A South African (SA)-resident company is subject to corporate income tax (CIT) on its worldwide income, irrespective of the source of the income. Non-residents are taxable on SA-source income.
In South Africa, the CIT rate applicable for corporate income of both resident and non-resident companies is a flat 28%. It was announced in the February 2021 National Budget that this rate would be reduced to 27% with effect for tax years commencing on or after 1 April 2022.
Small business corporations (i.e. companies with only natural persons as members/owners and with gross income of not more than 20 million South African rand [ZAR]) are taxed at the following rates:
- 0% on the first ZAR 87,300 of taxable income.
- 7% on taxable income above ZAR 87,300 but not exceeding ZAR 365,000.
- 21% on taxable income above ZAR 365,000 but not exceeding ZAR 550,000.
- 28% on taxable income exceeding ZAR 550,000.
Special CIT rates apply in certain industries, such as mining and long-term insurance (see below).
Alternative turnover-based tax for very small companies
To reduce the compliance costs for very small companies, a turnover-based presumptive tax is available. Companies with a turnover of less than ZAR 1 million per year can elect to pay this tax instead of normal CIT, at a rate ranging from 0% to 3%, depending on the level of turnover.
Dividends tax is imposed at 20% on dividends declared and paid by all resident companies as well as by non-resident companies in respect of shares listed on a South African exchange (i.e. generally the Johannesburg Stock Exchange [JSE]).
Dividends are tax exempt if the beneficial owner of the dividend is an SA-resident company, SA-retirement fund, or other prescribed exempt person.
The tax must be withheld by the company that pays the taxable dividend or, where the dividend is paid by a ‘regulated intermediary’, by the regulated intermediary (generally, this applies to listed shares). In the case of in specie dividends (i.e. dividends paid ’in kind’, or dividends other than dividends paid in cash), the company declaring the in specie dividend is liable for the dividends tax (and not the beneficial owner of the dividend).
Exemptions from dividends tax and treaty-imposed reduced rates only apply if the beneficial owner of the dividend has made a prescribed declaration and undertaking to the paying company or regulated intermediary.
CIT for mining companies
Special rates of normal tax, based on a standard formula, are prescribed for companies mining for gold. Companies mining for other minerals are subject to the same 28% rate of normal tax that applies to ordinary companies.
CIT for long-term insurance companies
Life insurance companies are required to follow the ‘five-funds approach’, with policies divided into five funds, depending on the nature of the beneficiary. Each fund is then allocated assets according to the risk carried by the fund. Each of the five funds is treated as a separate taxpayer and taxed at the rate applicable to that type of fund. These rates are 30% for individual policyholder funds, 0% for untaxed policyholder funds, and 28% for company policyholder funds, risk policy funds, and corporate funds (a corporate fund being the company itself).
Local income taxes
No local government taxes on income apply to either SA-resident or non-resident companies.