There is no single profit level at which a company beats a sole proprietor. It depends entirely on how you take the money out. If you extract everything as dividends, a Small Business Corporation does not overtake a sole proprietor until roughly R3.6 million of profit. If you take a modest salary and leave the rest in the company, the company wins from around R400,000 — and at R800,000 of profit the saving is over R120,000 a year.
The question is framed wrongly. It is not "at what profit", it is "how much do you need to take out".
Why the usual answer is wrong
The common advice is that a company becomes worthwhile somewhere around R500,000 or R1 million of profit. Run the numbers on full extraction and that is simply not true.
A sole proprietor pays personal tax and the money is theirs. A company owner pays company tax, then dividends tax at 20% on what is left, before the money reaches their pocket.
Full extraction as dividends, 2026/27 rates:
| Profit | Sole proprietor tax | SBC company + dividends tax | Standard company + dividends tax |
|---|---|---|---|
| R300,000 | R40,572 | R71,256 | R124,800 |
| R500,000 | R98,417 | R137,576 | R208,000 |
| R700,000 | R169,033 | R218,376 | R291,200 |
| R1,000,000 | R288,293 | R343,176 | R416,000 |
| R2,000,000 | R703,149 | R759,176 | R832,000 |
The sole proprietor is cheaper at every one of these levels. The crossover against a Small Business Corporation is around R3.6 million of profit. Against a standard 27% company it is around R5.8 million.
If you need every rand of profit to live on, the company does not save you tax. That is the honest answer, and it is the opposite of what most people are told.
Where the company actually wins: retained profit
The advantage appears the moment you stop taking everything out.
Profit left in the company is taxed once, at company rates, and dividends tax is deferred until you distribute it.
Tax on profit retained in the business:
| Profit retained | Sole proprietor pays | SBC company pays | Saving |
|---|---|---|---|
| R200,000 | R18,180 | R7,070 | R11,110 |
| R400,000 | R67,417 | R25,970 | R41,447 |
| R550,000 | R114,907 | R57,470 | R57,437 |
| R700,000 | R169,033 | R97,970 | R71,063 |
| R1,000,000 | R288,293 | R178,970 | R109,323 |
A sole proprietor is taxed on the full profit whether they draw it or not. There is no such thing as leaving money in a sole proprietorship for tax purposes — the business is you.
A company is a separate taxpayer. Retain R550,000 and it is taxed at R57,470 instead of R114,907. That is capital available to fund stock, equipment or hiring, taxed at half the rate.
The realistic structure: salary plus retention
Almost nobody retains everything. The practical question is the mix.
A worked example — R800,000 of profit, a qualifying Small Business Corporation:
| Salary taken | Personal tax | Company tax on the rest | Total tax | Effective rate |
|---|---|---|---|---|
| R0 | R0 | R124,970 | R124,970 | 15.6% |
| R250,000 | R27,572 | R57,470 | R85,042 | 10.6% |
| R400,000 | R67,417 | R25,970 | R93,387 | 11.7% |
| R550,000 | R114,907 | R10,580 | R125,477 | 15.7% |
| R800,000 | R208,033 | R0 | R208,033 | 26.0% |
As a sole proprietor on the same R800,000: R208,033, or 26.0%.
At the optimum — around R250,000 of salary, R550,000 retained — the total is R85,042. That is R122,991 less tax in one year than the same profit earned as a sole proprietor.
Why R250,000? It uses up the low personal brackets and the primary rebate, then lets the remaining R550,000 sit inside the Small Business Corporation scale where the first R99,000 is taxed at 0% and the next band at 7%. Two sets of low brackets instead of one.
The catch: that R550,000 is in the company. Taking it out later attracts dividends tax at 20%. This is deferral and reinvestment, not elimination. It is genuinely valuable if the business needs capital. It is worth much less if you are going to draw it next year anyway.
Everything that is not tax
The tax answer is only part of the decision, and frequently not the deciding part.
Compliance costs money. Annual returns, beneficial ownership, annual financial statements, an income tax return, two provisional tax payments. Realistically a few thousand rand a year minimum. At R200,000 of profit that cost can exceed the tax saving.
Small Business Corporation status is conditional and easily lost. Turnover limits, no shareholder holding shares in another company, and caps on investment and personal-service income. Lose SBC status and you are on 27% flat, where the arithmetic above changes completely. A holding company breaks it. So does a shareholder with shares elsewhere.
Limited liability is often the real reason. Where a mistake could cost more than you can personally absorb, the company is the answer whatever the tax says.
Corporate customers and tenders frequently require a company. That is a revenue question, not a tax one.
Moving an existing business into a company is a disposal, with capital gains tax on goodwill and equipment unless properly structured, and your personal assessed loss does not come with you.
How to actually decide
1. Work out your real profit — after a market-related salary for yourself.
2. Ask how much you need to draw. This is the question that decides it. If you need all of it, tax is not your reason to incorporate.
3. Check whether you would qualify as an SBC. Without it, the company case weakens considerably.
4. Price the compliance, honestly, for a full year.
5. Weigh the non-tax reasons — liability, customers, shareholders, exit.
6. Model your own numbers. The tables above are illustrative. Yours will differ.
Frequently asked questions
At what profit should I register a company instead of staying a sole proprietor? It depends on how much you draw. If you extract all the profit as dividends, a Small Business Corporation only overtakes a sole proprietor at around R3.6 million of profit. If you take a modest salary and retain the rest, the company wins from around R400,000.
Is a company always more tax efficient than a sole proprietor? No, and this is the most common misconception. A company owner pays company tax and then 20% dividends tax to get the money out. On full extraction the sole proprietor is cheaper at every profit level up to several million rand.
How much tax could a company actually save me? On R800,000 of profit, taking a R250,000 salary and retaining R550,000 in a qualifying Small Business Corporation, total tax is about R85,042 against R208,033 as a sole proprietor — a saving of roughly R123,000 for that year. The retained amount still attracts dividends tax when eventually distributed.
Does Small Business Corporation status change the answer? Substantially. SBC rates start at 0% on the first R99,000 and 7% to R365,000. Without SBC status the company pays 27% flat and the case for incorporating on tax grounds is much weaker.
Why does the crossover depend on how much I take out? Because a sole proprietor is taxed on the full profit whether drawn or not, while a company is a separate taxpayer. Profit retained in a company is taxed once at company rates, with dividends tax deferred until distribution.
What non-tax reasons should push me towards a company? Limited liability where a mistake could exceed what you can personally absorb, corporate customers or tenders that require a company, bringing in shareholders, and having something you can eventually sell.
Is it expensive to run a company? Annual returns, beneficial ownership, financial statements, an income tax return and two provisional tax payments — realistically a few thousand rand a year minimum. At modest profits this can exceed the tax saving.
Answer the drawings question first
Almost every "should I incorporate" conversation gets answered on profit alone. Profit is the wrong variable. What decides it is how much of that profit has to leave the business.
Smartbook models the sole proprietor and company positions on your actual numbers and drawings before you register anything.
Last reviewed: 31 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Calculations use 2026/27 individual tax tables with the R17,820 primary rebate, Small Business Corporation rates, 27% corporate income tax and 20% dividends tax. Worked examples are illustrative and exclude UIF, SDL and compliance costs. Confirm current rates and take advice on your circumstances.
Primary sources: SARS — Tax Rates · Income Tax Act 58 of 1962 · CIPC