Business Accounting 101: What is Company Tax?

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company tax

Companies love sorting out tax returns like a kick in the head, but <b>company tax</b> (or corporate income tax) is what keeps our great nation’s economy functional and afloat. With different business categories, registration procedures and tax rates for various types of companies – tax becomes something many would rather pass on to dedicated business accountants. RBK Business Accountants take a look at the basics of business accounting, and what you need to do in order to keep your company in the taxman’s good books…

Types of Companies in South Africa

The three most common legal business entities registered in South Africa are sole proprietorships, private companies, and close corporations – each with their own structures and attributes:

Sole Proprietors

These are the simplest of business entities in South Africa, and a sole proprietor will trade under his or her own name. So, John Doe who specialises in cinnamon pancakes could trade as John Doe Pancakes – and there is no separation between his and his business’ assets and liabilities.

Private Companies

A private company will feature ‘(Pty) Ltd’ after its registered title, and is often referred to as a one-man company. This business entity must have at least one shareholder and may be managed by a sole director. So, John Doe Pancakes becomes Doe Pancakes (Pty) Ltd.

Close Corporations

Close corporations are the most practical legal business structures that can be established in South Africa. A CC is seen as a legal person, with its own legal identity and personality. Close corporations have to be owned by “living and breathing” persons, and cannot be established or owned by other companies.

Registering for Company Tax

Any new business is required to register for a South African Revenue Service (SARS) <b>income tax reference number</b> within 60 days after commencement of business. This is done by completing an IT77 form available from any SARS office nationwide. Once registered with SARS, a private company or close corporation (CC) needs to register with the Registrar of Companies and Close Corporations in order to obtain a <b>business reference number</b>. Once this is done, your company will be registered as a taxpayer. Other taxes might need to be registered for, such as VAT, PAYE, SDL, UIF, etc.

What Tax Do Companies Need to Pay?

Knowing what tax your company should be paying will depend on the structure of your business, and here we distinguish between three types of company tax – namely provisional tax, employees’ tax and directors’ remuneration:

Provisional Tax

This is a tax system that assists companies in meeting their normal tax liabilities. Two payments are made throughout the year, with the option of a third payment made after the end of the tax year. In a nutshell, this tax systems prevents the need for a lump sum payment that many companies might not be able to lay out.

Employees’ Tax

Any company that pays wages and/or salaries to employees that fall above the tax thresholds must register for employees’ tax purposes with SARS. The document to source and complete is an EMP 101 form, which needs to be submitted to SARS for registration. Thereafter, monthly return (EMP 201) forms need to be submitted for each employee.

Directors’ Remuneration

The compensation of directors in private companies and close corporations is subject to employees’ tax. Remuneration is usually only finalised late in the tax year, often only in the next year, and for this reason directors often finance their living expenses with loan accounts until payment is determined.

Tax Advice from Business Accounting Professionals

Reduce your tax burden legitimately with professional business tax practitioners. RBK Business Accountants specialise in business tax services which include provisional tax registrations, provisional tax returns, consultation and liaison with SARS, and tax clearances. Speak to us for professional solutions to all your tax-related matters today!