Salary vs Dividends Calculator — South Africa

A salary is subject to PAYE (income tax withheld by your company) and UIF, but is deductible from the company's taxable income. Dividends are paid from after-tax company profits and attract a 20% Dividends Withholding Tax — but no UIF. The optimal choice depends on your personal tax rate, RA contributions, and medical aid.

Dividends tend to be more efficient when your personal marginal tax rate exceeds the combined effective rate of corporate tax (27%) plus dividends tax (20%). At lower income levels, a salary with PAYE may be cheaper overall — especially if you benefit from rebates and medical aid credits.

Yes. A salary paid to a director or employee is a tax-deductible expense for the company, reducing corporate taxable income by the full salary amount. Dividends, by contrast, are paid from after-tax profits — so the company pays 27% corporate tax on those profits before distributing them.

The effective rate on dividends is approximately 40.6% when you account for corporate income tax (27%) on the profits first, and then 20% dividends withholding tax on the net amount distributed. This compares to a maximum PAYE rate of 45% on a salary — so the advantage of dividends narrows at high income levels.

Many business owners use a combination: a modest salary to utilise PAYE rebates, medical aid credits, and RA deductions — and top up with dividends. This hybrid approach often produces the best after-tax outcome. A tax practitioner can help optimise the split for your specific situation.