Small Business Tax in South Africa

What rate of corporate income tax do South African companies pay?

Since years of assessment commencing on or after 1 April 2022, South Africa's standard corporate income tax (CIT) rate is 27%, reduced from 28% under the Income Tax Act 58 of 1962 (ITA). The rate applies to all resident companies regardless of size, unless the company qualifies for the Small Business Corporation (SBC) regime or the Turnover Tax for micro-businesses. National Treasury confirmed no further change in the 2026 Budget -- 27% remains the headline rate for the foreseeable future [SC1]. Unlike some jurisdictions there is no two-tier rate based on whether income is trading or passive: the 27% rate applies to both.

When comparing across key markets: Ireland levies 12.5% on trading income; Australia applies 25% to Base Rate Entities and 30% to larger companies; the UK charges 19-25% depending on profits. South Africa's 27% sits near the middle of that range. For small companies the SBC sliding scale -- described below -- can push the effective rate materially below 27%.

All companies file the ITR14 corporate income tax return via SARS eFiling annually, supported by two provisional tax payments during the year (first instalment within 6 months of year-start; second by year-end). A voluntary top-up is permitted within 6 months after year-end. SARS charges Section 89quat interest on material under-estimates [SC1].

How does the Small Business Corporation (SBC) regime work?

Section 12E of the ITA provides a progressive sliding-scale rate for companies that qualify as Small Business Corporations. For the 2025/26 tax year (years of assessment ending between 1 April 2025 and 31 March 2026) the SBC brackets are [SC2]:

From the 2026/27 tax year (years of assessment ending between 1 April 2026 and 31 March 2027) the zero-rate band widens slightly: 0% applies up to R99,000; 7% from R99,001 to R365,000; R18,620 + 21% from R365,001 to R550,000; R57,470 + 27% above R550,000 [SC2].

To qualify as an SBC a company must meet all of the following: (a) be a South African-resident private company, close corporation, or personal liability company; (b) all shareholders must be natural persons (no corporate shareholders); (c) gross income for the year of assessment must not exceed R20 million; (d) the company must not be a personal service provider under the Fourth Schedule definition; (e) not more than 20% of gross income and capital gains may derive from investment income (interest, dividends, royalties, rental of immovable property). Companies that do not satisfy every criterion fall back to the standard 27% CIT rate. Practitioners verify eligibility at the start of each tax year -- particularly the natural-person-shareholder test and the 20% investment-income cap [SC2].

A company with R600,000 taxable income that qualifies as an SBC pays: R0 on the first R95,750 + R18,847 (7% on R269,250) + R48,300 (21% on R230,000 net of the band floor) -- roughly R67,147 in tax (effective rate ~11.2%). The same income in a standard company attracts R162,000 (27%). The SBC regime saves approximately R94,853 on R600,000 of profit.

For details on sole proprietors and partnerships -- which are taxed via personal income tax rather than CIT -- consult a qualified tax professional familiar with the South African tax system.

What is Turnover Tax and who qualifies?

The Sixth Schedule to the ITA provides a simplified Turnover Tax regime that replaces income tax, provisional tax, and capital gains tax for qualifying micro-businesses. It is an elective regime -- businesses that qualify may choose to remain on the standard regime if it produces a better outcome.

For the 2025/26 year (1 March 2025 - 28 February 2026) the maximum qualifying turnover is R1 million and the rates are [SC3]:

• 0% on turnover up to R335,000
• 1% on turnover from R335,001 to R500,000
• R1,650 + 2% on turnover from R500,001 to R750,000
• R6,650 + 3% on turnover above R750,000 (up to R1m)

From 1 April 2026 (2026/27 year onwards) the Government raised the qualifying threshold from R1 million to R2.3 million -- the first increase since the regime launched in 2009 -- and restructured the bands. The new 2026/27 rates are: 0% up to R600,000; 1% from R600,001 to R950,000; R3,500 + 2% from R950,001 to R1,400,000; R12,500 + 3% above R1,400,000 [SC3]. These changes were announced in the 2026 Budget and align the Turnover Tax threshold with the updated VAT registration threshold (below).

Eligible entities include sole proprietors, partnerships, close corporations, companies, and cooperatives. Excluded: businesses where more than 20% of gross income derives from professional services performed mainly by the owner(s); investment-holding activities; businesses already registered for VAT whose turnover exceeds the relevant threshold. Because Turnover Tax is calculated on gross turnover rather than net profit, high-margin businesses benefit most; a business with thin margins (e.g. a retailer with 5% net margin) may pay higher effective tax under Turnover Tax than under the standard regime and should model both options [SC3].

How are sole proprietors taxed?

A sole proprietor (individual carrying on a business in their own name) is not a separate legal entity for tax purposes. All business income forms part of the individual's taxable income and is taxed at personal income tax rates under the ITA, which for the 2025/26 year range from 18% on the first R237,100 of taxable income up to a top marginal rate of 45% on income above R1,817,000 [SC4]. The individual tax-free threshold for persons under 65 is R95,750 (rising to R99,000 from 1 March 2026).

Sole proprietors are provisional taxpayers: they must file two IRP6 provisional tax returns and make two prepayments per year -- the first within 6 months of the tax year start (end of August for individuals on the standard 1 March - 28 February year) and the second by the last day of the tax year (end of February). A voluntary third payment is permitted within 6 months after year-end. Failure to make adequate provisional payments attracts Section 89bis penalties [SC4].

Sole proprietors with turnover under R1 million (rising to R2.3 million from 1 April 2026) may elect Turnover Tax in lieu of personal income tax and provisional tax -- see section above. The choice requires a formal SARS registration on or before the start of the year of assessment. To find out which regime produces the better outcome for a specific business, consult a qualified tax professional registered with the South African Institute of Tax Professionals (SAIT) or a Chartered Accountant SA (CA(SA)) [SC4].

What VAT obligations apply to South African small businesses?

Value-Added Tax is levied at a standard rate of 15% under the Value-Added Tax Act 89 of 1991, administered by SARS [SC5]. The compulsory registration threshold has been R1 million of taxable supplies in any consecutive 12-month period since 2009. From 1 April 2026 that threshold rises to R2.3 million, aligning with the expanded Turnover Tax cap announced in the 2026 Budget [SC5]. Businesses below the threshold may register voluntarily -- from 1 April 2026 the voluntary threshold also increases from R50,000 to R120,000.

Once registered, a vendor charges 15% VAT on taxable supplies (output tax) and may deduct VAT paid on qualifying business inputs (input tax). The net amount is remitted to SARS bi-monthly via a VAT201 return (six returns per year as the default cycle; monthly cycle available for businesses that consistently claim refunds). Zero-rated supplies include most basic foodstuffs, exports, and the sale of a going concern between two VAT-registered parties where both agree in writing.

Note the interaction with Turnover Tax: Turnover Tax replaces VAT for registered Turnover Tax entities that are below the VAT threshold. A business already registered for VAT cannot simultaneously be registered for Turnover Tax unless it de-registers from VAT first [SC5].

Employment Tax Incentive

The Employment Tax Incentive (ETI) under the Employment Tax Incentive Act 26 of 2013 allows registered PAYE employers to reduce monthly PAYE remittances for qualifying young workers, effectively sharing the cost of those wages with Government. The programme runs until 28 February 2029 [SC6].

From 1 April 2025 SARS updated the qualifying wage parameters [SC6]: the minimum qualifying monthly wage is R2,500 (for employees working at least 160 hours per month) and the maximum qualifying monthly remuneration cap is R7,500. For a qualifying employee earning between R2,500 and R5,499.99 per month, the ETI reduces the employer's PAYE liability by R1,500 per month in the first 12 qualifying months and R750 per month in months 13-24. For employees earning above R5,499.99 up to R7,500 the incentive amount is calculated via a declining formula.

To claim the ETI an employee must be aged 18-29, hold a valid South African identity document or qualifying permit, and must not be a domestic worker or a person connected to the employer. Critically, employers must pay at least the National Minimum Wage (R28.79 per hour from March 2025; R30.23 per hour from 1 March 2026) -- failure to do so disqualifies the entire ETI claim for that employee. Government and municipal entities are excluded from claiming ETI [SC6].

This page summarises publicly available SARS rules for general orientation only. Tax obligations depend on the specific facts of each business. For guidance on your situation, consult a qualified tax professional registered with the South African Institute of Tax Professionals (SAIT) or a CA(SA). See also the South Africa country overview for the broader South African tax landscape.