How to determine if you qualify to be a Small Business Corporation & Pay less Tax

Digital CFO™

TheDigitalCFO

What is a Small Business Corporation (Section12E)?

Section 12E is a tax relief structure for small businesses SARS has put into place to help growing businesses in South Africa. There are talks of the Davis commission proposing a drastic reform to the current Small Business tax model which includes removal of some of the requirements to qualify as a SBC or to implement a refundable compliance rebate to companies who achieved tax compliance status. It still remains advantageous to meet the requirements of a Small Business Corporation.

The following tax table can be used for financial years ending 01 April 2018 and 31 March 2019

Taxable Income (R)Rate of tax
0 – 78,7500%
78,751 – 365,0007% taxable income above 78,150
365,001 – 550,000 20,080 + 21% of taxable income above 365,000
550,000 – and above58,930 + 28% of taxable income above 550,000

Qualifying requirements

  • The Company, Close corporation or Co-Operate is not an employment entity.
  • All shareholders or Members must be natural persons and not hold shares in any other entity (Not even for one day of the year)
  • Gross income may not exceed 20 million in the year of assessment
  • If more that 20% of income derives from investment income.
  • Entity may not be a personal service provider.
  • If the entity employs three or more unconnected fulltime employees for core functions of the entity during the tax year, the entity will qualify.

If your business qualifies as a Small Business Corporation, there are major tax benefits in the form of reduced tax rates and accelerated depreciation on productive assets which allows your company to depreciate its assets at an accelerated rate compared to other businesses. This results in a higher expense on your income statement that results in less tax.

Feel free to contact Digital CFO should you require more assistance.

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