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