If you own a private company in South Africa, getting money out of it is not as simple as transferring it to your personal account. There are three legitimate ways to extract value — salary, dividends, and the shareholder loan account — and each has very different tax consequences.
Get this wrong and you’ll either overpay tax for years, or end up with a SARS query you didn’t see coming. Here’s how to think about it.
Option 1: Salary (director’s remuneration)
You pay yourself a monthly salary, just like any employee. The company deducts PAYE, UIF (up to the cap), and SDL if applicable.
Pros:
- Salary is a tax-deductible expense for the company — it reduces taxable income at the 27% corporate rate.
- Predictable, regulated, and clean from an audit perspective.
- Counts as income for home loan and credit applications.
- Builds up UIF entitlement.
Cons:
- Taxed at your personal marginal rate, which can reach 45% for high earners.
- PAYE leaves the business every month — a real cash flow cost.
Best for: Owner-managers who actively work in the business and want a stable, defensible income. SARS expects directors of active companies to draw a reasonable salary — paying yourself nothing while the company makes profit is a red flag.
Option 2: Dividends
The company pays corporate income tax (27%) on its profit. What’s left can be declared as a dividend to shareholders. The company withholds Dividends Tax at 20% and pays the net amount to you.
The combined effective tax rate looks like this:
- Company earns R100 profit → pays R27 CIT → R73 left.
- R73 declared as dividend → R14.60 DWT withheld → R58.40 in your pocket.
- Combined effective rate: roughly 41.6%.
Pros:
- Often more tax-efficient than salary for high earners (whose marginal rate exceeds 41.6%).
- No PAYE administration on the distribution itself.
- No UIF or SDL.
Cons:
- Not deductible for the company.
- Can only be declared from distributable profits — and only if the company passes the solvency and liquidity test under the Companies Act.
- Doesn’t count as “salary” for most lender affordability assessments.
- All shareholders in the same class must be paid proportionally — you can’t dividend just one shareholder selectively.
Best for: Profitable companies whose owners are already drawing a reasonable salary and want to extract surplus profit tax-efficiently.
Option 3: The shareholder loan account
This is where most SME owners get into trouble — usually unintentionally.
If you’ve put money into the company (a credit loan account), you can draw it out later, tax-free, until the balance is settled. It’s not income; it’s a repayment of capital.
If you draw money out of the company that isn’t salary, dividend, or repayment of a credit loan, you’ve created a debit loan account — you owe the company money. And SARS has rules for this:
- If the loan is interest-free or below the official rate (currently 7.75%), the difference is treated as a fringe benefit and taxed in your hands.
- If the company effectively can’t recover the loan, SARS may treat it as a deemed dividend under section 64E(4), triggering 20% dividends tax.
Pros:
- Repaying a credit loan account is genuinely tax-free.
- Useful for short-term cash flow timing.
Cons:
- Easy to mismanage. A growing debit loan account is one of the most common findings in SME tax queries.
- Requires proper documentation — a written loan agreement, market-related interest, and a repayment plan.
So what should you actually do?
For most owner-managed SMEs, the right mix is some of each:
- A reasonable monthly salary — enough to justify your role and cover lifestyle costs.
- Annual dividends from genuine surplus profit, declared properly.
- A clean, well-documented loan account that doesn’t drift into debit territory.
The exact split depends on your marginal tax rate, the company’s profitability, your cash flow needs, and your medium-term plans (selling the business changes everything, for example).
Get the structure right once
We spend a lot of time unwinding remuneration structures that grew organically and now cost the owner thousands extra each year. It’s far cheaper to design it properly upfront. If you’d like us to run the numbers for your business and recommend an optimal salary/dividend/loan-account mix, get in touch.
