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In South Africa, company tax is 27% of a company's taxable income. Taxable income is the total of a company's incomes less all its deductible expenses. It is important to understand that the maximum marginal rate of personal income tax is now 45% and dividend withholding tax is 20%. So that means that if a person owns a business there is not much to choose between taking the profits out as dividends or as salary. Large companies often take advantage of various capital allowances in the Income Tax Act which allow them to deduct the cost of plant and equipment as well as building and land in an accelerated way. When considering a share you should always check to see whether the company paid 28% of their pre-tax profit in tax. If they paid more then the chances are that in future years they will return to paying 28% and likewise if they paid less.

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