South Africa is alive and buzzing with both local and multinational corporations, as well as
entrepreneurs, who declare their taxable income here. It’s not surprising that the country has
nurtured a well-developed and regulated taxation regime to accommodate and encourage all
kinds of economic growth for its business sectors.

If you’re a foreign self-employed or business professional who is interested in working or
investing in Cape Town, you will be liable to pay South African corporate tax. However,
business tax in South Africa, as well as what deductions you may claim, will generally be
fairly calculated based on the size and type of your prospective enterprise. While tax law in
South Africa is often revised and amended to keep in line with international best practice,
here are some of the tax basics for foreigners to consider:

Company & Corporate Tax in South Africa

When you’re setting up a company in Cape Town, it’s good to know that there is also no group taxation in South Africa. This means that each company is taxed as a separate taxpayer. In time, your company may become regarded as a South African resident if is incorporated in the country or if you cultivate a place of effective management within the country. This makes Cape Town an attractive head office and base for several multinationals. Furthermore, non-South African residents are only taxed on income from a source in South Africa, making the Mother City a popular hub for digital nomads.

The corporate tax rate in South Africa is a flat rate of 28% for all companies. This is slightly below the average corporate tax rate for overall Africa in 2019 (±28.45%) and above the global average (±24.18%). Trusts (excluding special trusts) in South Africa pay tax at a separate rate (45%±). Businesses may select their own financial year-end and for individuals, the tax year in South Africa runs from 1 March to 28 February. Best of all, special dispensations are provided for companies who derive their income from mining, gold mining, oil and gas, and agriculture.

Governing Tax Bodies in South Africa

This South African tax rate is set by the National Treasury and collected by the South African Revenue Services (SARS). You can register for and pay your business taxes online or at a local SARS branch in Cape Town. Businesses must file annual income tax returns with SARS. It is also a legal requirement for all companies and close corporations to file annual returns with the Companies and Intellectual Property Commission (CIPC) on an ongoing (annual) basis. For further clarity, these are a few types of enterprises in Cape Town that are required to declare and pay corporate tax in South Africa:

  • listed and unlisted public companies 
  • private companies 
  • close corporations (being phased out since 2008)
  • co-operatives 
  • collective investment schemes 
  • small business corporations 
  • share block companies 
  • corporate bodies 
  • public benefit companies 
  • dormant companies

Sole Traders & Partnership Tax in South Africa

If you qualify as a foreign self-employed or freelance worker in South Africa, or if your business trades as a sole proprietorship or a partnership (or even an unincorporated joint venture), then you will be taxed as an individual in Cape Town. This simply means that you will have to submit a personal income tax (ITR12) rather than a business tax return to SARS. Regarding partnerships, these are recognised between two or more people, where each partner will be taxed as an individual on their share of the partnership profits.

Small Business Tax in South Africa

Turnover tax is provided as an option for small businesses in South Africa with an annual turnover of R1,000,000 or less. It replaces corporate income tax, VAT, capital gains and dividends tax in South Africa, although there is an option to remain in the VAT system should you choose. For small businesses, the SARS website has a special section that provides information, forms and other advice for small businesses. Similarly, for larger businesses, SARS has established the Large Business Centre (LBC) to provide a one-stop service to assist large businesses in meeting their tax obligations.

Tax-Deductible Business Expenses South Africa

Organizations operating as not-for-profit or as a public benefit organization are exempt from paying corporate tax in South Africa. For other business, the following charges can be deducted from taxable income as allowable business expenses: 

  • all outgoing expenses that are incurred as part of running the business
  • capital expenses such as equipment, machinery, and renovation costs
  • start-up expenses (period before commencement of the first year of trade)
  • net operating losses carried forward from previous financial years 

Tax Credits for Corporate Tax Payers in South Africa

In addition to a variety of tax deductibles, South Africa provides the following credits and incentives for companies paying corporate tax in South Africa (subject to approval): 

  • foreign tax credit for SA residents earning foreign-sourced income
  • tax treaties with certain countries to prevent double taxation
  • R&D costs within South Africa are 150% deductible 
  • benefits offered for using South Africa as a headquarters
  • incentives are available for manufacturing businesses
  • incentivised Special Economic Zones (SEZ) have been created 
  • energy-efficiency deductions equating to R0.95 for each kilowatt-hour
  • a tax incentive for investors in SMEs through venture capital

Contact us for more information about how to set up your business with tax advisors in Cape Town. Our team will help you out with all the information you may need

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