How does Business TAX & Vat work in South Africa
1.
Understanding Value-Added Tax (VAT)
What is VAT?
VAT is a tax charged on most goods and services sold in South Africa.
The standard rate is 15%, which means every R100 sale includes R15 VAT.
When Do You Need to Register for VAT?
Mandatory registration: If your business sells more than R1 million worth of taxable goods or services in 12 months.
Voluntary registration: You can register if your sales exceed R50,000 in the past year.
Types of VAT Rates:
Standard-rated supplies: Most goods and services; VAT is 15%.
Zero-rated supplies: Essential items like basic food, certain health and educational products; VAT charged at 0%.
Exempt supplies: Some items, like financial services and certain residential property sales, do not require VAT. Businesses selling only exempt items do not need to register.
How VAT Works:
Output tax: VAT you charge your customers when selling products or services.
Input tax: VAT you pay on goods and services your business buys.
VAT payable: The difference between output tax and input tax is what you pay to SARS.
Example of VAT Calculation:
Your business sells goods worth R100,000 (excluding VAT).
You charge 15% VAT → R100,000 × 15% = R15,000 (output tax).
You bought materials for R50,000 (excluding VAT).
VAT paid on purchases → R50,000 × 15% = R7,500 (input tax).
VAT to pay to SARS → R15,000 − R7,500 = R7,500.
When to File VAT:
VAT-registered businesses must submit returns monthly or every two months, depending on their registration type.
Returns report: total sales, VAT collected, purchases, and VAT paid.
How to Pay:
Payment is made to SARS through online banking, debit order, or eFiling.
Example:
If your business collected R30,000 VAT from sales and paid R12,000 VAT on purchases:
VAT payable = R30,000 − R12,000 = R18,000 to be paid to SARS.
2.
Income Tax for Businesses
Who Pays Income Tax?
All businesses in South Africa, including sole proprietors, partnerships, and companies, pay tax on their profits.
Profit = Total income − Allowable business expenses.
Small Business Corporation (SBC) Tax Rates:
Special rates for small businesses with annual income below R20 million.
Example tax rates for the 2025/2026 year:
Taxable Income (R) Tax Rate
0 – 91,250 0%
91,251 – 365,000 7%
365,001 – 550,000 21%
550,001 – 750,000 28%
750,001 – 1,000,000 35%
Over 1,000,000 45%
Example:
Business earns R500,000 profit.
Tax calculation:
0 – 91,250 → 0% = R0
91,251 – 365,000 → 7% of 273,749 = R19,162
365,001 – 500,000 → 21% of 135,000 = R28,350
Total tax = R0 + R19,162 + R28,350 = R47,512
3.
Practical Tips for New Business Owners
Keep Records: Maintain clear records of all sales, purchases, and receipts.
Separate Accounts: Use a separate bank account for business transactions.
Consult an Accountant: A tax professional can help with VAT registration, income tax filing, and record-keeping.
Use eFiling: SARS eFiling makes submitting tax returns easier and reduces errors.
Plan for Payments: Save money regularly to pay taxes on time.