What is Corporate Income Tax?
Corporate Income Tax (also known as CIT) is a tax imposed on companies resident in the Republic of South Africa. For example, 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.
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Small Business Corporations are subject to the legislative amendments pertaining to the “Gross Income” threshold and progressive tax rates.
Who is it for?
CIT is applicable, but not limited, to the following companies, which are liable under the Income Tax Act, 1962 for the payment of tax on all income received by or accrued to them within a financial year:
- Listed public companies
- Unlisted public companies
- Private Companies
- Close Corporations
- Collective Investment Schemes
- Small Business Corporation
- Body Corporates
- Share Block Companies
- Dormant Companies
- Public Benefit Companies
What steps must I take?
- Register as taxpayer
- Every business liable to taxation, under the Income Tax Act, 1962, is required to register with SARS as a taxpayer.
- Submit annual tax return
- Every registered taxpayer is required to submit a return of income twelve months after the end of the financial year, of such taxpayer, in the prescribed form.
- Submit provisional tax returns
- In addition to annual returns, every company is required to submit provisional tax returns. The first of these returns is required to be submitted six months from the start of the year, and the second at year end, and must contain an estimate of the total taxable income earned or to be earned for that period. Payment of the tax must accompany the return. A third “top-up” payment may be made six months after year-end
For information when submitting your return you will need to give the SIC code (Standard Industrial Classification Code) for your business.
When should CIT be paid?
- First payment – within six months from the beginning of the year of assessment
- Second payment – on or before the last day of the year of assessment
- Third payment – seven months after the year of assessment for taxpayers with February year-end and six months after year of assessment for all other cases.
Tax on Assessment
Payment of tax upon an assessment notice issued by SARS must be done within the period specified.
Corporate Income Tax is payable at a rate of 28%.
How should CIT be paid?
Payments can be made using the following options:
- Online Banking
- Electronic funds transfer
- Bank payments
Research and Development Incentive (R&D)
The main aim of this incentive is to encourage South African companies to invest in scientific or technological research and development.
The section 11D Research and Development Incentive (R&D) was introduced into the Income Tax Act, in 2006 to replace the previous research and development rule that existed in terms of section 11B. Section 11D allows:
- A deduction equal to 150% of expenditure incurred directly for Research & Development and
- Anaccelerated depreciation deduction (that is, 50:30:20) for capital expenditure incurred on machinery or plant used for R&D.
Structure of the R&D Adjudication Committee
The R&D adjudication committee is made up of:
- Three people employed by the Department of Science and Technology, and appointed by the Minister of Science and Technology
- One person employed by National Treasury, who is appointed by the Minister of Finance
- Three people employed by SARS, who are appointed by the Minister of Finance
What is the role of the R&D Adjudication Committee
The role of the R&D Adjudication Committee includes:
- Reviewing and making recommendations for approval or non-approval of R&D applications to the Minister of Science and Technology.
- Reviewing of an annual progress report that is submitted by taxpayers claiming the incentive as set by the legislation.
Even if the taxpayer has received pre-approval of an R&D project, SARS will still retain its audit oversight role.
SARS will work out whether the claimed expenditure is within the boundaries of the expenditure approved by the pre-approval committee. The expenditure is actually incurred in the production of income and in the carrying on of trade.