Tax When Selling a Business

1. Orientation, Not Advice — and the Timing Rule

This page is orientation, not advice. Its purpose is to make sure you know which questions exist, so that you ask them at the right time and of the right person. Every number below moves with your own facts, and some move a long way.

The instruction that matters is timing. Get your tax advisor to run the numbers on your actual structure before you agree how the deal is shaped — not after. By then the structure is effectively fixed, and changing it is not a redraft. It is a renegotiation, and you will be asking from a position of weakness.

Throughout this page we use the same worked example as the rest of this hub: a R40 million sale of a private company. The structure question — shares or business — is where the tax story starts, because it decides whether you are taxed once or twice.

2. Selling Shares: Taxed Once

Sell your shares and you are taxed once, on the growth in their value. Your advisors call it capital gains tax, and although it is charged as part of your income tax, it is worked out on the gain rather than the whole price.

One rule takes an old argument off the table. Where you have held your shares for three years or more, the law treats the profit as capital rather than trading income. That removes the risk of your proceeds being taxed as ordinary income at up to 45%, which for a founder selling after fifteen years is a real comfort.

3. Who Holds the Shares Changes the Answer Materially

This is the part sellers do not expect, and it is why the conversation belongs at the very start. The same R38 million gain produces very different outcomes depending on whose name is on the shares.

Read that table twice. The gap between the best and worst line on the same R40 million deal is close to R8 million. It is not created by clever planning. It is created by decisions someone made years ago about where to put the shares, and by whether anyone looks at them before the deal is shaped.

Moving shares around shortly before a sale is possible but rarely free, often triggers tax of its own, and makes buyers nervous when done in a hurry. Which is why this is a conversation for the month before you go to market, not the month before you sign. There is a limited concession for older owners selling small businesses, but it caps out well below a deal of this size.

Where more than one shareholder is selling, each seller runs this analysis separately — the same deal can leave two co-founders with very different after-tax outcomes. See selling with co-shareholders.

4. Selling the Business: Taxed Twice

Our page on share sale vs asset sale explained why the same business is worth less to you as an asset sale, and the reason is here. On a business sale the company sells and the company pays. The gain then sits inside a company you own rather than in your bank account, and getting it out costs another 20 cents in the rand in dividends tax.

5. Securities Transfer Tax

When shares in a South African company change hands, a tax is payable on the transfer at a quarter of a percent of the greater of the price and the market value of the shares. On a R40 million share sale that is R100,000.

Small by the standards of this deal, but real, and the transfer is not properly done until it is paid. Make sure the agreement says who pays it. It does not arise on a sale of the business.

6. VAT, and the Going-Concern Rule

Selling business assets normally attracts VAT at 15%. On R40 million that is R6 million.

Where a whole income-earning business is sold as a going concern, the sale can be zero-rated instead. But the requirements are technical and there is no mercy in them:

Two things are widely misunderstood. First, zero-rating is a cash-flow benefit and not a saving: a VAT-registered buyer would have claimed that R6 million back anyway. What it avoids is R6 million sitting with SARS for several months. Second, this is set up at signature or not at all — it cannot be bolted on afterwards, and your VAT registration does not go with the business. If the requirements are not met, SARS can raise the VAT afterwards, with interest and penalties, and by then the buyer has the business and you have the assessment.

7. Property, and Non-Resident Sellers

If the deal includes land or buildings, one of two taxes applies. Either transfer duty is payable by the buyer on a rising scale up to 13% of the value, or, where the sale is subject to VAT, VAT applies instead. Both cannot apply to the same transfer, but which one applies changes who bears what, so confirm it rather than assume.

One more rule bites only in a particular situation, and bites hard when it does. If you are not a South African tax resident and the deal includes South African land — or shares in a company whose value is mostly made up of South African land — the buyer is obliged to withhold a slice of the price and pay it directly to SARS:

That is an advance payment against your eventual tax, not an extra tax, and you can apply to SARS for a directive to reduce or remove it. But without the directive the buyer must withhold, and on a R40 million deal that is several million rand you do not receive on closing day.

8. The Timing Point, One More Time

Tax structuring is done before heads of terms. Not because lawyers like early instructions, but because the heads of terms fix the shape of the deal in everyone’s mind, and everything after that document is a retreat from it. Once the buyer’s board has approved a share purchase at R40 million, telling them three weeks later that you need a different structure or a restructuring first is not an adjustment. It is a new deal, and buyers charge for new deals.

The tax bill is one line in the deal’s overall arithmetic — put it next to the costs and fees of the transaction itself when you work out what actually lands in your account.