Your company is a separate legal person from you. Money in the company bank account belongs to the company. Each time you take money out, the way you take it has tax consequences. If you transfer cash out whenever you need it, the transfers have to be sorted out at assessment time and can cost more tax than necessary. This post explains how salary, dividends and drawings are taxed.

Company tax and dividends tax

You can take profit out of a Pty Ltd in two standard ways: as a salary or as a dividend. A loan from the company is a third route, covered later in this post. Salary and dividends are taxed differently, so you need to see how each one works before you choose.

A dividend is taxed twice. First the company pays tax on its profit at 27% for the 2026 tax year, and SARS adjusts this rate each year. Then, when the company pays out what's left to you as a dividend, a further 20% dividends tax is withheld before it reaches you. Dividends between companies are generally exempt. The 20% applies when the dividend is paid to you as an individual.

Tax on R100 of company profit paid as a dividend

The company makes R100 of profit. It pays 27% company tax (R27), leaving R73. If it pays that R73 to you as a dividend, 20% (R14.60) is withheld, so you receive about R58.40. Taking profit out as a dividend costs roughly 41.6% in combined tax.

~41.6%
Combined effective tax on R1 of company profit paid out as a dividend: 27% company tax, then 20% dividends tax on what's left

How a salary is taxed

A salary you pay yourself is a deductible expense for the company. It comes off profit before the 27% is calculated, so it is not taxed at company level. You pay personal income tax on the salary through PAYE at your personal marginal rate. That rate starts low and rises through the brackets as your income rises. Up to a certain level of income, a salary taxed through PAYE costs less tax than the same amount paid as a dividend.

  • A salary reduces company profit, is taxed once at your personal rate via PAYE, and builds your contribution and earnings record.
  • A dividend is paid out of after-tax profit and taxed again at 20%.
  • Drawings are cash moved out with no salary run and no dividend declared. They are neither a salary nor a dividend, and SARS treats them as covered in the drawings section below.

Small Business Corporation rates

If your company qualifies as a Small Business Corporation (broadly, turnover under R20m plus other tests on shareholding and the type of income), it isn't taxed at a flat 27%. For the 2026 tax year (SARS adjusts these annually) the SBC bands run 0% on the first R95,750 of taxable income, 7% up to R365,000, then R18,848 + 21% up to R550,000, and R57,698 + 27% above that. The 0% band on the first R95,750 changes the salary and dividend calculation. Leaving profit in the company and paying it out later can cost much less tax than the flat rate suggests.

Whether you qualify for SBC rates, and how much other personal income you have, can change the best split by tens of thousands of rand. Base your split on your own numbers. Another owner's split may cost you more tax.

Combining salary and dividends

For an owner-managed company, a combination of salary and dividends can cost the least tax. Pay yourself a reasonable, market-related salary that uses your lower personal tax brackets and gives the company a deduction. Take further profit as dividends once extra salary would be taxed at a higher rate than the dividend route. The point where you switch depends on your profit, your other income and whether SBC rates apply. Work it out from your figures.

Each route costs less tax at a different level of income. The first part of a salary is taxed at your lowest personal rates, which can be lower than the ~41.6% on a dividend. Personal rates rise with income, and above a certain level an extra rand of salary is taxed more heavily than a rand paid as a dividend. An all-salary approach overpays tax on the top part of your income. An all-dividend approach leaves your low tax brackets and the company deduction unused. A combination uses the lower-tax route for each part of your income.

Paying yourself a salary means running payroll

When you pay yourself a salary, the company becomes an employer. It has to register for PAYE and file an EMP201 monthly with payment due by the 7th. It also pays UIF of 2% in total, 1% from you and 1% from the company, on earnings up to R17,712 a month for the 2026 tax year. If your annual payroll exceeds R500,000, the company also pays SDL at 1%. Once payroll is set up, these filings take little time. The salary has to go through payroll for the company to deduct it and for it to be taxed only once.

Owner drawings and the loan account

Taking cash out of the company without running it through payroll or declaring a dividend does not avoid tax. The money is recorded in a loan account as money the company has lent you. If the loan isn't handled correctly, SARS can treat it as a deemed dividend and tax it, sometimes with interest and penalties added. Drawings also make your books harder to read, because the figures no longer show what the business earned. A year of unrecorded drawings takes a lot of work to sort out at year-end.

Setting up your salary and dividend structure

The best split depends on your figures. We'll look at your profit, your personal tax position and whether SBC rates apply. Then we'll set up a salary and dividend structure that complies with the rules and keeps your tax to the amount owed. Talk to us and we'll run the numbers for your situation.