Income tax
Learn how income tax works in South Africa, including SARS rates, thresholds and how businesses pay it.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Income tax in South Africa is administered by the South African Revenue Service (SARS) under the Income Tax Act No. 58 of 1962.
- Individuals, including sole proprietors, pay progressive income tax rates from 18% to 45%, while companies pay a flat rate of 27%.
- Businesses reduce taxable income through section 11(a) deductions for expenses actually incurred in the production of income.
- Most business owners are provisional taxpayers and make two payments a year, filing returns through SARS eFiling.
What is income tax in South Africa?
Income tax is a tax on the income of individuals, companies and trusts, collected by the South African Revenue Service (SARS) under the Income Tax Act No. 58 of 1962 to fund public services like roads, schools and healthcare. South Africa uses a residence-based system, which means residents are taxed on their worldwide income, while non-residents are only taxed on income from South African sources.
Types of income tax for South African businesses
The type of income tax you pay depends on your business structure. Understanding these categories helps you plan your small business accounting and meet your obligations to SARS.
- Personal income tax: sole proprietors and partners are taxed at individual rates on their business profit, which is added to their other personal income.
- Corporate income tax: registered companies (Pty Ltd) pay a flat rate on their taxable income.
- Turnover tax: a simplified option for micro businesses with annual turnover of R2.3 million or less, replacing income tax, VAT, provisional tax, capital gains tax and dividends tax.
- Small business corporation (SBC) tax: qualifying companies with gross income of R20 million or less benefit from reduced graduated rates under section 12E.
Income tax rates and tax thresholds
Individuals pay progressive income tax rates from 18% to 45% for the 2027 tax year (1 March 2026 to 28 February 2027). The seven brackets are:
- R1 to R245,100: 18% of taxable income
- R245,101 to R383,100: R44,118 + 26% of the amount above R245,100
- R383,101 to R530,200: R79,998 + 31% of the amount above R383,100
- R530,201 to R695,800: R125,599 + 36% of the amount above R530,200
- R695,801 to R887,000: R185,215 + 39% of the amount above R695,800
- R887,001 to R1,878,600: R259,783 + 41% of the amount above R887,000
- R1,878,601 and above: R666,339 + 45% of the amount above R1,878,600
Tax thresholds determine the income below which you pay no income tax in South Africa. These thresholds reflect the primary rebate of R17,820:
- Under 65: R99,000
- 65 to 74: R153,250
- 75 and older: R171,300
Companies pay a flat corporate income tax rate of 27% for years of assessment ending on or after 31 March 2023.
The South African tax year
The year of assessment runs from 1 March to the last day of February. SARS names each tax year by its end year, so the 2027 tax year covers 1 March 2026 to 28 February 2027. This timing affects when you need to submit returns and make provisional tax payments.
How to calculate income tax
You calculate taxable income first by taking your total income and subtracting allowable deductions. Then you apply the relevant tax rate to the result. The formula is: income tax = taxable income × tax rate.
For a company with revenue of R2,400,000 and deductible expenses of R1,400,000, the taxable income is R1,000,000. At the 27% corporate rate, the company pays R270,000 in income tax. Keeping accurate monthly financial reports makes this calculation straightforward at year end.
For a sole proprietor, business profit is added to personal income and taxed at individual rates. If your business profit is R400,000 and you have no other income, it falls into the third bracket (R383,101 to R530,200). Your tax is R79,998 plus 31% of the amount above R383,100, which comes to about R85,237 before the primary rebate of R17,820, leaving roughly R67,417 payable.
Tax deductions and rebates
Businesses deduct expenses that meet the requirements of the section 11(a) general deduction formula. To qualify, an expense must be actually incurred in the production of income, in carrying on a trade, and not of a capital nature. Common deductible expenses include rent, salaries, office supplies and professional fees.
Individuals also receive fixed-rand rebates that reduce the tax you owe. The primary rebate of R17,820 applies to all taxpayers, with a secondary rebate of R9,765 for those 65 and older, and a tertiary rebate of R3,249 for those 75 and older. South Africa uses deductions and rebates, not US-style tax credits. When you record your accounting transactions accurately, claiming the right deductions becomes easier.
Provisional tax and paying SARS
For employees, PAYE (pay as you earn) is deducted monthly by the employer. If you earn income other than a salary, you're usually a provisional taxpayer. This applies to most business owners, whether you run a sole proprietorship or a company.
Provisional taxpayers make two compulsory payments a year: the first by the end of August and the second by the end of February. These payments spread your tax liability across the year rather than leaving one large bill at assessment.
You register with SARS and file returns through SARS eFiling. Individuals and sole proprietors file the ITR12, while companies file the ITR14. Using accounting software helps you generate the financial data needed for accurate returns. You must keep supporting documents for five years from the date of submission.
Manage income tax with Xero
Staying on top of income tax means keeping your financial records accurate and up to date throughout the year. Xero helps you track income and expenses, automate bank reconciliation and generate the financial reports you need at tax time. When it's time to work with your accountant, you can share access to the same data in real time, making collaboration simpler and tax season less stressful. To see how Xero can support your business, get one month free.
FAQs on income tax
Here are answers to common questions about income tax in South Africa.
Who has to pay income tax in South Africa?
Anyone earning above the tax threshold must pay income tax. This includes sole proprietors, companies and trusts. Residents are taxed on worldwide income, while non-residents pay tax only on South African-sourced income.
How much income tax will I pay?
Individuals pay between 18% and 45% depending on taxable income. Companies pay a flat 27%. Your actual liability depends on your income level, business structure and allowable deductions.
What is the difference between a tax deduction and a rebate?
A deduction reduces your taxable income before the tax rate is applied. A rebate reduces the final amount of tax you owe after the calculation. Both lower your tax bill, but they work at different stages.
What is provisional tax?
Provisional tax is a way of paying income tax in advance through two payments during the year. It applies to anyone who earns income other than a salary, including most business owners.
Do sole proprietors pay income tax?
Yes, sole proprietors pay income tax on their business profit at individual rates. The profit is added to any other personal income and taxed accordingly. You file an ITR12 return through SARS eFiling.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.