Most business owners pay themselves the same way every month without ever asking if it’s the right way.
It usually isn’t. And the difference — structured properly — can mean tens of thousands of rands less going to SARS every year.
Here’s how to actually think about this.
The Two Ways to Take Money Out
Option 1: Salary
Your company pays you a salary. That salary is a business expense — it reduces your company’s taxable income. But you pay personal income tax on it. At R600,000 a year, you’re sitting in a marginal rate of 36%. At R800,000, it’s 39%. At over R1.8 million, it’s 45%.
The company also deducts UIF and SDL. Small amounts individually, but real costs.
Option 2: Dividend
Your company makes a profit. It pays corporate tax on that profit — 27% for most companies. Whatever’s left can be distributed to shareholders as a dividend. Dividends are taxed at a flat 20% Dividends Withholding Tax. No UIF. No SDL. No further tax on the company.
So on a dividend, the effective combined tax rate is roughly 41.6% (27% corporate tax, then 20% on what remains). That’s higher than some salary brackets — and lower than others.
The Real Question
Here’s what we see all the time.
A business owner started their company five years ago. Back then, their accountant set up a salary of R55,000 a month. Nobody has revisited it since.
The business has grown. Profit is sitting in the company. The owner needs R45,000 a month to live on — not R55,000. The extra R10,000 is going through PAYE every month, getting taxed at their marginal rate, when it could be sitting in the company or coming out as a dividend later.
Over 12 months, that’s R120,000 that moved through the wrong structure. Not illegal. Just expensive.
One conversation with their accountant would have caught it. Nobody thought to have that conversation.
So Which Is Better?
The honest answer: it depends on your numbers. Anyone who tells you otherwise without seeing your financials is guessing.
But here’s what actually drives the decision:
What do you need to live on?
A salary gives you a predictable monthly income. Dividends come from profits — and profits fluctuate. Most business owners need at least some salary for personal cash flow. The question is how much.
What’s your personal tax bracket?
If your total income is relatively modest — say, under R400,000 a year — your marginal income tax rate may be low enough that a salary is more efficient than the combined corporate-plus-dividends-tax route. At higher income levels, the maths often flips.
Do you want to build retirement savings?
Retirement annuity contributions are based on your salary — not dividends. If tax-efficient retirement funding matters to you (and it should), you need a salary base to claim those deductions.
Does the company need to keep cash?
If you’re growing, reinvesting, or building a buffer — distributing everything as dividends now means borrowing later. Sometimes leaving profit in the company is the right call.
The Mindset Shift
Most business owners think of how they pay themselves as admin. It’s not admin. It’s strategy.
Flip it around.
The most tax-efficient structure for most owner-managed businesses is a combination — a modest salary that covers personal needs and supports retirement contributions, topped up with dividends when profits allow. That combination, done correctly, can legally reduce your overall tax bill materially.
But it needs to be reviewed — not set once and forgotten. Your business changes. Your tax position changes. The salary you set three years ago may be costing you money today.
Keep It Simple
- Salary gets taxed as personal income — up to 45% at the top bracket
- Dividends carry a flat 20% withholding tax — but the company already paid 27% corporate tax on those profits
- A combination of both is usually the most efficient approach
- Retirement contributions are based on salary — factor that in
- Review it annually. What made sense when you started may not make sense now
The question isn’t salary or dividend. The question is: when last did you actually check if what you’re doing still makes sense?
General information only — chat to your accountant about your specific situation.