Provisional is not a different tax that companies pay to income tax. It’s a method SARS devised to allow companies to pay their tax over 2 – 3 periods. This help companies to meet their tax obligations and avoid further penalties from SARS, which does become expensive.

Companies must submit their income tax returns twelve months after the financial year-end. For the year ending 28 February 2022, the return is due on 28 February 2023. By the due date, your provisional tax payments during the course of the year should cover your full income tax payment. It’s really important to ensure that your income tax payment has been calculated correctly so you avoid any additional payments or penalties.

Many people get confused as to what type of tax they would be required to pay each year. The following will qualify for provisional tax:

• All companies
• Trusts
• Individuals earning income other than employment income:
• Interest, dividends or income from the letting of fixed property above R30 000; or
• Income from carrying on a business (sole proprietors); or
• Any other income, apart from carrying on a business, that exceeds the tax threshold for individuals.

No formal registration for provisional tax is required. When you register your business with CIPC, an income tax number will be assigned to you automatically. This allows you to submit provisional tax returns electronically via e-filing.

Your companies business tax liability will depend on the applicable tax rate for company as it does vary. If your organization qualifies as a small business, you'll need to refer to the applicable tax tables. Otherwise, you will likely be subject to the flat rate of 28% on the net profits.

A provisional tax payment is just a portion of the total income tax your company will need to pay for that tax period. Most companies have their financial year end at the end of February each year, will follow provisional tax payments according to this table:

Your company income tax is calculated on the assessment done by SARS based on your previous years income tax submission. The estimate is generally the minimum amount you can used to calculate your total company income tax amount.

Always keep in mind that if you are calculating your total income tax liability, you need to increase it by 8% if the calculation is being done 18 months after your last tax assessment.

It’s always a risky practice to pay your provisional tax on the minimum amount. If you end up paying less than your required income tax, you will face heavy penalties from SARS.

To stay ahead of your tax liabilities, its best to hire an accountant to ensure that your business is always tax complaint.

Contact us for all of your tax requirements.

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