Shelved CC alternative?

[thatgerhard]

Hi There

We are in the process of getting our business up and running and wanted to register a shelved CC because of the 29% tax cap that comes with it (according to my accountant), but now I heard that the government doesn't allow the registration of CC's any longer.

What would be the best alternative to a shelved CC and what are the costs involved?

P.S. Sorry if it's a dumb question, I'm very new to this

[geraldenek]

I have not hear about the 29% tax cap? please do explain more

You can't register new cc's anymore. the company act has changed and you can only register a pty but not all pty's need to be audited anymore

you still do get shelf cc's i got one last week for one of my clients for R1700 - they are really expensive due to the fact that there is so little left.

on the other hand getting a shelf company is also hard to find lately because of cipc's backlog of documents

The best would be is get a pty

[thatgerhard]

The way I understood teh tax cap was that you will never pay more than 29% of your earning towards tax, unlike provisional tax that can go up to something in the 40% range.

[BusFact]

The way I understood teh tax cap was that you will never pay more than 29% of your earning towards tax, unlike provisional tax that can go up to something in the 40% range.

Yes the company pays a flat rate of 29% tax on its profits, but when it pays you your salary, you will be taxed on the sliding scale back up to 40% ish for that.

[geraldenek]

The way I understood teh tax cap was that you will never pay more than 29% of your earning towards tax, unlike provisional tax that can go up to something in the 40% range.

a company/cc is taxed at 28%

40% is the highest tax bracket for individuals if they are trading in their personal capacity / receive a salary

depending on the business you planning you can also qualify as a small business corporation and pay less tax

[AmithS]

geraldenek is correct, it is 28% and not 29%

I also think your accountant maybe means dont run the business in your personal capacity as then the tax rate could be higher. Rather have a legal structure?

[zunaid]

Hi there everybody

It makes no difference whether its a CC or a Company (as registered under the new Companies Act) from a tax perspective.

CC or Company - tax rate is 28%. Individuals can be taxed up to 40%

If you are not earning a lot it doesn't make sense to register as a company. The reason being is that individuals tax starts off at 18% and then goes higher as you earn more - until it reaches the 40% level.

SO which is better - depends on how much you earn.

However, there can be a reason for you to register as a company anyway.

You can be taxed at at even lower rate than the 28% if you meet the requirements of a Small Business Corporation.

Between R0 and R57 000 income the companies tax percentage is 0%. For earnings between R57 001 and R300 000, the tax rate is 10% once you earn more than R300 000 the tax rate is 28%.

This works out to about R59 700 in additional tax savings compared to a normal CC/Company and obviously an even bigger saving compared to being taxed as an individual.

What are the requirements to be regarded as a SBC (small business corporation)

I don't have the detail in front of me but briefly it relates to the business having less than a certain amount of turnover and assets.

Secondly, all the shareholders should be natural persons (a legal term meaning actual people and not other companies)

And the shareholders should not be holding shares in other companies (other than investments into things like listed shares).

Your accountant will have the exact detail.

Remember though that as a company you will also have to pay STC/Dividends tax which also needs to be taken into account.

[Justloadit]

This is my take.

I have noted on many occasions people getting all knotted with the company tax and personal tax. It seems we are all trying to make this gigantic enterprise with one owner and all the nonsense involved in a huge enterprise unnecessarily. Any small company, theoretically does not make a profit! As the company has more loot in the bank, the owner takes the money out as wages/salaries/drawings, what ever you wish to call it. This means that the company makes no profit, so therefor there is not tax to pay.

If the company does make a profit - as you wish to do in the books, it then pays the 28% tax on the profit, now you need to move it out of the company into your account, that is why you are in business to make bucks, this is then seen as a dividend, and a personal income, so you have to declare it, and you get taxed on the amount received, albeit at a lower rate. When you add the numbers up, you still pay the personal tax amount you would have paid had you taken the money out in the first instance, so why go through the extra paper work, because you think you are going to be paying less tax?

[AmithS]

What is the current dividend tax?

[geraldenek]

What is the current dividend tax?

It is 10%.

[sterne.law@gmail.com]

Perhaps another issue, non tax related.

the obsession with cc is understandable, it was always an excellent business vehicle, until the surety side kicked in. none the less forming a private company is easy and the running thereof is not much different from a cc, particulalry where there is a single shareholder.
For a typical small start up, there is not much difference. There is no audit obligation, tax structures/benefits are the same, and the legalities are pretty much the same. Your standard memo of incorporation allows for flexibility and doe snot place too much onus on strict procedures for decision making, meetings etc.

[Dave A]

so why go through the extra paper work, because you think you are going to be paying less tax?

Because you'll only be paying 28% at most on undistributed profits. And that can be a big deal in a growing business where you're typically having to finance growth in working capital out of taxable profits.

The other reason to incur the extra paperwork is it gives you options as to in which hands the "distributable" income is taxed.

[Justloadit]

Because you'll only be paying 28% at most on undistributed profits. And that can be a big deal in a growing business where you're typically having to finance growth in working capital out of taxable profits.

The other reason to incur the extra paperwork is it gives you options as to in which hands the "distributable" income is taxed.

...and the receptor of the funds must declare this along with their earnings to SARS. If they never earned an income from the company, and are receiving the profits, this must still be declared, and if it is below the respective thresholds, then they may pay less tax if they rather earned it as income rather than having paid the 28% at the company level.

6 of one and half a dozen of the other.

We are debating here with out knowing the values involved. The decision here should be based on the actual amount of profit made or income earned. The thresholds on the tax brackets govern the decision to be taken. We are trying to make a one decision fits all.

[Dave A]

The decision here should be based on the actual amount of profit made or income earned. The thresholds on the tax brackets govern the decision to be taken. We are trying to make a one decision fits all.

Certainly not my intention

I agree that situations may differ, and what is best in one situation may not be best in another.
And of course tax is not the only factor to take into consideration.

[Newretailer]

Also remember if your turnover is under R1 million a year, you can register for turnover tax, with a very low tax rate. You cannot claim any deductions and cannot register for VAT though, so you need to work out if it will be worth your while.