A small business corporation is a tax classification under the Income Tax Act, not a type of company you register. Qualifying companies are taxed at reduced progressive rates rather than the standard company rate, and can claim accelerated depreciation on certain assets.
You do not apply for the status. It is claimed in your tax return if the company meets the qualifying conditions for that year of assessment, and SARS can challenge it if the conditions are not met.
Business Requirements at a Glance
The qualifying conditions generally cover the following.
- The entity must be a close corporation, co-operative or private company
- All shareholders or members must be natural persons throughout the year of assessment
- No shareholder or member may hold shares or an interest in another company, with limited exceptions
- Gross income must not exceed the prescribed threshold for the year of assessment
- Not more than a prescribed proportion of income may consist of investment income and income from personal services
- The entity must not be a personal service provider
Registration and Legal Requirements
The shareholder condition is the one that most often disqualifies otherwise eligible businesses. Where a shareholder holds an interest in another company, the exception is narrow, and holding structures commonly break qualification.
Because the conditions must be met throughout the year of assessment, a change in shareholding mid-year can disqualify the company for that whole year.
Documents and Ownership Information Required
You will need accurate records of shareholding throughout the year, including any changes, and of the composition of your income between trading, investment and personal services.
Where shareholders hold interests in other entities, document them, since this is the condition SARS most commonly examines.
Tax, Licence and Compliance Requirements
The gross income threshold and the tax rate bands are set annually in the Income Tax Act and change with each budget. This page does not restate them, because an out-of-date figure would be actively misleading. Confirm the current figures with SARS or your tax practitioner.
The benefit is meaningful for genuinely small profitable companies but is not automatic and is not permanent. Qualification is tested each year.
Process, Deadlines and Ongoing Obligations
Confirm qualification with a tax practitioner before claiming the status, particularly where any shareholder holds interests in other entities.
Claiming the status incorrectly results in reassessment, interest and potentially penalties, so the check is worth doing properly.
This page is general information and not legal or tax advice. Confirm current requirements, fees and thresholds with the responsible authority, and take professional advice on your specific circumstances.
Frequently Asked Questions
Do I register as a small business corporation?
No. It is a tax classification claimed in your return if the company meets the conditions, not a registration you apply for.
What most often disqualifies a company?
The shareholder condition. Where a shareholder holds an interest in another company, qualification commonly breaks.
What is the income threshold?
It is set annually and changes with each budget. Confirm the current figure with SARS or your tax practitioner.
Is the status permanent?
No. Qualification is tested for each year of assessment.
Confirm current thresholds, rates and qualifying conditions with SARS or a registered tax practitioner. This page is general information and not legal or tax advice. Confirm current requirements, fees and thresholds with the responsible authority, and take professional advice on your specific circumstances. Browse all business and compliance requirements.