087 255 8904 info@contadorinc.co.za

Personal Service Provider: Can a Company Be an Employee for Tax Purposes?

You just left your corporate job – to work for yourself. Congratulations! When going out on your own, it’s common to start off with only one client – often a former employer – and then grow your business and sign up more clients as you go along. But during that initial period, the company you just registered may still be seen as an employee for tax purposes.

A personal service provider is a company, trust, or close corporation that is seen as an employee and treated that way. If this is the case, the client needs to deduct employees tax from your income at these rates:

  • Company and close corporation: 28%
  • Trust: 45%

Let’s look at the criteria an entity needs to meet to be classified as a personal service provider:

(Click on infographic to enlarge)

Personal service provider infographic (1)

Terms You Should Know

Connected person:

  • Anyone holding more than 20% of the shares in the company.
  • Anyone who is a member of a close corporation.
  • A spouse or relative of any of the above.

Get in touch if you need any help determining whether your entity is a personal service provider or if – as the client – you need help with deducting and reporting employees tax for a personal service provider.