If you own a company and want to pay yourself from its profits as a dividend, there's a tax you need to understand first: dividends tax. Here's how much you'll pay and how it works.
What is dividends tax?
Dividends tax is a 20% tax on dividends paid by South African companies to shareholders. It's a withholding tax — the company (or the bank/regulated intermediary) withholds it and pays it to SARS on your behalf, so you receive the dividend already net of the 20%.
The double layer
Here's the important part: a dividend is paid out of after-tax profit. So the money is taxed twice:
1. The company first pays 27% income tax on its profit. 2. Then 20% dividends tax is withheld when the profit is distributed to you.
Combined, that's an effective ~41.6% on money taken as a dividend. For example, R100 of company profit becomes R73 after company tax, then R58.40 in your hand after dividends tax.
Salary vs dividend — which is better?
Because a salary is deductible for the company (so it isn't taxed at 27%) but is taxed as PAYE in your hands, the better route depends on the amount:
- At lower income, a salary usually wins (your rebate and low brackets keep PAYE small).
- At higher income, the fixed ~41.6% on dividends can beat the top 45% personal bracket.
- Many owners use a mix of both.
Work out your own answer with our salary vs dividend calculator, and read the fuller guide on how to pay yourself from your company.
A few rules to remember
- Some shareholders (like SA resident companies) are exempt from dividends tax.
- A dividend must be declared properly (a resolution), and the 20% paid to SARS by the required date.
- Keep the paperwork — SARS expects records.
Decide with real numbers
The right salary/dividend split depends on your actual profit, which moves month to month. 360books tracks your company's profit and tax in real time, so you can pay yourself in the most tax-efficient way — based on facts, not a year-end guess.