Registering a company with the Companies and Intellectual Property Commission (CIPC) automatically gets you registered with the South African Revenue Services (SARS) for Income Tax purposes. This means that your company is now a registered taxpayer and therefore is obliged by law to submit an Income Tax return.
SARS classifies a company as either a Dormant, Share Block/Body Corporate, Micro business, Small business or a Medium to Large business.
Dormant Business
A company is considered to be dormant if and when it has not actively traded or did not receive any income or incurred any expenses during the year of assessment. However, in a case where a company carries trade during any part of the year, that company will not be regarded as dormant.
Share Block/Body Corporate
A share block company is governed by the share block control Act and it presumes a company to have operated in a share block scheme if any share in the company confers a right to or interest in the use of or part of an immovable property.
These schemes allow for a single company to own a particular development while allowing individuals to buy the right to use a specific space within the development. Whereas a body corporate is governed by the 1986 Sectional Titles Act and defines it as a legal entity made up of registered owners who own property units and oversees the management and maintenance of those units in a scheme.
This type of entity draws up a set of rules that apply to the unit owners and tenants occupying the units within the scheme, outlining the management of the scheme and the expected conduct of the occupants in accordance with the Act.
Micro Business
A micro business is a company which has a gross income (sales / turnover plus other income) not exceeding R1 million and the total assets (current and non-current) do not exceed R5million. Also, this company should not be classified as a share block / body corporate. See link for a detailed list of persons excluded from qualifying as micro business: What are the requirements for a micro business to qualify for turnover tax?
Small Business
A small business is classified as a company with a gross income not exceeding R14 million and total assets not exceeding R10 million. Also, the business should not be classified as a Body Corporate / Share Block Company or Micro Business.
It is imperative to note that a small business is not the same as an SBC (Small Business Corporation) as defined in Section 12E of the Income Tax Act. For a company to be classified and taxed as an SBC, it must meet the requirements of Section 12E.
Medium to Large Business
With a medium to large business, this is a company that is not classified as neither of the above-mentioned company types, thus the gross income exceeds R14 million and the total assets exceed R10 million.
Conclusion
When declaring your income tax return with SARS, you will be asked if the company is dormant. If your answer to the question is no, then you will need to state the turnover as well as the total assets of the company and depending on the figures, SARS will automatically state whether it is a micro, small or a medium to large business.
