IC Markets
This is a general overview, not tax advice. SARS assesses each trader's facts individually, and the classification of your trading and the deductions you can claim depend on your specific situation. A registered tax practitioner is worth the fee.
Once a trader starts making regular profit at a high marginal rate, someone always suggests trading through a company to pay the lower corporate rate instead. It is possible, and for a small number of traders it makes sense, but the maths is less favourable than it first looks once you account for getting the money out, the running costs, and how SARS views companies set up mainly to save tax. This guide works through it.
The headline comparison
| Trading in your own name | Trading through a company | |
|---|---|---|
| Rate on profit | Your marginal rate, 18-45% | The corporate income tax rate on company profit |
| Getting money to yourself | Already yours | Salary (taxed at your marginal rate) or dividend (dividends tax on top of corporate tax) |
| Running costs | None beyond your own return | Annual financial statements, CIPC returns, separate tax number, accounting fees |
| Admin | One ITR12, provisional tax | Company returns, provisional tax for the company, payroll if you draw a salary |
| SARS view | Standard | Scrutiny if the structure looks purely tax-motivated |
Why the company rate is not the whole story
The company pays corporate tax on its profit. Then, to spend the money, you take it out as salary or dividends. Salary is taxed at your marginal rate, which puts you close to where you started. A dividend triggers dividends tax on top of the corporate tax already paid, and the combined effective rate can land near the top personal marginal rate anyway. The company structure only wins clearly if you are leaving most of the profit inside the company to compound, not drawing it to live on.
When a company can make sense
- You are consistently profitable at a scale that justifies the running costs, not in your first year or two.
- You want to retain most profits in the entity to reinvest, rather than drawing them.
- You have other reasons for the entity: bringing in a partner, ring-fencing liability, a broader trading or investment business.
- You have a practitioner running it properly, so the compliance cost is controlled.
When it does not
For the large majority of individual retail traders, a company adds cost and admin for little or no tax saving, because they need the profit to live on and will draw it out. It also creates a second set of returns to get wrong. If your trading profit is a few tens of thousands of rand a year, a company is almost certainly the wrong move. Trade in your own name, register for provisional tax, and keep good records.
SARS can challenge a structure whose main purpose is to reduce tax, and can also treat an owner-managed trading company's profits as effectively the individual's in some circumstances. A company is not a way to make trading profit disappear from your personal tax picture.
Wandile formed a company for his trading after a strong year, expecting to pay the corporate rate and keep more. In practice he drew most of the profit as salary to cover his bond and school fees, so it was taxed at his marginal rate anyway, and he added about R18,000 a year in accounting and compliance costs plus a second provisional tax cycle. After two years he closed the company and went back to trading personally. His accountant's view was that a company only pays off if you can leave the money in it, which he could not.
A reasonable default
- Trade in your own name.
- Register for provisional tax once trading is regular.
- Set aside 35 to 40 per cent of profit withdrawals for tax.
- Keep full records and claim the legitimate expense deductions.
- Revisit the company question only if you become consistently profitable at scale and can retain profits in the entity, and then only with a practitioner's advice.
The company question comes up every time someone has a good quarter. My answer is almost always the same: if you need the money to live on, the company saves you nothing and costs you admin. Come back when you are profitable enough to leave the profit inside the entity, and bring an accountant.
Frequently asked
Should I register a company to trade forex in South Africa?
Usually not, for an individual. The corporate rate advantage largely disappears once you draw the money as salary or dividends, and the company adds accounting and compliance costs. Trading in your own name is simpler for most retail traders.
Does a company reduce the tax on forex profits?
Only if you retain most of the profit inside the company. If you draw it as salary it is taxed at your marginal rate, and a dividend adds dividends tax on top of corporate tax, with a combined rate near the top personal bracket.
When does a trading company make sense?
When you are consistently profitable at a scale that justifies the running costs, want to retain profits to reinvest rather than draw them, or have other reasons for the entity such as a partner or liability ring-fencing.
What are the running costs of a trading company?
Annual financial statements, CIPC annual returns, a separate tax number and provisional tax cycle, accounting fees, and payroll administration if you pay yourself a salary. Budget for these before forming one.
Can SARS challenge a trading company?
Yes. SARS can challenge a structure set up mainly to reduce tax, and in some cases treat an owner-managed trading company's profit as effectively the individual's. A company does not remove trading profit from your personal tax picture.