In our business structures in South Africa guide, we’ve explained the different types of company formations that are legal in South Africa.
In this article, we will talk mainly about sole proprietorship. This includes, what it means, how to register for it, and the several technicalities surrounding it.
So let’s get started with our South African sole proprietorship registration guide!
But before we start, you need to note that although the technical process of applying that we’ve mentioned here is for South Africa, the information is more or less legitimate for the majority of the African Union nations such as Tanzania, Nigeria, Kenya, Mozambique, Zimbabwe, and many more.
Let’s first start by understanding what sole proprietorship is.
What Is Sole Proprietorship?
A sole proprietorship is the simplest and most common type of business structure. In a nutshell, it means that a single person runs and owns the business.
Imagine you have a talent for baking delicious cupcakes, and you decide to start selling them from your home. If you’re doing it all by yourself and haven’t set up a formal company, you’re essentially operating as a sole proprietor.
One of the critical features of a sole proprietorship is that you have complete control over the business, including decision-making and all the profits.
However, you’re also personally responsible for any debts or legal issues your business may encounter. This means your assets, like your savings or home, could be at risk if the business faces financial trouble.
On the bright side, it’s relatively easy to set up and manage a sole proprietorship, making it an attractive choice for small, one-person businesses or freelancers. Just keep in mind that, unlike other business structures, there’s no legal separation between you and your business, which can be a drawback regarding financial liability.
Sole Proprietorship In South Africa: All You Need To Know
In the African guests, becoming a sole proprietor doesn’t come with strict, one-size-fits-all rules. It depends on the situation. Sometimes, if you’re the only person running the show, you won’t need to bother with certain paperwork.
For instance, if you’re a solo professional, there’s no need to go through the hassle of filing for a qualification certificate.
Plus, you can skip the paperwork about who owns what in your business (that’s the “particulars of members or share capital” stuff).
So, in a nutshell, being a sole proprietor in South Africa can be pretty straightforward, especially if you’re a one-person operation.
Sole Proprietor Registration Process In South Africa
Becoming a sole proprietor in South Africa is a straightforward process, with just four simple steps to follow. To keep things clear, it’s essential to figure out the best way to get your company registered. It’s a good idea to consult with a CA before you officially kickstart your venture.
In South Africa, you’ve got two options for registering as a sole proprietor: either file with the revenue service or let the Master know about your trade name.
You’ve got a six-month window from the time you start your business to get this done. The quickest and most commonly used method is filling out the F1 form at the nearest office.
So, what paperwork do you need to launch your sole proprietorship?
Well, you’ll need:
- Form 1, 2, or 9 (the declaration)
- your Personal Identification Number (PIN)
- the Comptroller of Stamps
- and your Memorandum and Articles of Association.
Get these in order, and you’re on your way to becoming a bona fide sole proprietor in South Africa!
If you’re a taxpayer, you’ve got the option to hop on board the SARS eFiling service. This online platform lets you do a bunch of useful stuff like submitting your tax return, sending your payments to SARS, asking for a tax clearance certificate, and grabbing hold of other handy perks they offer.
Registering In A SARS Branch
South African Revenue Service: SARS Home Page
Before, if you wanted to become a sole trader, you had to deal with some paperwork and fill out a form called ‘IT77 registration form for individuals.’
But guess what?
They’ve done away with that now. Instead, you can register by paying a visit to your local SARS branch. The friendly folks there will guide you through the registration process.
Before you head to the branch, be sure to gather some important documents, such as proof of who you are, where you live, and your bank details. For all the nitty-gritty details, just check out the SARS website – it’s got all the info you need.
Once you’re done at SARS, they’ll hand you a tax number, and that’s the magic key to signing up for eFiling.
How Is Sole Proprietorship Taxed In South Africa?
Operating a business in South Africa under a sole proprietorship is a smart choice in a competitive and attractive market. What’s great about this setup is that the taxes you’ll be on the hook for are pretty low compared to what larger companies have to pay.
For small businesses that meet certain requirements (like having only individuals as owners and making less than ZAR 20 million in gross income), here are the tax rates until March 31, 2024:
- You pay 0% on the first ZAR 95,750 of your taxable income.
- Then, it’s 7% on the part of your income that’s above ZAR 95,750 but doesn’t go over ZAR 365,000.
- If your taxable income exceeds ZAR 365,000 but stays below ZAR 550,000, you’ll pay ZAR 18,848 plus 21% on the extra.
- And if your taxable income goes over ZAR 550,000 (for tax years ending on or after March 31, 2023), it’s ZAR 57,698 plus 27% on the surplus.
These tax rates are a lot less compared to the 28% that bigger companies are slapped with.
When it comes to VAT (Value Added Tax), any business has to register if they make more than R 1 million in income over a year. But if you’ve made over R 50,000 in the past year, you can choose to register voluntarily. VAT gets charged at a standard rate of 15% on goods and services provided by registered vendors.
Summing Up
To sum it up, a sole proprietorship is a business owned by just one person, and it’s pretty straightforward to get started – no complex paperwork is needed. This setup works great if you plan to go it alone or run a small operation.
However, there’s a catch: you’re on the hook for everything, both the good and the bad. All the responsibility and risk rest squarely on your shoulders.
This article has given you a quick rundown of what a sole proprietorship is and how to go about setting one up in South Africa. It’s worth noting that the process and the regulations are strikingly similar in most major African Union countries like Kenya, Tanzania, Zimbabwe, Nigeria, Ghana, Morocco, Zambia, Mozambique, Botswana, and many more.
The tax system however may be different for each nation.
The easiest way to manage your sole proprietorship taxes is by using ProfitBooks accounting software. This is the best FREE solution to all tax and finance-related problems.
Get your 100% FREE account now!
