A small business corporation (SBC) is a company that meets the section 12E requirements of the Income Tax Act 58 of 1962. It is taxed on a progressive scale instead of the flat 27% company rate and can write off assets faster. To qualify, the company must be a private company, close corporation, co-operative or personal liability company; every shareholder or member must be a natural person; and gross income must not exceed R20 million.
There are further conditions on other shareholdings and on investment and personal service income, set out below. SARS publishes the rates on its SBC rates page and the conditions in the Tax Guide for Small Businesses.
Business Requirements at a Glance
The SARS definition of a small business corporation rests on these conditions, from the 2025/26 SARS guide. SARS’s 2026/27 Budget FAQ repeats the main criteria:
- The entity is a private company, close corporation, co-operative or personal liability company
- All shareholders or members are natural persons at all times during the year of assessment
- No shareholder or member holds shares or any interest in the equity of another company, other than companies specified in section 12E(4)
- Gross income for the year of assessment does not exceed R20 million
- Not more than 20% of total receipts and accruals (other than capital) plus capital gains consists collectively of investment income and income from rendering a personal service
- The company is not a personal service provider, and (per the 2026/27 Budget FAQ) not a holding company
Registration and Legal Requirements
A company registers with CIPC first and then with SARS in the usual way; see our guide to small business requirements SARS. SBC status is a question of whether the company meets section 12E in each year of assessment. SARS requires the shareholder conditions to be met at all times during that year.
The company files its income tax return (ITR14) within 12 months after its financial year end, as SARS states on its ITR14 FAQ. Status is assessed for each year of assessment. How SBC status is claimed on the return was not confirmed on an official SARS page, so check this with SARS or your tax practitioner.
Documents and Ownership Information Required
Because the test turns on ownership and income, keep these on file:
- A current shareholder or member register showing that every holder is a natural person
- Records showing that no shareholder or member holds an interest in another company
- Annual financial statements showing gross income and the split between investment, personal service and other income
- For a company that provides personal services, payroll records showing the employees counted towards the three-employee test
A personal service provider, as defined in the Fourth Schedule, is broadly a company whose services are rendered personally by a connected person who would be an employee of the client, or which earns more than 80% of its service income from one client or its associated institution. A company providing personal services can still qualify if it employs three or more full-time employees throughout the year who are not shareholders or connected persons, and the service is not performed by a person holding an interest in the company.
Tax, Licence and Compliance Requirements
SBC income tax rates, years of assessment ending 1 April 2026 to 31 March 2027 (see SARS):
- Taxable income R1 to R99 000: 0%
- R99 001 to R365 000: 7% of taxable income above R99 000
- R365 001 to R550 000: R18 620 plus 21% of taxable income above R365 000
- R550 001 and above: R57 470 plus 27% of taxable income above R550 000
For years of assessment ending 1 April 2025 to 31 March 2026, the 0% band ran to R95 750, the 7% band to R365 000, the next band was R18 848 plus 21%, and the top band was R57 698 plus 27% above R550 000. A company that does not qualify as an SBC pays the standard 27%, which was unchanged in Budget 2026.
Asset write-offs. An SBC can write off plant or machinery brought into use for the first time and used directly in a manufacturing or similar process (not mining or farming) immediately. For other depreciable assets, it can elect section 12E(1A): either normal wear-and-tear, or an accelerated write-off of 50% in the first year, 30% in the second and 20% in the third.
Process, Deadlines and Ongoing Obligations
- Test the conditions every year of assessment, before the year ends and again before filing
- Watch for changes that can break qualification: a corporate shareholder, a shareholding in another company, or income moving above R20 million
- File the ITR14 within 12 months of year end
- Keep ownership and income records so you can support the SBC treatment if SARS asks
The full statutory definitions of investment income and personal service income, and the list of permitted shareholdings, are in section 12E(4) of the Act and SARS Interpretation Note 9. Read those before relying on edge cases.
Frequently Asked Questions
What is the SARS definition of a small business corporation?
SARS describes an SBC by the section 12E(4) conditions: natural-person shareholders, no interests in other companies, gross income of not more than R20 million, no more than 20% investment and personal service income, and not a personal service provider.
What are the SARS small business corporation requirements?
The entity must be a private company, close corporation, co-operative or personal liability company and meet the conditions listed at the top of this page in each year of assessment.
What does small business corporation status give a company?
Progressive tax rates, starting with 0% on the first R99 000 of taxable income for years ending 1 April 2026 to 31 March 2027, and accelerated write-offs on qualifying assets.
Is a holding company an SBC?
No. SARS’s 2026/27 Budget FAQ lists not being a holding company among the SBC criteria, and the section 12E conditions bar a shareholder from holding equity in another company, except for specified companies.
Is an SBC the same as Turnover Tax?
No. Turnover Tax is a separate regime for micro businesses with turnover of R2.3 million or less from 1 April 2026, with 0% on the first R600 000. See the SARS Turnover Tax page. An SBC is taxed on taxable income at the rates above.
Does a change in ownership matter?
Yes. Shareholders must be natural persons at all times during the year of assessment, so a company or trust becoming a shareholder is a problem. SARS does not spell out the partial-year consequence in the guide, so get advice before such a change.
Confirm anything specific to your business with SARS or a registered tax practitioner. See business and compliance requirements and company registration requirements.