Chartered Accountants Cape Town

Ask ten owner-managers how they pay themselves and you will hear ten variations. A fixed salary. Dividends twice a year. A small salary plus top-up dividends. Each route is taxed differently, recorded differently, and suits different cash-flow rhythms. This article sets out how each works in South Africa so you can have an informed conversation with your accountant, because the cheapest answer on paper is not always the right answer for your life.

TL;DR

• A salary is deductible to the company, runs through PAYE, and creates room for tax-deductible retirement contributions.
• Dividends come from after-tax profit and carry dividends tax, but involve no payroll filings.
• Most owner-managers use a mix: salary for living costs and retirement funding, dividends for the remaining profit.
• There is no universal split. Personal spending, cash flow and long-term plans decide, with your accountant checking the maths.

How is a salary taxed?

A salary is an expense of the company, so it reduces the company’s taxable profit before company tax is calculated. You personally pay employees’ tax (PAYE) on it through the monthly EMP201, alongside SDL and UIF, with an EMP501 reconciliation and IRP5 certificate twice a year. It is the familiar, fully documented route: payslip in, tax certificates out, nothing for SARS to query.

Salary has a second, quieter benefit. Retirement fund contributions are deductible against your personal tax up to 27.5% of the greater of remuneration or taxable income, capped at R430,000 a year from 1 March 2026, and only salary (not dividends) creates that remuneration base. A director with no salary has almost no deductible retirement room. For owners in their forties and fifties catching up on retirement funding, that room alone can settle the argument.

How are dividends taxed?

Dividends are paid from profit the company has already paid tax on. The company declares a dividend, withholds dividends tax, and pays you the net amount. No PAYE, no SDL, no UIF, no monthly payroll filings for that portion of your income.

The trade is straightforward. Dividends skip the payroll machinery, but they generate no retirement contribution room and arrive in lumps rather than a monthly rhythm. Company law also requires formalities: a directors’ resolution authorising the distribution and a solvency and liquidity test on the company. A dividend voted without the paperwork is the kind of thing that unravels in a SARS query or a shareholder dispute years later.

Why do most owners use a mix?

Salary and dividends do different jobs, so combining them is the norm rather than the exception. Salary covers monthly living costs, keeps retirement funding open, and leaves a clean compliance trail. Dividends distribute what is left after the company has paid its tax and kept its reserves, often once or twice a year when the figures are known.

The proportions are personal. An owner with school fees and a bond leans to salary. An owner with rental income and a paid-off house may live lean on salary and take profit as dividends. Cash flow decides as much as tax: dividends need actual distributable profit and cash in the bank, while salary ticks monthly regardless. Run both versions in rands with your accountant before locking anything in, and revisit the mix when profits, spending or tax law move.

Talk to your accountant before you change anything

Owner pay sits where tax, company law, payroll and personal planning overlap, which is exactly where DIY adjustments go wrong: a dividend without resolutions, a salary change mid-year that breaks the provisional estimate, retirement contributions sized to income that no longer exists. If you are reviewing how you pay yourself, bring last year’s figures to the conversation. At Schoemans Accountants we model salary-dividend mixes for owner-managers in Bellville, Malmesbury and across the Western Cape – contact us and we will work through your numbers.

Frequently Asked Questions

Is a salary tax-deductible for my company?
Yes. Salaries are a business expense that reduces the company’s taxable profit. Dividends are not deductible, since they are paid from after-tax profit.

How much retirement funding room does a salary create?
Retirement contributions are deductible up to 27.5% of the greater of your remuneration or taxable income, capped at R430,000 a year from 1 March 2026. Dividends create no such room.

Do dividends require paperwork?
Yes. Company law requires a directors’ resolution authorising the distribution plus a solvency and liquidity test. Keep both on record with the dividend statements.

Can I change my salary-dividend mix during the year?
You can, but mid-year changes affect PAYE, provisional estimates and retirement planning together. Model the full-year effect with your accountant before adjusting anything.

Which mix pays the least tax overall?
There is no universal answer. It depends on profit levels, personal spending, retirement funding and cash flow. Ask your accountant to calculate both versions in rands on your actual figures.

Most business owners think of CIPC once, on registration day, and then forget it exists. That is a mistake. Every company and close corporation must file with the Commission every year, and since 2024 the annual filing carries an extra declaration that catches many businesses off guard. This article sets out what you must file, when, and what happens if you do not.

TL;DR

• File annual returns within 30 business days of your company’s anniversary date, every year.
• File your beneficial ownership (BO) declaration together with the annual return – CIPC has strictly enforced this since 1 July 2024.
• BO means the natural persons holding 5% or more, or exercising effective control.
• Missed filings bring penalties, investigations and possible deregistration – and CIPC publishes non-compliant lists.
• No new close corporations are registered; existing CCs continue and must comply like companies.

What must you file with CIPC each year?

Every company and close corporation files annual returns within 30 business days after its anniversary date – the anniversary of incorporation, not your financial year-end. Depending on the entity, the filing travels with annual financial statements or a financial accountability supplement, plus a compliance checklist. CIPC uses these filings (and the fees behind them) to keep the register current, and banks, SARS and other businesses check that register when they deal with you. An entity that stops filing looks dormant, and CIPC can start deregistration proceedings against it.

What is the beneficial ownership declaration?

Since May 2023, and strictly enforced with annual returns from 1 July 2024, every company and close corporation must declare its beneficial owners to CIPC. A beneficial owner is a natural person who directly or indirectly holds 5% or more, or who exercises effective control. Companies and trusts in the chain do not count – you drill through them to the human being at the end.

In practice this means filing, alongside the annual return, the BO declaration plus the securities register (for companies) or beneficial interest register (for close corporations), with certified ID or passport documents behind them. File on the CIPC e-services platform, and update the declaration whenever ownership changes rather than waiting for the next anniversary. CIPC states the purpose plainly: accurate ownership registers help law enforcement fight money laundering and terrorist financing, and they were central to getting South Africa off the FATF grey list.

What happens if you do not comply?

CIPC’s stance has hardened. Non-compliant entities face penalties, investigations and possible deregistration, and the Commission publishes lists of companies and close corporations behind on BO and securities-register filings, with short deadlines to catch up. Directors and members should treat a non-compliance notice as urgent: seven business days to file is the kind of window CIPC gives, not months. Beyond the formal penalties, a non-compliant status freezes practical things – banks hesitate, tenders stall, and SARS queries multiply – because counterparties check the same public register.

Company vs close corporation: what is the difference today?

New close corporations can no longer be registered. Existing CCs continue to operate and are recognised in tax law, but every new venture registers as a company, almost always a private company (Pty Ltd). A private company needs at least one director, a memorandum of incorporation setting out its rules, and a name reservation (or it trades under its registration number plus “South Africa” until a name is approved). For tax purposes the two old friends live on side by side: both CCs and private companies can qualify for SBC rates, and both file the same CIPC annual returns and BO declarations.

How Schoemans keeps clients compliant

Secretarial work is mostly calendar discipline plus correct paperwork: tracking anniversary dates, preparing annual returns, maintaining securities registers, filing BO declarations, and recording director and member changes as they happen. That is our secretarial and CIPC compliance service in a sentence. If your filings are behind, or you are unsure whether your BO declaration is current, contact our Bellville office on 021 910 1215 or Malmesbury on 022 482 2278 and we will put the record straight.

Frequently Asked Questions

When are CIPC annual returns due?
Within 30 business days after your company’s anniversary date each year, together with financial statements or supplements where applicable and the beneficial ownership declaration.

Who must file a beneficial ownership declaration?
All companies, external companies and close corporations must declare the natural persons holding 5% or more or exercising effective control, filed with the annual return since strict enforcement began on 1 July 2024.

Can I still register a close corporation?
No, new close corporations are no longer registered. Existing CCs continue to operate and must file annual returns and BO declarations exactly like companies.

What are the penalties for missing CIPC filings?
CIPC can impose penalties, start investigations and deregister the entity. It also publishes non-compliant lists and typically gives only days, not months, to catch up once flagged.

Do I update BO details only once a year?
No. File the declaration with each annual return and submit amendments whenever ownership changes, so the register always reflects the current position.

If your business is small, SARS gives you two simplified routes: turnover tax and Small Business Corporation (SBC) tax. They work very differently. One taxes your sales, the other taxes your profit at reduced rates. The Budget 2026 changes, effective 1 April 2026, moved the goalposts for both, so even businesses that chose years ago should look again.

TL;DR

• Turnover tax suits micro businesses with turnover of R2.3 million or less: one tax replaces income tax, VAT, provisional tax, CGT and dividends tax.
• SBC tax suits profitable small companies: normal tax rules apply, but profit is taxed at reduced progressive rates (0% on the first R99,000 in 2026/27).
• Turnover tax is calculated on sales. SBC tax is calculated on profit after expenses.
• Your structure, record-keeping and growth plans decide. An accountant can run both calculations on your actual figures.

What is turnover tax?

Turnover tax is a simplified system for micro businesses. Instead of income tax, VAT, provisional tax, capital gains tax and dividends tax, you pay a single tax worked out on your turnover. SARS aimed it at businesses with simple records that want less paperwork.

You qualify if your turnover is R2.3 million or less for the year. That ceiling rose from R1 million in Budget 2026, effective 1 April 2026, so many more businesses now fit. Sole proprietors, partnerships, close corporations, companies and co-operatives can all apply. Personal-service providers and labour brokers are excluded, and a partner in more than one partnership does not qualify.

Registration happens before the year of assessment starts (1 March), or within two months of starting a business, on the SARS Online Query System or with a TT01 form at a branch. Returns (TT03) run from 1 July to 31 January, with payments due on the last business day of August, the last business day of February, and a final payment after assessment.

The 2026/27 rates, the first update since 2009:

At the ceiling of R2.3 million, the maximum turnover tax for the year is R39,500. You must still keep records of all amounts received, dividends declared, and assets or liabilities over R10,000.

What is Small Business Corporation tax?

SBC tax keeps the normal tax system but taxes company profit at reduced progressive rates. It suits small companies that keep full accounting records and claim business expenses.

For years of assessment ending between 1 April 2026 and 31 March 2027:

For example, at R400,000 taxable income the SBC tax is R25,970, against R108,000 at the standard 27% company rate. The gap is why qualifying matters.

Qualifying is strict, and every requirement must hold for the full year. All shareholders or members must be natural persons. Gross income must stay under R20 million. The business may not be a personal-service or holding company. Owning shares in another private company, even briefly, disqualifies you for that year. Registration as an SBC happens with SARS, and the reduced rates are claimed on the company income tax return.

Which one fits? Compare them side by side

A practical rule: if your expenses are low relative to sales, turnover tax is often cheaper and far simpler. If you spend heavily to earn (stock, staff, equipment, rent), deducting those expenses under SBC usually wins. The crossover sits somewhere different for every business, which is why running both calculations on your own figures beats guessing.

How do the 2026 VAT changes affect the choice?

Budget 2026 also lifted the compulsory VAT registration threshold from R1 million to R2.3 million, effective 1 April 2026. If your turnover sits between the old and new thresholds, you may no longer need a VAT registration at all, and SARS notes such businesses can consider turnover tax for lower rates and less administration. Businesses already in the VAT system may stay there if they prefer, including turnover-tax registrants. Voluntary VAT registration now starts at R120,000 turnover, up from R50,000.

Talk to your accountant before you elect

Both regimes reward a bit of arithmetic up front and punish assumptions later. Electing turnover tax when your margins are fat, or missing SBC status over a technicality like a second shareholding, costs real money. Bring a year of figures to your accountant and ask for both calculations in rands before you commit. At Schoemans Accountants we run exactly that comparison for SME clients in Bellville, Malmesbury and across the Western Cape – contact us for an appointment.

Frequently Asked Questions

What is the turnover tax threshold for 2026/27?
R2.3 million qualifying turnover, effective 1 April 2026, with the first R600,000 taxed at 0%. The ceiling rose from R1 million in Budget 2026.

Who qualifies for SBC tax rates?
Private companies, close corporations and co-operatives where all shareholders are natural persons, gross income stays under R20 million, and the business is not a personal-service or holding company.

Can a company use turnover tax instead of SBC?
Yes, if it meets the turnover-tax tests (turnover of R2.3 million or less, not a personal-service provider). Compare both calculations on your figures, since the cheaper option depends on your margins.

Does turnover tax replace provisional tax?
Yes. Turnover tax replaces income tax, VAT, provisional tax, capital gains tax and dividends tax with a single tax on turnover, paid in two instalments plus a final payment.

How do I register for turnover tax?
Register before the year of assessment starts on 1 March, or within two months of starting the business, on the SARS Online Query System or with a TT01 form at a SARS branch.