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 In Articles, Entrepreneur, SARS
SME.TAX Blog PAYE, Income Tax or Dividends

DIVIDENDS OR PAYE?

Why not both!

As an entrepreneur, when you finally get paid, you want to ensure that you don’t pay too much tax to SARS while you stay compliant 😊

The options open to entrepreneurs are:

  1. Paying out all their profits as Salary and then paying over PAYE on this amount to SARS, or
  2. Paying out all their profits as Dividends and then paying SARS the Income Tax and the Dividends Tax on this amount
  3. A mixture of both Salary and Dividends (Option 1 and Option 2)

So…how can you do this?

The first step is to ensure your business qualifies as a small business corporation (SBC) as this still allows for a little breathing room when it comes to tax planning. See our blog here: Small Business Corporations Tax – What is it? Do you qualify? (sme.tax), to find out if you qualify as an SBC.

Because, of the sliding Income Tax scale used for Small Business Corporations, you have an opportunity to use a mix of Salary and Dividends to ensure a maximum amount of net income lands in your bank account.

How, may you ask?

The table below illustrates the different outcomes on R1 731 601 million profit and shows that being an SBC is still clearly the best option.

Income Type PAYE SBC Tax Co Tax Div. Tax Total Paid
All Salary R614 192 0 0 0 R614 192
SBC Mix Sal/Tax/Div. R388 692 R58 013 0 R98 398 R545 103
Co. Mix Sal/Tax / Div. R388 692 0 R148 500 R80 300 R617 492
SBC All Dividend 0 R58 013 R319 032 R270 911 R647 956
Co. All Dividend 0 0 R467 532 R252 814 R720 346

Our Services:

At SME.TAX we do more than just assist clients with tax planning.

We are your “one stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.

For more information, please visit our website www.sme.tax or give us a call on 012 021 0829

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