liability. One of these benefits is the Small Business Corporations Tax (SBCT), which is a lower tax rate for qualifying small businesses.


To qualify for the SBC Tax, a small business must:


  • Be registered as a company or close corporation.

  • Have a turnover of less than R20 million per year.

  • Be resident in South Africa.

  • Maximum 20% of your income can be "investment income."

  • Maximum 20% of your income must come from rendering a "personal service."

  • Have at least one natural person who holds equity shares in the business.

  • You can only own one business.

As a small business owner in South Africa, understanding the applicable income tax rates is paramount. The tax rates for small businesses are progressive, meaning they increase as the taxable income rises. Here are the current income tax rates for the tax year 2024





Taxable Income (R)

Tax Rate

1 - 95 750

0% Tax

95 751 - 365 000

7% of Taxable income above R95 750

365 001 - 550 000

​R18 848 + 21% of income above R365 00

550 001 and above

R57 698 + 27% of the amount above R550 000

It's essential to consult with a tax professional or refer to the South African Revenue Service (SARS) for the latest income tax rates and thresholds. At Meta Finance Lab, we have registered Tax Practitioners who have been supporting small business owners for over a decade. Email us at assistant@metafinancelab.com



Maximizing Tax Compliance and Deduction Opportunities



While paying taxes is a necessary obligation, small business owners in South Africa can take advantage of various deductions to minimize their tax liability. Here are some key deductions to consider.


  • Business Expenses Deductible business expenses include rent, utilities, office supplies, advertising costs, and professional fees. Keep meticulous records and retain receipts to substantiate these deductions.

  • Home Office Expenses If you work from home, you may be eligible to claim a portion of your home expenses, such as rent, mortgage interest, property taxes, and utilities, as a deduction. Ensure you meet the specific criteria outlined by SARS for home office deductions.


  • Travel Expenses Business-related travel expenses, such as transportation, meals, and accommodation, can be deductible. However, it's crucial to maintain accurate records and only claim expenses directly related to your business activities.

  • Retirement Annuity Contributions Contributing to a registered retirement annuity can provide tax benefits. Consult with a financial advisor to determine the optimal retirement planning strategy for your small business.

  • Depreciation You can claim depreciation on eligible business assets over their useful life, reducing your taxable income. Understand the depreciation rules and methods approved by SARS to accurately calculate and claim this deduction.


To read about Tax Compliance for your business, read this related article



Expert Tips to Ensure Small Business Tax Compliance


Keep Meticulous Records: Maintain organized and detailed records of all your business transactions, income, and expenses. Accurate and complete records are vital for tax compliance and can help substantiate deductions.


Seek Professional Guidance: Consider working with a qualified tax professional or accountant who specializes in small business taxation. They can provide expert advice, help optimize your tax strategies, and ensure compliance with ever-changing tax regulations.


Stay Informed: Stay up to date with the latest tax regulations, deadlines, and changes issued by SARS. Regularly


review official sources, attend workshops, or engage in professional development to enhance your understanding of tax compliance.


Plan Ahead: Take a proactive approach to tax planning by forecasting your income, identifying potential deductions, and managing your finances accordingly. Effective tax planning can help minimize surprises and optimize your tax position.



In Closing


Navigating the small business tax rate in South Africa requires a comprehensive understanding of the tax system and compliance obligations. By familiarizing yourself with the applicable income tax rates, deductions, and compliance tips outlined in this guide, you can optimize your tax strategy, minimize your tax liability, and ensure adherence to the South African tax regulations. Remember, consulting with a tax professional is essential to ensure accuracy, compliance, and to take advantage of all available tax benefits. Stay informed, plan ahead, and maintain meticulous records to successfully navigate the small business tax landscape in South Africa.










bottom of page