Company Tax Rates for 2009/2010

So what was said in the2009/2010 Budget Speech that affects companies' taxes and is important to take note of?

There are both good things and bad things. This article briefly addresses some of the things said.

Starting with the bad news. Government did not adjust the income tax rates for normal nor personal services companies as they did in the previous two years. There is however good news for small business corporations as the tax-free portion of net profit has been increased with 18%, i.e. from R46 000 to R54 200.

There is more good news for small business entrepreneurs; government has implemented the Turnover Tax System for Micro Businesses (entities with a turnover equal to or less than R1 mil in a year). This tax system is new and doesn't form part of the usual Tax System. What makes this good for micro business owners is that qualifying entities are taxes on turnover and not taxable income.

Value Added Tax for Companies

As from 1 March 2009 the compulsory VAT registration process has been increased from R300 000 to R1 mil. This increase was due to the implementation and introduction of the Turnover Tax System specifically compiled for Micro Businesses. Once a Micro Business turnover exceeds the R1 mil threshold in a given 12-month period it would migrate to the Income Tax System and will simultaneously need to register for VAT.

STC vs. Dividend Tax

Secondary tax on companies (STC) is tax on dividends declared by companies resident in South Africa. This type of tax is imposed only on companies or close corporations and not on the shareholders.

STCs for 2010 with regards to the withholding of tax on dividends at shareholder level will most probably be finalised during the second half of 2010. A 10% withholding tax rate for domestic shareholders will apply, except in the case of income tax-exempt entities like charities, PBO and domestic companies.

The old system said that if a company declared a R400 000 dividend, the shareholder will receive the R400 000 and the company would have to pay SARS R40 000 for tax on dividends. The new withholding system proposes that dividend tax be withheld, and the company responsible for paying the dividend would withhold R40 000 and the shareholder would receive the net amount of R360 000.

For more detailed information or questions regarding your company tax please contact us for professional advice and consultation.