How do I pay myself from my business (salary vs dividend)?
How an owner takes money out of a business depends entirely on the legal structure. For a sole proprietor, taking cash is simply a withdrawal, because the owner and the business are the same legal entity.
For the owner of a Private Company (Pty Ltd), the business is a separate legal person. Taking money out requires a formal transaction: either paying a salary, which is taxed as personal income, or declaring a dividend, which is taxed after the company pays corporate tax.
Sole proprietors: drawings, not salaries
A sole proprietor does not pay themselves a formal salary. Every Rand of profit the business makes automatically belongs to the owner in their personal capacity. They simply transfer cash from the business account to their personal account. Accountants call this a "drawing".
Drawings are not taxed when they happen. Instead, SARS looks at the total profit the business made at the end of the tax year and taxes that amount on the individual tax sliding scale. Withdrawing the money does not change the tax calculation.
The Pty Ltd: moving money across the legal wall
A Pty Ltd is completely separate from its shareholders. The money in the company bank account belongs to the company. An owner cannot simply transfer cash to pay for personal groceries — doing so creates a loan account where the owner owes the company money (and SARS charges interest and penalties on those loans).
To legally move money to the owner’s personal pocket, the company must use one of two methods: a salary or a dividend.
Method 1: paying a formal salary
An owner can employ themselves as a director and pay a regular monthly salary.
- For the company: a salary is a business expense. It lowers the company’s profit, which means the company pays less corporate tax.
- For the owner: the salary is personal income. The company must deduct PAYE every month and issue an IRP5 tax certificate, exactly like any other employee. The income is taxed on the individual sliding scale (from 18% up to 45%).
For the 2026/27 tax year, individuals under 65 pay zero tax if their total income is below the R99,000 tax threshold.
Method 2: declaring a dividend
A dividend is a share of the profits paid to the owners. This method happens in two tax stages:
- Stage 1 (corporate tax): the company pays tax on its profit first. The standard corporate tax rate is 27% (though qualifying small businesses can use the lower sliding scale).
- Stage 2 (dividends tax): what remains is the after-tax profit. When the company pays this money to the shareholder, it must withhold a flat 20% dividends tax and pay it to SARS.
Because the dividend is paid from money that has already been taxed at the corporate level, the owner does not pay personal income tax on it again.
How the mathematics compare
The primary difference between the two methods is the effective tax rate.
A salary is taxed once, but on a sliding scale that climbs to 45% for high earners. A dividend is taxed twice (corporate tax plus dividends tax), but at flat percentages.
If a standard company makes R100 of profit and pays it out as a dividend, the company pays R27 in corporate tax. From the remaining R73, SARS takes 20% (R14.60) in dividends tax. The owner receives R58.40. The combined effective tax rate is 41.6%.
Because the individual tax brackets start at 18%, paying a salary is often mathematically cheaper at lower income levels. However, as the salary grows and pushes into the 41% and 45% brackets, the combined 41.6% dividend route becomes the mathematically lighter tax burden.
Terms used on this page
- Pay-As-You-Earn (PAYE)
- A system where an employer deducts income tax directly from an employee's salary and pays it to SARS every month.
- IRP5
- The tax certificate an employer submits to SARS (and gives to you) showing your pay and the PAYE deducted. It is the main data behind an auto-assessment.
- tax threshold
- The income level below which no income tax is due for the year. Different from the filing threshold, which decides whether a return has to be submitted.
- effective rate
- Your total tax divided by your total income — the share of everything you earned that went to tax. Always lower than your marginal rate.
Sources
Reviewed July 2026