For a business entity to qualify as an SBC, it must meet ALL criteria listed below annually:
- The entity must be a registered legal entity, i.e. close corporation, cooperative, private company, or personal liability company, as defined by the Companies Act, 71 of 2008.
- All shareholders or members must be natural persons.
- Gross income for the relevant financial year of assessment must not exceed R20 million.
- Shareholders or members must not hold shares in other companies, except for certain permissible holdings such as shares in listed companies.
- Provision of Personal Services:
- Investment income and income from personal services must not exceed 20% of total receipts, accruals (excluding capital receipts), and capital gains.
- A personal service is defined as income derived from certain professional services listed in section 12E(4)(d), such as in the fields of accounting, actuarial science, architecture, auditing, broadcasting, consulting, education, engineering, journalism, legal, medical, and IT services. The service must be personally performed by a shareholder or member of the entity or a connected person (e.g., a relative or spouse). This rule prevents businesses operated solely by owners from gaining SBC benefits when the income is derived primarily from personal effort or expertise.
- An entity is exempted from being classified as a personal service provider if it employs at least three full-time, unconnected employees who are actively involved in the core business of rendering the service.
Failure to meet any of these criteria disqualifies the entity from SBC benefits.