[THREAD] The one director, one shareholder, one employee company.
Perhaps you've heard that a company only pays 28% tax and got the bright idea to register yourself as a company, doing the same work, and only pay 28% rather than at the 45% tax bracket.
Bring your tissues...
Perhaps you've heard that a company only pays 28% tax and got the bright idea to register yourself as a company, doing the same work, and only pay 28% rather than at the 45% tax bracket.
Bring your tissues...
Problem 1: How do you pay yourself? The money is yours after all.
Not really, it belongs to the company. Now you need to either pay yourself a salary (which you were getting in the first place) or dividends... And dividends is an after tax payment.
Not really, it belongs to the company. Now you need to either pay yourself a salary (which you were getting in the first place) or dividends... And dividends is an after tax payment.
Problem 2: Dividend delusion. So you decide to take dividends because the tax is only 20%
Cute, but bad.
Say the company made 1mil profit, pays 280k in comp tax, and you pay yourself a dividend of 720k. 720k div @ 20% DWT = 144k
Total tax paid: 424k (42.4%)
Cute, but bad.
Say the company made 1mil profit, pays 280k in comp tax, and you pay yourself a dividend of 720k. 720k div @ 20% DWT = 144k
Total tax paid: 424k (42.4%)
Problem 3: Personal service provider pains.
So your only client is your ex-employer and you have no employees? Cool story bro, but now SARS will see your company as if you're an employee, forcing your ex-employer to pay you as if you're employed and deduct PAYE.
So your only client is your ex-employer and you have no employees? Cool story bro, but now SARS will see your company as if you're an employee, forcing your ex-employer to pay you as if you're employed and deduct PAYE.
Problem 4: Cost of Compliance
It's grand to have your own company, but consider that now you have to do:
1. Prov tax returns;
2. Company tax return,
3. Register for VAT (over 1 mil turnover)
4. Comply with Companies Act
5. Compulsory financial statements
It's grand to have your own company, but consider that now you have to do:
1. Prov tax returns;
2. Company tax return,
3. Register for VAT (over 1 mil turnover)
4. Comply with Companies Act
5. Compulsory financial statements
Example on the tax (2022 tax rates):
PAYE on 2 million salary = 742k
PTY tax + DWT on 2 mil = 848k
So an individual pays less tax than a company that pays all the profit out as dividends...
PAYE on 2 million salary = 742k
PTY tax + DWT on 2 mil = 848k
So an individual pays less tax than a company that pays all the profit out as dividends...
The nuanced viewpoint: Only register a company it actually makes sense to do so, on all fronts. Where you have more than one client, plan to take on employees, and multiple other factors.
Don't just blindly follow the advice you get a braai. Get proper advice.
Don't just blindly follow the advice you get a braai. Get proper advice.
Registering a PTY should be a decision that you made after doing proper research, got good advice, and that it's part of your overall business plan.
Tax isn't something you can look at in isolation - it's one aspect that is part of many other moving parts.
Tax isn't something you can look at in isolation - it's one aspect that is part of many other moving parts.
This thread was brought to you by the Tax Maverick at @Banker__X
In order to pay the same / less tax than the individual, the company to have had 250k or more in tax deductible expenses
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