Employment Tax Incentive (ETI), Corporate Income Tax (CIT) and others

As per SA’s 2022 Budget Speech, the Employment Tax Incentive (ETI) has been extended to 28 February 2029. The ETI is aimed at supporting the private sector in the employment of:

Young people from the age of 18 to 29 years who are in possession of a South African identity document (ID); and

Employees of any age in special economic zones and in any industry identified by the Minister by notice in the Government Gazette.

SMMEs who employ the qualifying employees can claim ETI for qualifying employees for a maximum of 24 months, during the period in which the employee is employed. The total ETI that an employer qualifies for during a month will be off set against the employer’s monthly PAYE liability.

The qualifying employee must meet the following criteria:

Be between the ages of 18 and 29, and employees of any age in Special Economic Zones (SEZs);
Be in possession of a South African bar-coded ID;
If not in possession of a valid ID, then an asylum seeker or a refugee in possession of the proper permits;
Not be a connected person to the employer (for example they cannot be a relative of the employer);
Not be a domestic worker;
Be employed by the employer on, or after the 1 October 2013, and have commenced working on, or after that date;
Not earn more than R6 500.

The ETI Calculation Formulae effective from 1 March 2022:

Corporate Income Tax (CIT)

Corporate Income Tax (CIT) is a tax imposed on companies who are residents in the Republic of South Africa i.e. incorporated under the laws of, or which are effectively managed in, the Republic, and which derive income from within or outside the Republic. Non-resident companies which operate through a branch, or which have a permanent establishment within the Republic are subject to tax on all income from a source within the Republic.

Corporate Income Tax is payable at a rate of 28% for companies with years of assessment ending on any date between 1 April 2022 and 30 March 2023.

27% for companies with years of assessment ending on or after 31 March 2023 As mentioned in the 2022 Budget Speech by the Minister of Finance:

Companies need to submit an Income Tax return (ITR14) annually, within 12 months after their year-end (e.g. if your year-end is 28 February 2022, your CIT return is due on 28 February 2023). In addition, an IRP6 every six months to ensure Compliance requirements are met, and payments made where necessary.

Newly registered companies

SARS has developed a letter that aims to explain the tax obligations of SMMEs. Newly registered companies are encouraged to register for eFiling and update their contact details to receive timeous communication from SARS.

Below is some useful information for newly registered micro businesses:

Turnover Tax

Turnover tax (TT) is a single tax system which taxes turnover and not profit, this means that small businesses will pay tax on their turnover at a rate of between 0% to 3%.

Turnover Tax is an optional and simplified tax, and serves as an alternative to income tax, provisional tax, and capital gains tax for micro businesses. Small businesses who qualify for turnover tax will pay tax when their turnover exceeds R335 000. To qualify for turnover tax, small businesses must have a turnover of less than R1 million and meet certain criteria available on the turnover tax application form (TT01 form).

Small businesses with a turnover of R1 million and less are encouraged to take advantage of this tax system designed to reduce the cost and burden of compliance for micro businesses.

Company Deregistration Process

SARS noticed that a number of small businesses who have since ceased trading but have not notified SARS of this. Companies are required by law to de-register their companies as soon as they cease trading. When closing a business/company, this means it’s ceasing to operate either due to De-registration; or Liquidation.

Small businesses are required to de-register their company with the Companies and Intellectual Property Commission (CIPC) first. Once a business/company receives confirmation from the CIPC that they have been de-registered, the registered representative should visit their nearest SARS branch, and make sure the business or company is de-registered for all the various types of tax.

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