Business & Corporate Advisory in South Africa
Good accounting is not only about recording what has already happened.
Business owners regularly make decisions involving company structures, remuneration, cash flow, financing, assets, shareholders and tax. These decisions often have accounting, tax and corporate consequences that should be considered before a transaction is implemented.
MVA Tax and Corporate Advisory provides practical business and corporate guidance alongside our accounting and tax services.
Choosing an appropriate business structure
The structure through which a business operates can affect taxation, administration, ownership, risk and future planning.
A private company, for example, is a separate legal entity with its own corporate requirements. Its Memorandum of Incorporation governs important aspects of the relationship between the company and its shareholders, while directors have separate responsibilities in managing the company. CIPC confirms that private companies must have at least one director and operate under an MOI.
A structure should therefore not be selected simply because it appears to produce the lowest immediate tax cost.
The commercial purpose, ownership arrangements, expected profitability and longer-term plans should also be considered.
Business profitability and cash flow
A profitable business does not necessarily have strong cash flow.
Tax liabilities, debt repayments, capital expenditure, drawings, loan movements and working-capital requirements can all affect the amount of cash actually available.
Regular management information can help business owners understand:
- revenue and profitability;
- operating expenses;
- cash-flow requirements;
- debtors and creditors;
- tax liabilities;
- financing commitments; and
- funds available for reinvestment or distribution.
This is one reason why current accounting records are valuable for management rather than merely for year-end compliance.
Owner remuneration and drawings
How money moves between a business and its owners requires proper accounting and tax treatment.
Depending on the circumstances, amounts paid or transferred may represent remuneration, repayment of a loan, an amount advanced through a director or shareholder loan account, a dividend or another type of transaction.
These classifications are not interchangeable simply because money has moved between the company and its owner.
For example, dividends paid to individuals by South African companies are generally exempt from normal income tax, but dividends tax is generally withheld at 20%, unless an exemption or reduced rate applies.
The appropriate treatment should therefore be determined from the actual facts and supporting records.
Director and shareholder loan accounts
Director and shareholder loan accounts frequently arise in owner-managed businesses.
They may record money introduced into the company, expenses paid personally on behalf of the company, amounts repaid to an owner or amounts advanced by the company.
These accounts should be reconciled and supported rather than treated as a convenient balancing figure at year-end.
Significant or unusual loan-account transactions may also have tax or legal consequences and should be reviewed according to their specific circumstances.
Intercompany transactions
Where an individual owns or controls more than one business, transactions may occur between related entities.
These can include shared expenses, loans, management charges, asset usage and other intercompany balances.
Each entity remains a separate accounting and tax record. Transactions between related entities should therefore have a genuine commercial basis, be correctly recorded in both entities and be supported by appropriate documentation.
Planning before significant transactions
Professional advice is particularly useful before implementing transactions such as:
- introducing a new shareholder;
- purchasing significant business assets;
- changing remuneration arrangements;
- advancing or repaying substantial loans;
- restructuring business activities;
- transferring assets between entities;
- declaring distributions;
- acquiring another business; or
- establishing additional companies or ownership structures.
Once a transaction has already taken place, the accounting records generally need to reflect what actually occurred. Advice obtained beforehand provides more opportunity to consider the available alternatives and their consequences.
Tax should not be the only consideration
Tax efficiency is important, but it should not be the sole reason for a commercial decision.
For example, an individual owner’s marginal income-tax rate can reach 45% in the 2027 tax year, while other methods of extracting or retaining value from a business may have very different tax consequences.
The appropriate approach depends on the taxpayer, company, cash requirements, transaction and longer-term objectives.
Good planning therefore considers the overall commercial and tax position, rather than looking at one tax rate in isolation.
How MVA can assist
MVA Tax and Corporate Advisory assists clients with:
- business and ownership structures;
- cash-flow and profitability reviews;
- remuneration and director-account planning;
- director and shareholder loan accounts;
- intercompany accounting matters;
- financial reporting and management information;
- tax and compliance planning;
- corporate compliance considerations; and
- practical accounting support for business decisions.
Where a matter requires specialist legal, investment or other regulated professional advice, this should be obtained from the appropriate professional alongside the accounting and tax analysis.
Considering a business structure, transaction or financial decision? Contact MVA Tax and Corporate Advisory before implementation so that the accounting, tax and compliance implications can be considered.