The words, TAX SUBMISSIONS or TAX RETURNS more often than not, send shivers down the spine of new business owners. Everyone knows that a newly registered entity qualifies for a tax clearance certificate, for its first year of trading, but what happens from month 13 onwards? The company would need to do their tax submission and pay all outstanding amounts as per SARS assessment. Before we start talking tax clearance certificate or being tax compliant we need to distinguish between the different entities that are obliged to submit and pay tax returns.
Firstly we have dormant or non-trading entities. These entities have been registered through the CIPC but have not traded. Secondly we have currently trading entities which would be your standard company; business as usual. Lastly we have deregistered entities (CIPC deregistered companies) that have not submitted their tax returns for a number of consecutive years. This entity has gone through a process of Final deregistration, and has been de-registered by the CIPC.
Even though dormant companies don't trade, they still have an obligation to register for tax and complete annual and bi-annual tax submissions even if they will in fact be zero returns. Dormant companies that do not submit income tax will be classified as non-compliant tax payers. Many company owners are not aware of this and this entity could be de-registered by the CIPC and or accumulate admin penalties from SARS and ultimately have their tax clearance certificate deactivated.
Same as dormant companies, a trading entity also has to register for tax as well as complete annual tax submissions. If the entity fails to do the latter, SARS could impose penalties as well as interest against the entity. SARS has the right to freeze their bank account and / or sell assets to salvage all outstanding balances.
As discussed earlier, these entities are non-existent because of not complying to the company and tax laws of South Africa. SARS will not deregister or deactivate the company's tax account / number until all outstanding returns have been submitted. Just because the entity is deregistered does not mean that the company is "off the hook" when coming to outstanding tax balances. SARS will hold accountable all directors that were running the company during those particular outstanding tax periods.
Rules to follow to stay tax compliant:
- All registered entities have a legal obligation to register for tax.
- Tax submissions has to be done annually, including two bi-annual provisional income tax submissions.
- Update contact contact details with SARS in order to be notified should your business need to submit additional documents for audit or review
- Instead of not paying the tax amount due to affordability, apply for payment arrangement with SARS. This may however lead to interest being levied on the outstanding balance.
- Get advice from your tax consultant with regards to deductible and non-deductible transactions, so as to file returns correctly.
The only way to receive a tax clearance certificate after your first year of trading is to register for tax and keep tax submissions and payment up to date.
Is your company tax compliant?