Entrepreneurs who want to launch a company must be aware of the tax duties associated with operating a business, whether in the form of a legal organization or as an individual. In addition, it is vital to be aware of the numerous alternatives for decreasing certain administrative obligations to facilitate tax compliance, as well as the various tax advantages and rates that may apply in specific circumstances.
Once the sort of business entity to be founded has been determined and it is a legal entity, registration with the Companies and Intellectual Property Commission is required (CIPC). Please visit their homepage at www.cipc.co.za.
The following legal entities must register with CIPC and as a taxpayer for purposes of corporate income tax:
- indexed public corporations
- Unquoted public corporations
- Private businesses
- Close businesses (Note that no new close companies will be registered after 1 May 2011)
- Non-profit companies
- State-owned enterprises
- Mutual investment schemes
In the event of founding a company that is not a legal entity, the following options are available:
One-person ownership (taxed on profits in an individual capacity)
Relationship (note that each partner is taxed on their share of taxable profits in an individual capacity, as a partnership is not registered separately for income tax purposes)
You may be eligible for specific tax benefits and preferential rates under the small business corporation (SBC) incentive if you are a close corporation, co-operative, or private firm. Alternately, you may qualify for the turnover tax system if you are a natural person or a firm that meets certain conditions.
You may also contact the SARS Contact Centre at 0800 00 SARS (7277) for further information or help with a particular inquiry.
Tax tips for young entrepreneurs
As a company owner, you must be aware of the tax duties associated with operating a business, having in mind that the business entity you’ve selected will have varied tax ramifications. Varied entities are subject to different tax compliance regulations, tax incentives, and tax rates, and it is crucial to grasp the distinction from the beginning in order to do it right the first time.
Understand accounting fundamentals: This is a necessary ability if you want to operate your company effectively. It is not required to have a financial background, but it is essential to understand accounting concepts. Depending on the type of your firm, you may choose to install accounting software to simplify your life and guarantee accurate record-keeping.
Manage your cashflow: When it comes to establishing a company, there are many hidden and unanticipated expenses, therefore it is essential to keep a close check on your cash flow, both personal and business. In the excitement of launching a new firm, it is very feasible to lose sight of expenditures. Our recommendation is to implement a cash flow management program and monitor it regularly.
Pay first your own bills: Despite being one of the basic laws of entrepreneurship, this is often ignored. Many business owners feel driven to reinvest everything in their company, even if it means jeopardizing their credit, insurability, and personal finances. The optimal situation is to be able to withdraw sufficient funds from the firm to meet your living costs, medical assistance, insurance, and personal debt.
Limit your fixed expenses: In the early years of your organization, you will want to reduce your fixed expenditures to a minimal, even if this requires making difficult choices. Numerous businesses prefer to downsize their housing, drive smaller, more economical vehicles, avoid dining out, and reduce their discretionary spending. If you have a sound business strategy and unshakeable faith in your product, it will be simple to make these early sacrifices.
Continue to use your medical assistance: This is vital, even if it means downgrading to a cheaper plan choice. Ensure that you have a hospital plan that covers your in-hospital expenses at 100 percent of the medical aid rate. Medical assistance network choices are often more cheap. To prevent future waiting periods or late joiner fines, it is vital to maintain continuous membership. When your income increases, you will be able to simply switch to more extensive coverage.
Protect your earnings: Another key reason to pay oneself a salary is to qualify for income protection benefits in case of permanent or temporary incapacity. According to FMI, 70% of South Africans will have an accident or sickness that prevents them from working for at least seven days throughout their working years. A income protector effectively guarantees your income in the event of illness or disability. In the event of a temporary handicap, your income is safeguarded for up to 24 months; in the case of a permanent condition, it is secured until age 65.
Consider overhead protection for businesses: If resources permit, you may want to consider insuring your business’s overhead expenses. Firm overheads protection is essentially insurance for your business that offers a temporary source of revenue if you become incapacitated and unable to work. This coverage will guarantee that your company may continue to run without your participation and will pay particular business-related expenditures incurred during your incapacity.
As your firm begins to create earnings, you may be tempted to live a less economical lifestyle by improving your living situation, purchasing a new vehicle, or splurging a bit. However, we advise against falling for a false feeling of security. If your firm is thriving, utilize your profits to repay debts, establish an emergency fund, and expand your offerings. Consider establishing a retirement annuity, moving on to a more complete medical assistance, establishing a personal emergency fund, and investing in yourself if you are able to raise your company withdrawals.