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Tax Incentives For Small Businesses – Give The Little Guy A (Tax) Break

Government has recognised that is unrealistic to expect small businesses to pay the same level of taxes as more established businesses. This led to the introduction of two favourable tax regimes available to certain small businesses.

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Entrepreneurs and small businesses play an important role in our economy, particularly to combat unemployment. Government has recognised that is unrealistic to expect small businesses to pay the same level of taxes as more established businesses. This led to the introduction of two favourable tax regimes available to certain small businesses. 

Small business corporations 

The more well-known of the two regimes is the “small business corporation” (commonly abbreviated as “SBC”) as defined in the Income Tax Act. An SBC benefits from a reduced income tax liability through reduced income tax rates and accelerated depreciation allowance for movable assets. 

Most companies pay income tax at a flat tax rate of 28% on their taxable income. SBCs, on the other hand, can benefit from a reduced tax liability if their taxable income does not exceed R550 000 in a year of assessment. For 1 April 2017 to 31 March 2018, qualifying SBCs will not pay tax on the first R75 750 taxable income. Thereafter, the SBC will pay tax at a progressive rate starting at 7%, 21% of taxable income exceeding R365 000 and 28% on taxable income exceeding R550 000. SBCs may also qualify for accelerated depreciation allowances against taxable income.

Related: 7 Top Tax Tips For SMEs

If a qualifying SBC owns plant or material and uses it directly in a process of manufacture or similar process, the SBC may reduce its taxable income by the full cost of the plant or machinery in the year of assessment in which it is brought into use for the first time.

An SBC may elect to apply accelerated deprecation rates to other movable assets, which would ordinarily have been regarded as wear and tear or depreciation. An SBC may choose to reduce its taxable income by 50% of the cost of the asset in the first year of assessment during which the asset is first brought into use, 30% of the cost in the second year, and 20% in the third year.

Not all small businesses qualify as SBCs. The following entities may qualify as an SBC: a close corporation, a co-operative, a private company and a personal liability company, if at all times during the year of assessment all of the shareholders or members of that entity were natural persons.

Additional requirements that must all be met to be regarded as a SBC, include:

  1. The entity’s gross income may not exceed R20 million for the year of assessment
  2. No member or shareholder of the entity may, at any time during the year of assessment, hold any shares or have any interest in the equity of another company, other than certain specific exceptions which include listed companies, collective investment schemes and others
  3. Not more than 20% of the total receipts or accruals and capital gains of the entity may consist collectively of “investment income” and income from the rendering of a “personal service”
  4. The entity may not constitute a “personal service provider” as defined for tax purposes.

The term “personal service”, for purposes of the SBC regime, is defined to include a wide array of professions, including:

  • any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, if
    • that service is performed personally by a person who holds an interest in the entity; and
    • that entity does not throughout the year of assessment employ three or more full-time employees (other than a shareholder or member or a connected person in relation to a shareholder or member) who are on a full-time basis involved in the business of the entity of rendering that service.

If an entity (in a year of assessment) employs three or more full-time employees (other than a shareholder or member or a connected person in relation to a shareholder or member) who are on a full-time basis involved in the business of the entity of rendering that service, it will not be regarded as rendering a “personal service” and will not be regarded as a “personal service provider”.

Related: What Should I Know About Dealing With Tax When It Comes To My Business?

A company, co-operative, close corporation or personal liability company should therefore carefully consider compliance with the requirements and, if so, take advantage of this favourable tax regime.   

Turnover tax payable by registered micro businesses

 turnover-tax

Businesses are not only burdened by their actual income tax liability, but also by their tax compliance obligations in this regard. This led to the introduction of an optional simplified tax system for registered micro businesses in terms of the Income Tax Act, known as the turnover tax regime.

The turnover tax regime allows qualifying micro businesses to register for and pay a single tax known as turnover tax instead of various other taxes. The turnover tax replaces income tax (including provisional taxes and capital gains tax) and to an extent dividends tax. A micro business is still required to withhold payroll taxes and VAT (if voluntarily registered as a VAT vendor). 

Turnover tax is calculated by applying the relevant turnover tax rates to the taxable turnover of the micro business as determined. For any year of assessment ending on or within the 12-month period before 28 February 2018, registered micro businesses will pay no turnover tax on a taxable turnover not exceeding R335 000.

A turnover tax will apply to 1% of the taxable turnover exceeding R335 000, 2% of the taxable turnover exceeding R500 000, and 3% of the taxable turnover exceeding R750 000. 

Registered micro businesses also benefit from reduced record-keeping requirements and only need to retain information relating to the following:

  1. Amounts received during a year of assessment;
  2. Dividends declared during a year of assessment;
  3. An asset with a cost of more than R10 000 at the end of a year of assessment; and
  4. A liability that exceeded R10 000 at the end of a year of assessment.

As with SBCs, micro businesses are subject to strict requirements of registration. The turnover tax is available to individuals (sole proprietors or partners in a partnership), close corporations, co-operatives or private companies, if their qualifying turnover (as determined) does not exceed R1 million in a year of assessment.

Related: Payroll Tax: 6 Things Small Business Owners Should Know

Certain persons are disqualified as micro businesses, including:

  1. Persons holding shares or having any interest in the equity of a company, other than certain specific exceptions which include listed companies, collective investment schemes and others;
  2. If more than 20% of the total receipts during a year of assessment consists of income from the rendering of a “professional service” (for natural persons) or the aggregate of “investment income” and income from the rendering of a “professional service” (for companies);
  3. If the proceeds from the sale of certain capital assets used mainly for business purposes exceed R1,5 million over a three-year period;
  4. Companies with a year-end other than the last day of February;
  5. If any of the partners, members or holders of shares are not natural persons in a year of assessment;
  6. Personal service providers and certain labour brokers;
  7. Public benefit organisations, recreational clubs, associations and small business funding entities; and
  8. Special rules apply to partnerships.

The term “professional service”, for purposes of turnover tax, includes the same array of professions as for the SBC regime, for example a service in the field of accounting, actuarial science, etc. However, for turnover tax, no exception applies for businesses rendering professional services that employ three or more full-time employees.

Businesses rendering professional services, although they will not qualify for turnover tax, may possibly qualify for the SBC regime, provided they employ three or more full-time employees in addition to meeting the other criteria of qualifying as a SBC.

The turnover tax regime does seem to significantly reduce the tax compliance burden of certain small businesses. It may not be the best option for every small business as it imposes tax on a turnover basis as opposed to a taxable income basis – thus affording lower tax rates but without taking into account exemptions or deductions that would otherwise have reduced taxable income.

We understand that very few businesses are registered as micro businesses on the turnover tax system. This could be ascribed to the determination of whether a business meets the registration requirements.

Author: Esther van Schalkwyk

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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Fintech Hackathon To Support South Africa’s Entrepreneurs

Xero hosts South African developer technology challenge – and appoints a new General Country Manager.

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 Xero, the global leader in online accounting software has today launched a national competition, to put South Africa’s growing fintech industry firmly on the map. To mark the start of the developer technology challenge, Xero has also announced the appointment of Colin Timmis as Country Manager for South Africa, to take Xero forward.

Launched with Amazon Web Services, the virtual hackathon will enable the region’s technology entrepreneurs to compete with other forward thinking developers on a global scale. To take part, they need to develop an app that can sit within the Xero’s global ecosystem of over 600 apps.

As announced last night at an exclusive event in Johannesburg, the winner will receive R62,720 and the opportunity to attend and exhibit their app at Xerocon the world’s largest conference for over 3,000 accountants and bookkeepers, taking place in London in November.

Related: How The SA Government Can Help Small Businesses Thrive

Xero, which first launched in South Africa in May 2016, is now one of the fastest growing software companies globally, with 1.4 million subscribers around the world. In South Africa, the company is currently supporting tens of thousands of local small businesses, and a substantial support network of accountants. The competition marks the first in a series of Xero-led initiatives created for the South African tech community, as it continues to help more businesses and their advisors thrive.

“Since Xero first set foot in South Africa, I’ve been really impressed by the strong entrepreneurial spirit amongst the small business community. It’s really important that they are supported in the right way; and given space to pursue their best ideas and to grow. That’s why it’s time to open up our global developer competition to a South African audience. Those that have won it elsewhere have instantly been able to propel their business, and compete at a global scale,” said Gary Turner, Managing Director, Xero EMEA.

To support its continued growth in South Africa, Xero has promoted Colin Timmis, to Country Manager. Previously Head of Accounting at Xero SA, he brings a wealth of experience and skill to his new role. Before arriving at Xero, Colin founded South Africa’s first cloud accounting practice, Real Time Accounting, in 2011 – becoming Xero’s first Global Gold Partner in 2013, and its third fastest growing partner in the global territory by 2014.

“With over 12 years of experience in the accounting profession, promoting Colin to Country Manager will accelerate adoption of Xero in South Africa.” said Gary Turner: “His experience in cloud accounting, software implementation, development, integration and best practice is peerless. He’s already done great work for us during our market entry phase and I can’t wait to see how together we can help more and more South African small businesses realise the benefits of cloud-based accounting.”

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Entrepreneur Today

Breaking Down Borders – Top Considerations For SMEs Expanding Into Africa

In light of Africa Day on the 25th of May, more South African small and medium enterprise (SME) owners should be encouraged to look at how they could expand their operations into the rest of the continent.

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In light of Africa Day on the 25th of May, more South African small and medium enterprise (SME) owners should be encouraged to look at how they could expand their operations into the rest of the continent.

This is according to Mark Paper, Chief Operating Officer at Business Partners International (BUSINESS/PARTNERS), who says that Africa has for long been regarded as a region with untapped economic opportunity. “The African Development Bank1 reports that the economic growth in Africa is set to accelerate to 4.1% over the course of 2018 and 2019, which can potentially yield benefits for SMEs.”

Paper points out that entrepreneurs should however firstly consider that each of Africa’s 54 countries represents a unique market with differing challenges and intricacies for doing business.

“The various economies, laws, languages and cultures need to be thoroughly assessed as part of the entrepreneur’s expansion plan, which should be structured around the target region’s strengths, weaknesses, potential opportunities and threats.”

Related: Expansion Funding Options For Your Growing Business

He says that once the enterprise is ready to start operations in a specific region, the entrepreneur needs to ensure that the regulatory requirements of the region are adhered to.  “It is crucial to conduct due diligence and understand all relevant regulations. Most of the companies that make mistakes during this phase find themselves facing massive fines or potentially devastating legal action further down the line.”

According to Paper, the information that should be at the entrepreneur’s fingertips include the required permits, business and property registration processes, credit requirements, tax legislation, labour market regulations, and local content requirements.

He adds that the entrepreneur should also know which laws are in place to protect foreign investors. “Developing robust contracts and using local attorneys to ensure that contracts can be enforced under local laws is therefore imperative.”

Next, Paper says that it is essential to have a strong local presence, knowledge of the local market, and an understanding of customer expectations. “Employing workers from the region can potentially be one of the best ways to support the company’s operations. It will not only benefit the business and its reputation, but the local economy too.”

He notes that finding the right employees, creating cohesive teams and implementing skills training within the organisation relies heavily on understanding the culture of the region, and being able to effectively work around the potential language barriers. “It could help to consult local human resources firms and hiring agencies with strong track records in the region.”

Another point for entrepreneurs to consider, is whether the country has reliable electricity supply, says Paper.

“Electricity supply continues to be a challenge in various countries, and there are many regions that only receive electricity from their national power grids for a few hours per day. Where necessary, the entrepreneur will need to budget for the installation of generators, or even consider signing contracts with mobile fast-track power suppliers who can operate and maintain their own generators on the business’s property.”

Related: Thinking Of Cross-Border Expansion? Consider This First

While entrepreneurs need to consider a number of aspects when expanding across borders, he adds that the rewards for getting it correct are significant, and that the perceived challenges should not deter entrepreneurs from taking the leap, rather serving as a reminder of the amount of research that should be conducted beforehand.”

“Africa is open for business. All it takes is enough drive, passion and perseverance to tap into its growing markets,” Paper concludes.

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Entrepreneur Today

President Ramaphosa To Address SA’s Biggest Board Meeting, The Directors Event

President Cyril Ramaphosa will be delivering a keynote address at The Directors event on 8 June 2018, at the Sandton Convention Centre.

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President Cyril Ramaphosa will be delivering the keynote address at South Africa’s biggest board meeting, The Directors Event, which will take place at the Sandton Convention Centre on 8 June 2018.  Dr Jabu Mabuza, Chairman of Business Leadership South Africa will deliver this year’s Chairman’s Report.

Now in its fourth year, The Directors Event invites industry leaders to unpack three issues of national importance and discuss solutions in a public forum, moderated by highly-respected media personalities.

Youth employment & entrepreneurship, the use of technology to promote inclusive growth, and our political economy will be hot topics in this year’s highly focussed discussion programme which attracts participation from the country’s most prominent business and government leaders, and an audience of 300 ‘board member’ delegates.

“We are honoured to have President Ramaphosa address this important gathering of some of the top minds in South Africa. We invited him as a response to the call he made during his maiden State of the Nation Address earlier this year, calling on all South Africans, in their small corners, to help develop this country. We believe, strongly, that corporate South Africa has a massive role to play and we are very excited that everyone seems to have accepted the President Ramaphosa’s “Thuma Mina” call,” says Bongani Siqoko, editor of the Sunday Times.

Nontokozo Madonsela, Chief Marketing Officer of MMI, the JSE listed holding company for Momentum, Metropolitan and other financial services providers says, “We are incredibly honoured and excited that President Cyril Ramaphosa will be delivering the keynote address at this year’s Biggest Board Meeting. Over the past few months, we have experienced a wave of change in the country that has brought with it much needed confidence in what we can achieve. As a company with deep roots in South Africa serving a broad spectrum of citizens and businesses, we are heeding the President’s call to lend a hand in addressing our challenges. We are saying #CountUsIn, we want to be there. We believe this platform creates a space where we can have constructive dialogue and come up with concrete solutions that can positively contribute to improving the state our country”.

Related: President Ramaphosa’s Support Of Entrepreneurs And SMEs In SONA Had Us Cheering

President Ramaphosa will be the highest ranking government official to address The Directors Event with his keynote message.  Previous keynote speakers at The Directors Event have included Caroline Galvan (Lead Economist & Editor: Africa Competitiveness Report for the World Economic Forum), and Mcebisi Jonas (Former Deputy Minister of Finance).

Mmamoloko Kubayi-Ngubane, Minister of Science & Technology, and Enoch Godongwana, Chairperson of the ANC sub-committee on Economic Transformation will also be representing the perspectives of Government and the governing party during the round-table discussions at this year’s event.


The Directors Event programme is tailored for corporates, SMEs, educators, and non-profit organisations who are serious about turning South Africa’s socio-economic crisis around.

The Directors Event will take place at the Sandton Convention Centre on 8 June 2018.  To view the 2018 agenda, speaker profiles, or to book tickets: www.thedirectorsevent.co.za 

The Directors Event brought to you by the Sunday Times Top 100 Companies and MMI Holdings Limited, is supported by partners Mancosa (GSB), the Institute of Directors (IoD SA), and Greymatter & Finch.

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