A Small Business Corporation (SBC) in South Africa is a special tax status that lowers the tax you pay on your business profits. To get it, you must register a private company through CIPC and then choose the SBC tax regime when you file your returns with SARS.
What is a Small Business Corporation?
People often confuse a private company, which is a Pty Ltd registered at CIPC, with a Small Business Corporation, which is a tax status at SARS. When you register a Pty Ltd, you are just creating a legal entity. By default, SARS taxes that Pty Ltd at the standard company rate. To get the lower tax rates, you must actively meet the SBC rules and choose the SBC option on your annual tax return.
What are the benefits of an SBC?
The main benefit is paying less tax. Normal companies pay a flat rate on all profits, but an SBC pays a much lower percentage on the first portion of income, and an even lower percentage on the next portion. This means more money stays in your business to help it buy stock, pay staff, or grow your operations.
Why township entrepreneurs should care about SBC status
Many entrepreneurs start by selling informally and not registering. When you want to apply for tenders or get a business loan, you need a registered company and a clean tax record. Registering as a Small Business Corporation is the smartest way to stay compliant with SARS without losing all your hard earned profit to tax. It is designed specifically to help small businesses survive the first few difficult years.
Who qualifies as a Small Business Corporation?
To qualify as an SBC for a specific tax year, your company must meet a few strict rules set by SARS.
- All the shareholders or members must be natural people. This means no other company or trust can own shares in your SBC.
- The gross income, which is your total sales before deducting expenses, must not go over a certain amount set by SARS each year.
- None of the shareholders can hold shares in other companies. If you already own shares in another business, you will not qualify.
- You cannot be a personal service provider. If your business mainly relies on you working as an independent contractor for one client, SARS does not consider it an SBC.
Step by step guide to registering your private company
Before you can claim SBC tax benefits, your business must legally exist as a company.
- Choose a name. You can use your own names and surname, or a unique name you reserve with CIPC.
- Prepare your documents. You need certified copies of your ID and a valid proof of address.
- Submit the forms. You fill out the necessary CIPC forms for company registration and the memorandum of incorporation.
- Pay the CIPC fee. CIPC charges a fee for registration, which varies depending on whether you reserve a name or just use a generic registration number.
- Get your registration certificate. Once approved, CIPC gives you a certificate, which proves your company exists.
How to tell SARS you are an SBC
Getting this status is a two part process. You first create the company at CIPC and then tell SARS how you want to be taxed.
- Get your SARS income tax number. CIPC usually helps you register for income tax automatically during the company registration process.
- Open a business bank account. You need to separate your personal money from your business money immediately.
- File your annual tax return. When you or your accountant submits your company tax return to SARS, you simply select the option to declare your business as a Small Business Corporation.
Documents you need to keep for SARS
To keep your SBC status, you must prove your income and expenses. SARS can ask for these documents at any time to check if you still qualify.
- Bank statements for your business account.
- Invoices you give to your customers.
- Receipts for everything you buy for the business, from stock to airtime.
- A basic financial record of your daily sales and costs.
SBC status and applying for tenders
Having SBC status shows government departments and large companies that you are a legitimate, tax compliant business. When you register on the Central Supplier Database (CSD) to apply for tenders, they check your tax status with SARS. Being a registered Pty Ltd with an SBC tax profile keeps you ready for tender compliance packs. You cannot win government tenders as an informal business.
Common mistakes that ruin your SBC status
You can lose your SBC benefits if you are not careful. The most common mistake is when a shareholder starts another business or buys shares in a friend's company. Another mistake is letting your gross income go over the limit set by SARS. If you think your business will grow very fast, you might only enjoy SBC tax rates for a short time before you move to the normal company tax rate.
Getting help with the process
KAGO helps you with the first step, which is registering your Pty Ltd at CIPC. We do not give tax advice or file your taxes, so you will need an accountant for the SARS side. If you need a financial plan to understand your expected sales and expenses, our Financial Plan costs R1,895. We also do company registrations, with our Registration Basic package costing R995. Once we hand over your registration documents, you take them to your accountant to set up your SBC tax profile.
What to do next
Now that you understand what a Small Business Corporation is, your next move is to make sure your company is registered correctly. Make sure all shareholders are natural people and keep your business income under the SARS limit. Get your CIPC documents in order, open a business bank account, and find a registered tax practitioner to handle your SARS filings.
Questions people also ask
Can a sole proprietor be a Small Business Corporation?
No, a sole proprietorship is not a separate company and cannot qualify. Only a registered private company or a co-operative can claim the SBC tax rates. You must register a Pty Ltd first.
How much money can my business make to stay an SBC?
SARS sets a gross income limit every year. If your total sales for the year go over this specific amount, you lose the SBC tax benefits for that year. You will then pay the normal company tax rate.
Do I need an accountant to claim SBC benefits?
You are not legally required to use an accountant, but it is highly recommended. SARS tax forms are complex and making a mistake can cost you money or trigger an audit. An accountant ensures you claim the right expenses.
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