When you start a business in South Africa, one of the first real decisions is how to run it: as a sole proprietor (just you, trading in your own name) or as a private company, a (Pty) Ltd. The tax treatment is very different, and it affects how much you keep.
How a sole proprietor is taxed
As a sole proprietor, your business profit is simply added to your personal income and taxed on the individual sliding scale (18% up to 45%), after your rebates. There's no separation between you and the business — the profit is your income.
- Pro: at lower profits you pay less, because the first ~R95,750 is effectively tax-free thanks to the primary rebate.
- Con: at higher profits you climb into the 39–45% brackets fast, and you're personally liable for the business's debts.
How a (Pty) Ltd is taxed
A company is a separate legal person. It pays corporate income tax at 27% on its profit (or the reduced SBC graduated rates if it qualifies). If you then pay yourself a dividend, that's taxed again at 20% dividends tax — but a salary you draw is deducted as a company expense and taxed in your hands as normal PAYE.
- Pro: the flat 27% (or SBC rates) can be much lower than the top personal brackets; limited liability protects your personal assets.
- Con: more admin, annual returns, and the potential for "double tax" on dividends.
The rough break-even
As a rule of thumb, at lower profits the sole proprietor usually wins (the rebate + low brackets), while at higher, stable profits the company often wins (27% beats 39–45%, and SBC rates are gentler still). The exact crossover depends on how much salary vs dividend you draw.
Compare the numbers yourself with our Small Business Tax Calculator (company 27% vs SBC vs turnover) and Salary Tax Calculator (what you'd pay drawing a salary).
It's not only about tax
- Liability: a company protects your personal assets; a sole proprietor doesn't.
- Credibility & contracts: many larger clients and tenders prefer to deal with a registered company.
- Admin & cost: a company means CIPC registration, annual returns and separate books.
Whichever you choose
Keep the books clean from day one — SARS treats the two very differently, and good records make the choice (and the tax) far simpler. 360books handles both sole proprietors and companies, with the right tax treatment built in for South Africa.