As a new business owner it’s easy to get confused when it comes to Tax and VAT. Questions on when your business is liable to pay returns or whether you find your business under the threshold for VAT registration, are some of the standard concerns for most new Entrepreneurs.
In this post, we will breakdown and discuss the basic differences between Tax and VAT by providing simple explanations of how it will apply to your Company.
Corporate, Business, or Company Tax is payable by all registered businesses in South Africa to South African Revenue Service (SARS). Income TAX is calculated on 28% of the company’s total income amount after expenses has been deducted. It is also seen as a governmental income. Majority of RSA (South African) businesses will be eligible for these Tax returns submissions. Primarily, but not limited to the below examples:
VAT on the other hand, is an indirect form of tax that is added to the price of consumable goods or services. Currently, the VAT in South Africa is generally 15% for most goods and services. VAT is paid at each stage of the products and trade process – Right from the initial supplier to the manufacturers and distributor’s to finally the retailers and the consumer of the product/service.
Companies who are VAT registered are eligible to claim back VAT on all goods purchased where VAT has been applied. These VAT registered companies are also liable to pay VAT Returns to SARS for VAT charged on goods or services rendered.
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All South African Companies, irrespective of whether they are trading or not or running at a loss, are required by law to file annual and provisional tax submissions with SARS. These submissions are based on the NET profits, investments, generated by trade profits, selling, or buying of assets such as land, property, or equipment as well as general company shares.
Should a company be dormant and no income received in the financial year, a zero rand submission must be filed as a declaration to SARS that the company is dormant.
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When you register a company, and your Income Tax number has been linked via the CIPC portal, you become legally responsible to file the below submissions on an annual basics to keep the company compliant with SARS Income Tax Laws:
These Corporate Income Tax Returns can be filed directly via SARS eFile system.
There are certain criteria laid out to establish the different types of submissions to be filed in accordance with each organisation.
As a dormant or active company, a provisional tax return is to be filed for the first 6 month of the financial year and then again at the end of the financial year. These are referred to as the IRP6 submissions and are typically filled in August and February of each year. The IT14 is then filled once a year as a annual official declaration and reconciliation of the company’s income for the financial year that has passed.
As proof that the company has filed the income tax returns and that all tax returns payments are up to date with SARS, the company will be issued with a Tax Clearance Status. This serves as proof that the company is in good standing with SARS.
Most Tenders in South Africa require companies to submit a Tax Clearance Pin Certificate (TCC) to ensure that the company is in good standing with SARS.
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Due to the legal financials of the CIT returns, failure to file your Company Income Tax returns may result in hefty fines, or even jail time. Non-compliance, meaning not in possession of a valid Tax clearance Pin Certificate, could mean fines from R250 up to R16 000 per submission outstanding. Which may be accumulated for up to 35 months. And may be potentially crippling to a newly founded entity.
At Company Partner (Pty) LTD, we strive ourselves on being the one stop shop for all companies’ compliance – big or small, dormant or active – by ensuring they are clued up and are assisted by professionals to file their Company Income Tax and Vat returns correctly and on time, every time!
Corporate, business, or company tax in South Africa is payable by all registered businesses in the country to the South African Revenue Service