How To Pay Low / No Tax in South Africa (Not a meme)

Summary

This video educates viewers on minimizing tax liabilities for small businesses through strategic structuring. It highlights three main structures: Turnover Tax for businesses under 1 million Rand annually, with rates from 0-3%; Small Business Corporation (SBC) for eligible businesses with turnover below 20 million Rand, featuring rates of 0-27%; and the standard PTY with a fixed 27% tax rate. The presenter emphasizes the benefits of SBC for new businesses and the tax efficiency of PTYs, while cautioning against the higher individual tax rates of 18-45%. The video encourages viewers to consult with accountants about these options.

Takeaways

• 🏦 Structure Matters: The way you structure your business significantly impacts how it will be taxed.
• 🚫 Avoid Trusts: The speaker does not recommend using trusts due to high tax rates of 45% on profits.
• 📉 Turnover Tax: For businesses with less than 1 million Rand turnover per year, a 0 to 3% tax rate applies, with the first 350,000 Rand being tax-free.
• 💼 Small Business Corporation (SBC): Offers tax rates between 0 to 27% and is suitable for businesses with certain limitations, such as individual shareholding and below 20 million Rand turnover.
• 🚫 Professional Services Limitation: Both Turnover Tax and SBC have restrictions on professional services.
• 🔒 PTY Benefits: PTY companies have a fixed tax rate of 27% and can claim assessed losses to offset against future profits.
• 📉 Lower Audit Risk: PTY and SBC structures generally have a lower risk of audits compared to individuals.
• 👤 Individual Tax Rates: Individuals face higher tax rates ranging from 18 to 45% and have limited ability to claim losses or expenses.
• 🚫 High-Risk for Individuals: Operating as an individual is riskier from a tax compliance perspective and can be less tax-efficient.
• ❓ Consult an Accountant: It's important to consult with an accountant to understand and utilize tax-efficient structures like Turnover Tax or SBC.

Q & A

What is the main focus of the video?

The video focuses on explaining how to pay low to no tax in a small business by choosing the right business structure.

Why is business structure important in determining tax obligations?

Business structure is crucial because it determines how a company or business will be taxed, affecting the overall tax rate and potential deductions.

What is turnover tax and how does it work?

Turnover tax is a tax structure for businesses or individuals with annual turnovers of less than 1 million Rand. It has tax rates ranging from 0 to 3% based on different turnover brackets, with the first 350,000 Rand being tax-free.

What are the tax rates for turnover tax and how are they applied?

Turnover tax rates are between 0 and 3%, applied as follows: 0% for the first 350,000 Rand, 1% for the next 150,000 Rand (350,001 to 500,000), 2% for the next 250,000 Rand (500,001 to 750,000), and 3% for anything above 750,000 Rand up to 1 million Rand.

What is a Small Business Corporation (SBC) and its tax rate range?

A Small Business Corporation (SBC) is a tax structure for certain businesses with turnovers below 20 million Rand and individual shareholding. The tax rate for an SBC ranges from 0 to 27%.

What are the eligibility criteria for registering a business as an SBC?

To register as an SBC, a business must have a turnover below 20 million Rand, individual shareholding, and cannot have shareholding with other companies. Additionally, professional services may apply.

Why might an SBC be a better choice than a PTY for some businesses?

An SBC might be a better choice due to its lower tax rate range of 0 to 27%, as opposed to a PTY's fixed tax rate of 27%. It's also more tax-efficient, especially in the early years of a company.

What is a PTY and what are its tax implications?

A PTY, or Private Company, is a business structure registered with CIPC. It has a fixed tax rate of 27% on its profits, regardless of the amount, and can claim assessed losses.

What are the benefits of a PTY in terms of audit risk?

A PTY has less audit risk because financial statements are typically prepared in a way that doesn't raise alarm bells with tax authorities like SARS.

What are the tax rates for an individual trading under their own name?

For individuals trading under their own name, tax rates range between 18 and 45%, which can be significantly higher than the rates for turnover tax or an SBC.

What are the risks and limitations of an individual structure compared to other business structures?

An individual structure is riskier from a legal perspective, does not allow for claiming losses, and has a higher tax rate. It also makes it more difficult to justify business expenses, leading to potentially higher tax liabilities.

What advice does the video give regarding consulting with an accountant?

The video advises viewers to consult with their accountant about the possibility of registering for turnover tax or SBC to potentially pay low to no tax.

Outlines

00:00

💼 Business Tax Structures Overview

In this paragraph, the speaker introduces the topic of minimizing tax in small businesses through proper business structure. They emphasize that the type of business structure chosen can significantly affect the tax liability. The speaker mentions three main structures: Turnover Tax for businesses with less than 1 million Rand turnover, Small Business Corporations (SBC) with tax rates between 0 to 27%, and Pty (Proprietary) companies with a fixed tax rate of 27%. They also discuss the benefits and limitations of each structure, including tax rates, the ability to claim losses, and the risk associated with operating as an individual.

05:01

📝 Conclusion and Call to Action

The second paragraph concludes the video by summarizing the main points discussed and urging viewers to consider the tax implications of their business structure. The speaker suggests that viewers consult with an accountant to explore options like Turnover Tax and SBC to potentially pay low to no tax. They also invite viewers to watch the next video for more information and to subscribe for further insights on small business taxation.

Keywords

💡Tax

Tax refers to the compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures. In the context of the video, tax is the central theme as the speaker discusses various structures and strategies for paying less tax in a small business, such as through Turnover Tax, SBC, PTY, and individual tax rates.

💡Small Business

A small business is a company that is privately owned and operated, has a low volume of sales, and often limited employees. The video focuses on small businesses and how they can minimize their tax liabilities through different tax structures, emphasizing the importance of choosing the right business structure for tax efficiency.

💡Structure

In the context of the video, 'structure' refers to the legal and organizational framework within which a business operates. The speaker highlights that the structure of a business can significantly impact how it is taxed, with examples like Turnover Tax, SBC, and PTY each offering different tax benefits.

💡Turnover Tax

Turnover Tax is a tax system applicable to businesses with annual turnovers of less than 1 million Rand. It offers tax rates between 0 and 3% based on different turnover brackets. The video explains how registering for Turnover Tax can significantly reduce tax payments for eligible small businesses.

💡Small Business Corporation (SBC)

SBC is a specific tax structure for small businesses with certain limitations, such as a turnover below 20 million and individual shareholding without other company shareholdings. The video mentions that SBCs have tax rates ranging from 0 to 27%, making them a tax-efficient option for qualifying businesses.

💡PTY

PTY stands for Proprietary Limited Company, a type of business entity registered with CIPC (Companies and Intellectual Property Commission). The video explains that a PTY has a fixed tax rate of 27% and can claim assessed losses, which can be beneficial for tax planning.

💡Assessed Losses

Assessed losses refer to the losses that a business can carry forward to offset against future taxable income. In the video, it is mentioned as a benefit of PTY and SBC structures, allowing businesses to reduce their tax liability in profitable years by offsetting losses from previous years.

💡Individual Tax Rates

Individual tax rates are the tax rates applied to personal income. The video contrasts these rates, which range from 18 to 45%, with the lower rates available through business structures like Turnover Tax and SBC, highlighting the potential tax savings for small business owners.

💡Professional Services

Professional services are services provided by individuals or organizations that have specialized expertise in a field such as law, accounting, or medicine. The video notes that certain tax structures like Turnover Tax and SBC may not be applicable to professional services, which is an important consideration for businesses in these fields.

💡Audit Risk

Audit risk refers to the likelihood that a company's financial statements will be subject to an audit by tax authorities. The video mentions that PTY and SBC structures may have a lower audit risk compared to other structures, which can be an advantage for small businesses.

Highlights

The video teaches how to pay low to no tax in a small business.

Business structure is crucial for determining tax obligations.

Running a business in a trust incurs a 45% tax on profits.

Turnover Tax allows businesses earning less than 1 million Rand to register with tax rates between 0 and 3%.

For Turnover Tax, the first 350,000 Rand is tax-free, with increasing rates up to 3% for earnings up to 1 million Rand.

Small Business Corporation (SBC) offers tax rates between 0 to 27% for eligible businesses.

SBC requires a turnover below 20 million and individual shareholding without other company shareholdings.

Professional services are an important consideration for both Turnover Tax and SBC.

SBC is recommended for small businesses in their initial 3 to 5 to 10 years, especially without group company ownership.

A PTY (Pty Ltd) company has a fixed tax rate of 27% and can claim assessed losses.

PTY companies have less audit risk and financial statements that are less likely to trigger alarms with tax authorities.

Individuals trading under their own name face tax rates between 18 and 45%, which can be quite high compared to other structures.

Individuals cannot claim losses and may have difficulty justifying business costs, leading to higher effective tax rates.

The video recommends considering Turnover Tax or SBC for minimizing tax liabilities.

Viewers are encouraged to consult with an accountant about Turnover Tax and SBC options.

Transcripts

hello everyone welcome back to the

channel in this video I'm going to teach

you how you can pay low to no tax in

your small business now this is not a

throwback to my 3,000 subscribers

special this is actually legitimately

how you can pay less tax in your small

business the main thing that matters is

structure what structure are you using

to run your business and the reason I

say that is if you have your structure

sorted out the structure will decide how

the company or business will be taxed

for example if you are running the

business in a trust which I do not

recommend the trust will pay 45% tax on

profits that's a different video all by

itself I do not recommend using trust

but the first structure and this is

possibly one of the wildest ones which

nobody knows about and accountants won't

tell you about this one it is called

turnover tax now if you're a company or

a person and you're doing less than 1

million Rand a year you can register for

turnover tax and the tax rates are

between 0 and 3% and think about that

when are you paying when are you paying

0 to 3% on anything vat is 15% income

tax is on an individual is 18 to 45% but

any case it's on turnover and for the

first 0 to

350,000 you are paying zero tax then

from 350 to 500,000 that is 1% 500 to

750 it's 2% 750 to 1 million it's 3% so

a person can make 900,000 Rand in sales

and only pay SS about 14k from the

900,000 blows my mind so that's the

first structure turnover tax the second

one is called SBC which is short for

small business Corporation and a small

business corporations tax rates are

between 0 to 27% and only certain

businesses can register for turn for uh

SBC and it has certain limitations but

basically the turnover must be below 20

million and the shareholding must be

individuals that doesn't have

shareholding with other companies but

outside of those requirements also

there's Professional Services that's an

important point which also applies to

turnover tax so that's just an

interesting note to take there their tax

rates are 0 to 27% and if you fall into

that those categories along with all the

other deductions that they get they can

also pay almost no tax by running their

business it's a very very very tax

efficient form of business and I

actually don't recommend turning the

company for no reason into a PTY that is

taxed at 27% if you can run it as an SBC

an SBC is probably one of the best small

business small business setups or tax

tax structures that you can make use of

especially in the first 3 to 5 to 10

years of a company and if you don't have

any group companies that owns the

company so the more complicated the

structure the more likely it is that

you're going to have to pay more tax the

third structure is a PTY and the nice

thing about a PTY company that's

registered with cipc and that applies to

all companies uh an SBC can also be an

is also a PTY it just falls into do

certain requirements but a py has a

frozen tax rate of 27% but it can have

different types of shareholding but the

tax is always going to be 27% there's a

possibility that that rate might go

lower in the future and the other

benefit of a company whether it's an SBC

or a normal B is that it can claim

assessed losses the ability to claim

losses is great because maybe in the

next year you make a profit the loss can

get written off against it and so you're

going to pay less tax but it's frozen at

27% so whether you are making 10 million

in profit or 1 million it's 27% so

that's why SBC is a bit better than a

PTY at 27% another one to mention about

the PTY is there's less audit risk

usually the financial statements are

done so SARS doesn't have alarm bells

for spbc or PTY that much another

structure or the next structure is an

individual uh if if you trade in your

own name the tax rates are between 18

and 45% and that's the that's the big

one right A lot of people are in that

category and pays between 18 and 45%

it's also very risky from a SCE

perspective you can't claim losses they

will disallow a lot of expenses so

individuals actually have a harder time

justifying the costs in their own

business and the taxes are quite hectic

the moment you go over a certain amount

of profit you're going to be taxed at

45% or at 39% and that's a lot higher

than a PTY a small business or turnover

tax which I mentioned in the beginning

so those are the main structures and

that's the point really you can pay low

to no tax by either registering for

turnover tax if it applies or SBC so ask

your accountant about those two things

anyway that's the video if you would

like to know more watch our next video

you can click here otherwise you can

consider subscribing cheers