Provisional Tax for Businesses: What You Need to Know

Feb 14

Running a business in South Africa comes with many financial responsibilities, and one of the most important is provisional tax. Unlike salaried employees who have PAYE deducted automatically, businesses must pay their income tax in advance to avoid large lump sum payments at the end of the tax year.

In this guide, we’ll break down what provisional tax is, who needs to pay it, how to calculate it, and how to ensure your business remains compliant while optimising tax payments.

What is Provisional Tax?

Provisional tax is a system that ensures businesses and individuals who don’t have PAYE deductions pay their income tax throughout the year, rather than in one large payment at year-end. This system is designed to help businesses manage their cash flow more efficiently while ensuring they meet tax obligations on time.

Businesses are required to make two main payments each tax year, with an optional third payment:

First payment (31 August): Based on an estimate of taxable income for the year.
Second payment (End of February): Adjusted to reflect more accurate earnings.
Third optional payment (End of September): To settle any underpayment and avoid interest charges.

Who Needs to Pay Provisional Tax?

Your business must register and pay provisional tax if:

It is a company, close corporation (CC), or partnership.
It earns income that is not subject to PAYE deductions.
It expects to have taxable income above the SARS threshold.

Exemptions:

Small businesses with turnover tax status or those operating at a loss may be exempt from provisional tax payments.

How to Calculate Provisional Tax

1. Estimate Your Taxable Income

Calculate your business's projected taxable income for the financial year. This includes revenue minus deductible business expenses.

2. Apply the Corporate Tax Rate

For most businesses, the corporate tax rate is 27%. However, small business corporations (SBCs) qualify for reduced rates based on taxable income thresholds.

3. Split the Tax into Two Payments

Example: If your business estimates taxable income at R1,000,000:

Tax liability at 27%: R270,000
First payment (August): R135,000
Second payment (February): R135,000
Third (if underpaid): Additional amount to settle discrepancies

How to Avoid Penalties

SARS imposes penalties for late payments and underestimations. To prevent this:

Keep accurate financial records to make better estimates.
Use a professional tax service to ensure compliance.
Make a voluntary top-up payment in September if necessary.
Ensure SARS submissions are correct and on time.

Deductions Businesses Can Claim

To legally reduce taxable income, businesses can claim deductions such as:

Business operating expenses (rent, utilities, salaries)
Depreciation on assets
Advertising and marketing costs
Professional fees (legal, accounting, tax consulting)
Travel and vehicle expenses (if business-related)

Proper documentation is essential to support these deductions.

How to Register for Provisional Tax

Businesses can register for provisional tax through SARS eFiling or with the help of a tax professional. Registration is essential to avoid non-compliance penalties.

Conclusion

Provisional tax is a crucial part of business tax compliance in South Africa. By planning ahead, estimating correctly, and making payments on time, your business can avoid unnecessary penalties while maintaining financial stability.

Need expert help? Tax Now Now provides expert tax solutions for businesses, ensuring compliance and maximum tax efficiency. Contact us today to simplify your provisional tax process!

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Lorde Business Solutions