Understanding Dividend Taxation in South Africa When You Have a Company

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South Africa has a Dividends Tax regime, which taxes dividend income at a flat rate of 20%, regardless of the amount.

One crucial aspect to keep in mind is that dividends are paid out of a company's profits after company taxes have been paid. In South Africa, the standard corporate tax rate is 27%. This means that before any dividend is declared, the company must first pay tax on its profits at this rate.

The remaining profit, after tax, can then be distributed to shareholders in the form of dividends.

For example:

If a company earns R100,000 in profit, it will first pay R27,000 in corporate tax (at 27%). This leaves R73,000 of post-tax profit, which can then be distributed as dividends to shareholders.

Dividends tax in South Africa is a withholding tax, meaning that it is deducted by the company paying the dividends before the dividend reaches the shareholder. This tax is charged at a flat rate of 20%, irrespective of how much dividend income is received.

The dividends tax return must be submitted to SARS by the end of the month following the month in which the dividend was paid.

Why Dividends Matter

For directors and shareholders who are in the higher personal income tax brackets (above 20%), declaring a dividend can be particularly beneficial from a tax-saving perspective for the individual.

South Africa's personal income tax rates for higher-income earners can exceed 20%, ranging from 26% to as high as 45%, depending on your earnings.

By declaring dividends instead of taking additional salary or bonuses, you can potentially lower your overall tax burden. Here’s why:

  • If you’re in a personal income tax bracket above 20%, taking a dividend is more tax-efficient than receiving additional salary. For example, if you are taxed at 30% or higher, dividends provide a lower tax rate (20%), which reduces your overall tax liability.

  • Remember, dividends are paid out of profits after the company has already paid its 27% corporate tax. This structure allows you to avoid the higher personal income tax rates on that income, subjecting it only to the flat 20% dividends tax.

The Legal Stuff…

It is essential to understand the requirements of the Companies Act, 2008 (Act No. 71 of 2008) when it comes to declaring dividends. The Companies Act ensures that dividends are only paid when a company is in a sound financial position.

Here's what to keep in mind:

1) Solvency and Liquidity Test - A company may only pay a dividend if it passes the solvency and liquidity test. This means that after declaring the dividend, the company must still be able to pay its debts as they fall due and have assets that exceed its liabilities.

2) Board Resolution - The company’s board of directors must approve the declaration of dividends through a formal resolution. This approval should include confirmation that the company will remain solvent and liquid after paying the dividend.

3) Shareholders' Right to Dividends - Once dividends are declared, shareholders have a legal right to receive them. However, a company is not required to declare dividends annually. The decision to declare dividends is usually at the discretion of the board, depending on the company’s financial health.

Dividends declared from a company to a holding company are tax free and no dividends tax due.


Dividends are a complex area where the law and finances meet, so if you have any questions, or need advice about maximising your tax position, please do not hesitate to contact us.