If you're a small business owner in South Africa, one of the most important things you need to understand is your tax responsibilities. Knowing which taxes apply to your business — and when to register for them — helps you stay compliant with SARS, avoid penalties, and build a financially sustainable business.
In this guide, we break down the main types of business taxes in South Africa so you can make informed decisions and manage your finances with confidence.
Income Tax for Small Businesses
Every registered business in South Africa must pay income tax on profits. How income tax is calculated depends on your business structure.
If you're a sole proprietor or in a partnership, your business income is taxed under your personal income tax bracket. However, if you operate through a private company (Pty) Ltd, the business pays a flat corporate income tax rate — currently 27% for years of assessment after March 2023.
Certain small businesses may qualify as a Small Business Corporation (SBC) and benefit from reduced, tiered tax rates. If your turnover is under R20 million and you meet the SARS requirements, you could significantly lower your tax bill.
VAT (Value-Added Tax)
Once your annual turnover exceeds R1 million, you're legally required to register for VAT with SARS. You can also opt for voluntary VAT registration if your turnover is over R50,000.
VAT is charged at 15% on most goods and services. Registering for VAT means you can claim input VAT on eligible business expenses, which helps reduce the actual VAT you owe.
However, VAT registration comes with obligations — including filing returns every two months and keeping accurate tax invoices.
PAYE: Pay-As-You-Earn
If you employ staff, you must register for PAYE (Pay-As-You-Earn) and deduct income tax from your employees’ salaries each month. These deductions must be submitted to SARS, along with monthly EMP201 declarations.
You'll also need to submit biannual EMP501 reconciliations and issue IRP5 certificates to employees annually for their personal tax returns.
UIF: Unemployment Insurance Fund
As an employer, you're required to contribute to the UIF. You’ll deduct 1% from your employee’s salary, and match it with 1% from the company, submitting the total to SARS monthly.
UIF supports employees who lose their jobs, go on maternity leave, or face illness. UIF declarations must also be submitted to the Department of Labour.
SDL: Skills Development Levy
If your annual payroll exceeds R500,000, you're obligated to pay 1% of total salaries to the Skills Development Levy (SDL). While this may seem like an extra cost, businesses can benefit by accessing rebates and grants for accredited training through their relevant SETA (Sector Education and Training Authority).
Provisional Tax
Businesses that don’t earn regular salaries — like freelancers, consultants, and sole proprietors — must pay provisional tax twice a year. This is a method of paying income tax in advance based on estimated income, helping you avoid large year-end tax bills.
Provisional tax applies to businesses earning non-salary income, and is submitted using IRP6 returns. Read more about Provisional Tax
Dividends Tax
If you’re a registered company distributing profits to shareholders, you’ll be liable for dividends tax at a flat rate of 20%. This amount is withheld and paid directly to SARS before dividends are distributed.
Turnover Tax: A Simple Option for Micro Businesses
If your annual turnover is less than R1 million, you may qualify for the turnover tax system, which simplifies compliance. It combines several taxes — including income tax, VAT, and capital gains tax — into one single tax based on turnover.
Turnover tax is ideal for micro enterprises such as spaza shops, independent contractors, or small home-based businesses. It’s designed to ease the administrative burden and support informal business growth. Read more about Turnover Tax
Get Expert Help from XRA
Understanding the tax landscape is essential for any small business owner in South Africa — but you don’t have to navigate it alone.
At XRA, we help small businesses across industries stay compliant, avoid SARS penalties, and build tax-efficient operations. Whether you need help with VAT registration, PAYE submissions, monthly bookkeeping, or tax clearance certificates, our experienced team is ready to assist.
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Let us help you take control of your taxes so you can focus on what matters most — growing your business.
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Let us help you take control of your taxes so you can focus on what matters most — growing your business.