Sole Proprietor vs Pty Ltd: Tax Break-Even
A Pty Ltd pays a flat 27% company tax. A sole proprietor is taxed at personal rates (18-45%). The Pty saves tax once your profit is high enough that the personal scale crosses the company rate. Plug in your number to see the cross-over.
For a R500 000 profit
| Structure | Tax | Take-home |
|---|---|---|
| Sole proprietor (personal tax) | R99 002 | R400 998 |
| Pty Ltd, profit kept inside | R47 197 | R452 803 (in company) |
| Pty Ltd, fully distributed (company tax + 20% dividends) | R137 758 | R362 242 (in your pocket) |
How to read this
- Profit kept inside = the Pty pays only company tax. You don't pay yourself a dividend (yet). This is the right comparison if you'll reinvest in the business.
- Fully distributed = the Pty pays company tax, then you take all the after-tax profit as a dividend, which is taxed again at 20%. This is the worst case for the Pty.
- If you pay yourself a salary instead of a dividend, the Pty deducts the salary as an expense (no company tax on that portion), and you pay personal tax on the salary. The math then collapses toward sole-prop tax for the salary portion.
- SBC rates only apply if you qualify - one of the most underused tax breaks in SA. SARS criteria.
Beyond tax
Tax isn't the only reason to register a Pty. Limited liability, separating personal credit from business credit, taking on partners, issuing shares, and looking professional to corporate clients are all reasons people register Ptys at far below the tax break-even.
On the other hand, sole proprietors don't file CIPC annual returns, don't file Beneficial Ownership, and don't pay R175 to start. For a freelancer doing under R200k a year, the admin cost of a Pty often outweighs the tax saving.
Related
2026 SARS brackets. This is planning math, not tax advice. Real tax depends on deductions, allowances, retirement contributions, medical credits, and specific Pty structures. Talk to a tax practitioner for your specific situation.