Small Business Corporation Qualification Criteria: Understanding the Requirements and Benefits
Requirements and Benefits
Qualifying as a Small Business Corporation (SBC) can provide you with various benefits, such as reduced tax rates and accelerated depreciation. In this blog, we will look at the requirements to qualify as a small business corporation in South Africa.
Firstly, your business must be registered as a company or a close corporation, and it must have a gross income that does not exceed R20 million per annum. If you are a sole proprietor or partnership, you are not eligible for Small Business Corporation status.
Secondly, all holders of shares in the company or members of the close corporation, must at all times during the year of assessment be natural persons. No holders of shares or members should hold any shares or have any interest in the equity of any other company, other than companies as specified in section 12E(4). Section 12E(4) contains an exclusion in respect of investments in companies which are in the process of being wound up.
Thirdly, your business must be engaged in an active trade. The business must not derive more than 20% of its income from investment activities and income from rendering a personal service.
Personal service
A personal service means any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service, broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science if,
the service is performed personally by any person who holds an interest in the company or close corporation, or by any person that is a connected person in relation to any person holding such an interest and;
the company or close corporation does not throughout the year of assessment employ three or more full-time employees, other than any employee who is a holder of a share or a member, who is engaged full-time in the business.
Personal Service Provider
Lastly, your company cannot be a personal service provider. This means that the services provided by your business are performed by an individual connected to the company,
- who can be regarded as an employee of the client if that person rendered the service directly to the client or;
- the duties must be performed mainly at the client’s premises, and that person is subject to the client’s control or supervision on how the duties are performed or;
- the company receives more than 80% of its income from this one client, unless;
- the business employs three or more full-time employees who are not shareholders or members or connected to them, it can then be excluded from this definition and qualify as a small business corporation.
In conclusion, qualifying as a Small Business Corporation in South Africa can provide your small business with many benefits. However, you must meet the requirements discussed above to be eligible for this status. It is essential to consult with a tax professional or an advisor to ensure that your business complies with all the regulations and requirements to enjoy the benefits.
