Salary vs Dividend Calculator

A salary is a tax-deductible expense for the company, meaning the company pays less corporate tax. However, the individual pays personal income tax (PAYE) on the salary at marginal rates up to 45%. A dividend is paid from after-tax company profits, so the company first pays 27% corporate tax, and the shareholder then pays 20% dividend withholding tax on the distribution. The total effective tax rate differs depending on income levels.

It depends on your total income level. At lower income levels, salary is often more tax-efficient because personal tax rates are below the combined company tax + dividend WHT rate. At higher income levels, dividends may be more efficient because the combined rate (27% + 20% of remainder = 41.6%) can be lower than the top marginal personal tax rate of 45%. The optimal strategy often involves a mix of both.

Dividend withholding tax (DWT) in South Africa is levied at 20% on the gross dividend amount. The company deducts this tax before paying the dividend to the shareholder. For example, if the company declares a R100,000 dividend, R20,000 is withheld as DWT, and the shareholder receives R80,000. DWT is a final tax and the dividend does not need to be included in the individual's personal tax return.

The corporate income tax rate in South Africa is 27% for financial years ending on or after 31 March 2023. This applies to the company's taxable income after deducting allowable expenses, including salaries paid to directors and employees. Small business corporations may qualify for reduced rates under certain conditions.

Yes, many owner-managers use a mixed approach. You can pay yourself a salary (which is tax-deductible for the company) up to a certain level and then distribute the remaining after-tax profit as a dividend. This calculator shows the after-tax outcome of an equal 50/50 split to help you evaluate this strategy. In practice, the optimal split depends on your specific circumstances and other income.