Different types of tax in South Africa

The South African Revenue Service manages tax collection in our country with great efficiency. Our highly developed system includes various types of tax. Do you know the difference?

The profits of all businesses which are run in South Africa are taxable in SA and must file their annual income tax returns with SARS. In general, for individuals the tax year stretches from 1 March – 28 February, while businesses may decide on their own financial year-end.

The different types of tax we pay include:

INCOME TAX

Income tax is levied on all income and profit received by a taxpayer, which includes individuals, companies and trusts. Various other types of tax fall under the Income Tax Act, including capital gains tax, donations tax, SITE, PAYE and provisional tax.

Local businesses are taxed at 28%, individuals are taxed at a rate between 18% and 40%, while Trusts (excluding special trusts) are taxed at 40% on profit.

VALUE ADDED TAX (VAT)

VAT (Value Added Tax) applies to all goods and serviced at a standard VAT tax rate of 14%. However, certain items are zero-rated, e.g. exports, petrol, diesel and basic food items (such as brown bread, milk and fruit). Certain services are exempted from VAT, for example educational services, public transport and residential rental accommodation.

CAPITAL GAINS TAX

Capital gains tax applies when an asset is disposed of, in other words it changes ownership. Examples are when a property is sold or company shares are acquired.

PROVISIONAL TAX

Companies automatically fall into the provisional tax system , but anyone who receives income other than remuneration (for example, rental income from a property or interest income from investments) is a provisional taxpayer. Three provisional tax payments based on an estimate of annual income are made during each financial year, the first after six months, the second at the end of the financial year.  The third payment is made 6 months after the financial year.

PAYE (Pay-As-You-Earn)

When a firm employs personnel, tax is deducted from the employee’s salaries . The advantage of this is that tax liability for a year is paid off over 12 months, instead of a lump sum being charged at one time.

TRANSFER DUTY

Transfer duty is payable by individuals when they acquire property at progressive marginal rates between 0% and 8%.

CUSTOMS AND EXCISE TAXES

This tax is levied as a specific duty on tobacco and liquor and also on cosmetics, televisions, audio equipment and motor cars, according to their cost and market value.

DOUBLE TAXATION AGREEMENTS

South Africa has entered into agreements with several other countries to avoid double taxation including: Austria, Belgium, Canada, Cyprus, Denmark, France, Germany, India, Ireland, Israel, Italy, Japan, Korea, Malta, Mauritius, the Netherlands, Norway, Singapore, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and the United States.

Paying our taxes diligently is how we can make a difference and contribute to a better future for all South Africans...

Pros and Cons of setting up a private company

What are the advantages and disadvantages of a private company? A private company - (Pty) Ltd - is treated as a separate legal entity and has to register as a taxpayer, separately from its owners. The name of the company should end with '(Proprietary) Limited' or '(Pty) Ltd'.

The advantages of registering as a private company are as follows:

• The company has a perpetual lifespan and can continue if one of the owners dies.
• Shareholders have limited liability, but directors are personally liable, if they are knowingly part of running the business in a reckless or fraudulent manner.
• Transfer of ownership can be done with ease.
• Raising capital is also easier.
• Management can be done efficiently.
• Private companies can be adapted to both small and large businesses.
• Private companies are not required to file their annual financial statements with the Registrar of Companies, and so their annual financial statements are not available to the general public.

There are also some disadvantages:

• Private companies are subject to many legal requirements.
• They are more difficult and expensive to register compared to a Sole Proprietorship.
• At least one director is required.
• Shares may not be offered to the public and cannot be listed on the stock exchange.
• A minimum of two shareholders are required for a meeting, except in the case of a one-person company.
• Annual financial statements must be audited with some exceptions in terms of the new Companies Act.

For more information on how to set up a private company, please contact James Grove. james@groveaccounting.co.za 

Private Company (Pty) versus Close Corporation (CC): What’s the difference?

With the new Companies Act the option of a Close Corporation has fallen away.  Many customers want to know what the difference is between a Private Company (Pty) and a Close Corporation (CC). Both have certain benefits, but also drawbacks. Here are some of the differences but we suggest that you seek professional advice before deciding...

Both Close Corporations (CC) and Private Companies (Pty) count as a legal entities and have limited liability of members or shareholders.

Close Corporations are often the type of company chosen by small business owners. CCs have members – up to a maximum of 10 natural people. The number of employees, however, is not limited.  An accounting officer/ bookkeeper needs to be appointed, but generally the rules for governance of a CC are slightly more relaxed. For example, CCs do not need to convene an AGM.

Private Companies consist of directors and shareholders (up to 50 shareholders). Companies can  also qualify as shareholders. The shareholders own the company and appoint directors (which may be shareholders) to run it for them. There cannot be more than 50 shareholders and shares may not be offered to the general public. A private company needs the services of an auditor/ chartered accountant although there are some exclusions.  Also, Private Companies need to hold an AGM and the cost to register is higher.

In summary:

CLOSE CORPORATION                    PRIVATE COMPANY

Members                                              Directors and shareholders

Maximum of 10 members                    Maximum of 50 shareholders

Companies can not be members       Companies can be shareholders

Members contribution                          Share Capital

Accounting Officer                               Auditor (Chartered Accountant)*

28% tax rate                                        28% tax rate

Cheaper (R350)                                  More expensive (R900)

Limited liability                                     Limited liability

No AGM required                                 Must convene an AGM

*the new companies act gives the option of not to audit under certain conditions.

How to register your company

Today’s article continues with advice and tips about company registrations. How does one go about registering a company? 

1. CHOOSE A COMPANY NAME:  Come up with a unique descriptive name for your business! Make sure you spell it correctly and give more than one name, so that there are several options in case the names are not available. Stay away from trademarks. Try to use a name that’s not too long and will be easy to remember... 
2. CHOOSE THE TYPE OF COMPANY you would like to register as. Have a look at our article “What type of company are you?” http://grovegr.blogspot.com/2012/07/what-type-of-company-are-you.html  for more info.
3. COMPLETE THE RELEVANT APPLICATION FORM. It is a good idea to ask an accountant to assist you with this. A certified copy of your ID document  is also required.

For more information on how to go about registering your company contact James Grove Chartered Accountants.

Client Testimonials

James enjoys getting positive and encouraging feedback from his clients.

Bernadine Heathcock from Kids Party Directory cc was very happy with James Grove’s services:

“I can highly recommend the services of James Grove Chartered Accountants. When the accounting firm I had been using for my business for several years let me down, James was there to pick up the pieces. In the world of business, ethics and reliability is of utmost importance. I found James to be both ethical and a man true to his word.”

Adriaan Meyer (owner of Brent Oil Wellington) asked for James’s help in a variety of areas.  James assisted him with management by analyzing their current procedures and suggesting improvements. He also changed the format of their management accounts to be more user friendly and helped them with proper cut-off procedures and journals to improve the integrity of the management accounts. 

They were very impressed with James’s suggestions:  "Friendly and efficient service. James helped us iron out any bookkeeping wrinkles." 

Find out how James Grove Chartered Accountants can help you. james@groveaccounting.co.za

What type of company are you?

Launching a new company takes courage and hard work. Add the legal red tape to this situation and what should be an exciting new endeavour can become overwhelming chaos. Where do you start? The next couple of blog articles are aimed to offer bite-size info on some of the procedures and laws surrounding company registrations.

Firstly, your company should be registered correctly. What type of company is the most suitable option for you? According to the Companies Act of 2008 your company can either be registered as a non-profit company or a profit company. Profit companies are further divided into: private -, public-, personal liability - and state-owned companies. Let me explain the difference...

Non-Profit Companies

NON-PROFIT COMPANIES (NPC)

These are companies created to help people, protect the environment or support a cause. The objective of an NPC is to benefit the public, not to make a profit.  Non-profit organisations usually involve cultural or social activities, for example churches or charity organisations. The income and property of the company may not be distributed to its members, directors etc., except as reasonable payment for their services.

PRIVATE COMPANIES (Pty) Ltd

This means that the company is owned privately, and so the filing requirements are less strict than those of public companies. Private companies have shareholders and issue stock, but their shares will not be traded on public exchanges.  The business has a legal personality separate from its members. It is owned by one or multiple shareholders and overseen by a board of directors. With the new Companies Act members are not limited to 50, as was the case with the previous Act.

Public Companies

PUBLIC COMPANIES (Ltd)

Public companies are traded on at least one public stock exchange. For this reason public companies have to answer to their shareholders and certain changes will be voted on by the shareholders. They must meet more rigid requirements than private companies and are obligated to publically disclose financial statements and annual reports.

Personal Liability

PERSONAL LIABILITY COMPANIES (Inc)

Professionals such as doctors, lawyers or engineers usually register this type of company. Directors of this company are jointly liable with the company for debts and liabilities arising during their periods of office. 

State-Owned

STATE-OWNED COMPANIES (SOC Ltd)

This is either a state-owned enterprise or a company owned by a municipality. These companies are legal entities created by the government to carry out commercial activities on its behalf. Examples are companies such ESKOM and SAA.

Foreign Companies

FOREIGN AND EXTERNAL COMPANIES

This is a company incorporated outside of South Africa. These companies need to register as an “external company” with the CIPC if they intend to conduct business in South Africa. Any activities such as holding meetings, opening a bank account, opening offices, buying property or  employing locals are considered to be “conducting business” in South Africa. 

Parterships

Other options available to individuals include:

SOLE PROPRIETORSHIP- a business owned by one person who may employ others but is personally liable for all debts incurred by the business. 

PARTNERSHIP- Two or more people operate a business to make a profit. Each partner is liable for debts of the company.

Registering a company might seem complicated and daunting, but with the help of an expert you can avoid legal and financial hassles without having sleepless nights about it. Contact James Grove Chartered Accountants for more advice and information on the subject.

UNASHAMEDLY ETHICAL

The Unashamedly Ethical campaign was founded by South African businessman Graham Power to encourage ethics, values and clean living in communities all over the world. The campaign challenges individuals and local businesses to make a public commitment to good values, ethics and clean living.

James Grove Chartered Accountants is a proud member of Unashamedly Ethical and has made the following commitments:

01. To be honest and ethical in all their dealings.

02. To provide efficient, economic and effective products and services in an impartial manner.

03. To provide all stakeholders with timely, accessible and accurate information.

04. To refuse to elicit, accept or pay any bribes, and to report those who do.

05. To negotiate all contracts with the utmost integrity.

06. To pay taxes, and to pay all creditors on time.

07. To pay reasonable salaries and wages.

08. To submit themselves to just and ethical governing authorities.

09. To remember the poor by investing generously and sacrificially in the broader community. 

10. To collaborate with their peers to impact our community and nation.