Sole proprietor vs (Pty) Ltd: which pays less tax?
Your details
The company route pays less tax by
R21 279.00
One year, before admin costs
- Sole proprietor: income tax
- R132 907.00
- Company route: total tax
- R111 628.00
- Company route: cash to you
- R488 372.00
How we worked it out
- Sole proprietor: income tax on the profitR132 907.00
2026/27 individual rates on R600 000, after rebates
- Company: tax on your salaryR27 572.00
Individual rates on a salary of R250 000
- Company: SBC tax on remaining profitR17 570.00
On taxable income of R350 000
- Company: 20% dividends taxR66 486.00
On dividends of R332 430
- Company route: total taxR111 628.00
- Difference (positive: company pays less)R21 279.00
- Ignores UIF, SDL, CIPC and accounting costs, provisional tax timing, medical credits and retirement contributions. A company has more admin: annual returns, financial statements and payroll.
- SBC rates apply only if every shareholder is a natural person, gross income is R20 million or less, and the company is not a personal service provider or holding company.
Beyond tax
| Sole proprietor | (Pty) Ltd | |
|---|---|---|
| Legal entity | No: you are the business | Yes: separate from you |
| Liability for debts | Unlimited: your personal assets are at risk | Usually limited to the company's assets |
| Registration | None with the CIPC; declare income to SARS | BizPortal from R125; automatic SARS income tax number |
| Tax | Personal rates on profit | Company tax, plus tax on salary and dividends |
| Admin | Simple | Annual returns, financial statements, separate bank account |
Read sole proprietor or company? for the steps. A micro business with turnover up to R2.3 million could also use turnover tax, which can be cheaper than both.
Frequently asked questions
Is a company always better for tax?
No. At lower profits a sole proprietor often pays less, because individuals get rebates and a 0% portion before tax starts, and a company's profit is taxed twice: company tax, then 20% dividends tax when paid out. Small business corporation rates and a sensible salary can change that, so compare your own numbers.
What is a small business corporation (SBC)?
A company or close corporation whose shareholders are all individuals, with gross income of R20 000 000 or less, that is not a personal service provider or a holding company (Income Tax Act s12E has more conditions). It pays 0% on the first R99 000 of taxable income and lower rates up to R550 000.
What is the company tax rate?
27% for years of assessment ending 1 April 2026 to 31 March 2027. Dividends paid to resident individuals carry 20% dividends tax.
How much does it cost to register a company?
On BizPortal, R125 without a name or R175 including a name, and SARS registers the company for income tax automatically. Budget for accounting, annual returns and possibly payroll on top.
Does a sole proprietor need to register anything?
There is no CIPC registration. You declare the business income on your own tax return, and usually register as a provisional taxpayer. You are personally liable for the business's debts.