COUNTRY

South Africa is an economy emerging from the shadow of turmoil and sanctions in the latter part of the period of apartheid. Multi-racial elections held in 1994 ended both minority white rule and apartheid, and ushered in a new political era.

But with it has come new challenges. Despite an equal rights policy for all citizens – regardless of race, creed, sex or sexuality – inequality remains an issue that can bring tensions to a head, as was highlighted by the poverty riots of 2009. Yet South Africa had until recently experienced solid economic growth, which continued into the world recession in 2008 (at 3.1% GDP); however, this reversed in 2009, with the economy shrinking by 1.9% – so far, a mere hiccup compared to the difficulties other countries have experienced. GDP rose again in 2010, by 2.9% and a growth of 3.1% was recorded for 2011.

What South Arica has in its favour is an abundant supply of natural resources, good rail and road networks connecting to other parts of southern Africa, ports that serve as transit hubs between the Americas, Europe and Asia, an established stock exchange and banking network, and a glut of unskilled and semi-skilled workers.

There are investment incentives available, although these are generally in early-stage development. There are currently three industrial development zones (IDZs), established around the ports of Richard’s Bay, East London and Coega, aimed at attracting foreign investment through duty suspension on certain imports and VAT exemption. A fourth, at Or Tambo International Airport is planned. Also, both individuals and companies can benefit from tax deductions by investing in an approved venture capital company (VCC).

Other tax incentives are available to businesses involved in scientific and technological research and development, and to film-makers. Certain small businesses can choose a simplified Turnover Tax method that replaces value added tax, income tax, provisional tax, capital gains tax and Secondary Tax on Companies.

The government has introduced new mining royalties of between 0.5% and 7% on gross sales, less allowable deductions. The new royalties regime applies from March 1, 2010.

South Africa is an economy emerging from the shadow of turmoil and sanctions in the latter part of the period of apartheid. South Africa had until recently experienced solid economic growth, which continued into the world recession in 2008 (GDP growth of 3.1%); however, this reversed in 2009, with the economy shrinking by 1.9%. Growth returned however, and the economy is forecast to have expanded by 1.2% in 2012. What South Arica has in its favour is an abundant supply of natural resources, good rail and road networks connecting to other parts of southern Africa, ports that serve as transit hubs between the Americas, Europe and Asia. There is an established stock exchange and an abundant supply of semi-skilled and unskilled labour. Corporate income tax is above the OECD average, but there is a growing list of investment incentives available to foreign investors, especially for industrial concerns.

TAXATION

  • Headline tax rates: CIT 12%/33%, PIT 18-40%, VAT 14%
  • Treaty Jurisdictions: Algeria, Australia, Austria, Belarus, Belgium, Botswana, Brazil, Bulgaria, Canada, China, Congo, Democratic Republic of, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Ethiopia, Finland, France, Germany, Ghana, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Korea, Republic of, Kuwait, Lesotho, Luxembourg, Malawi, Malaysia, Malta, Mauritius, Mexico, Mozambique, Namibia, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Romania, Russia, Rwanda, Saudi Arabia, Seychelles, Singapore, Slovak Republic, Spain, Swaziland, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Tunisia, Turkey, Uganda, Ukraine, United Kingdom, United States, Zambia, Zimbabwe
  • TIEA Jurisdictions: Argentina, Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Cook Islands, Costa Rica, Dominica, Gibraltar, Guernsey, Jersey, Liberia, Liechtenstein, Monaco, San Marino, Samoa

BUSINESS

  • Suitable for: Banking, Fund Management, Shipping, Aviation, Yachting, Intellectual Property/Licensing, Holding Companies
  • Company Types: Limited companies, public limited companies, trusts, sole proprietorships, branches, general partnerships and joint ventures
  • Formation Cost: 2000 – 2800 USD
  • Formation Time: 15 – 24 days
  • Maintenance cost: 800 – 1200 USD

INCORPORATION

Generally most kinds of ‘typical’ business do not require special permissions. However certain kinds of businesses may require further permissions, licenses or other requirements. Often businesses that are importing and exporting foodstuff, industries with heavy infrastructure such as oil and gas, and professional services in areas such as finance and banking are subject to more involved requirements.

There are a variety of forms which foreign businesses can take, including private and public companies, close corporations, partnerships, joint ventures and branches of foreign companies (“external companies”). Companies and close corporations are legal entities separate from their members. Close corporations can have up to 10 shareholders, all of whom have to be natural persons.

Foreign investors usually use the private version of a company or a branch. Foreign individuals sometimes use the close corporation but use is limited because exchange control regulations are applied more strictly to such entities.

Branches of foreign companies fall under the Companies Act of 1973 and are required to register as “external companies” with the South African Registrar of Companies in Pretoria. An external company is not required to appoint a local board of directors but must appoint a person resident in South Africa who is authorized to accept services of process and any notices served on the company. It must also appoint a registered local auditor and establish a registered office in South Africa.

Representative Office

In many cases, foreign companies setting up business in South Africa are not looking for income generating entities but more for an outsourced function for their international parent. The typical example of this is call centers however this form can also be used for sales and marketing purposes or outsourcing functions like IT and administrative centers. Thus technically speaking if the business conducts activities that do not generate taxable income it could constitute a outsourced or representative office, or possibly an ‘informal business’.

Such a structure technically needs no registration at all, however entering agreements and other debts would need to be organized by the foreign parent company. As such it may be necessarily to formally register. Since no official business structure exists this means that the process would be exactly the same as the branch office registration, however with less or possibly no tax registration steps.

Note: A possibly alternative approach to a representative office may be via Business Process Outsourcing providers based in South Africa. These services provide outsourced functions without requiring physical investment into South Africa.

Appoint a Representative

There is no need to appoint a local board of directors, however there must be one person residing in South Africa to accept service of any process and notices (there may also be local professional services that provide this service).

Agency: Organised within your own company

Time: N/A

Cost: N/A

Notarize Copy of the Memorandum Of Incorporation

When registering the ‘external company’ (in the next step), the founding documents of the company must be notarized certified copies. Thus before registering it is necessarily to arrange notarization from a local notary.

Various legal services providers may provide this function, and it may also be possible to get the documents legalized at the South African Department of International Relations and Cooperation. Note that South African diplomatic or consular representatives abroad can legalize official documents only if these were legalized by the relevant foreign authority in their country of accreditation, specifically for use within South Africa.

Agency: Legal and/or notarization/legalization service provider, possibly law firms or the South African Department of International Relations and Cooperation

Time: 1-2 days

Cost: No charge

Register as an “External Company”

The foreign company must register as an “external company” within twenty business days after it first begins to “conduct business, or non-profit activities”, as the case may be, within South Africa.

This can be done online via the Companies and Intellectual Property Commission (CIPC) and requires you to create a customer account, and deposit 400 ZAR into the CIPC bank account, and then complete and submit several forms and a copy of the company’s founding documents (memorandum of incorporation, etc). Further documents include: certified identity copy of applicant, certified identity copy or passport of all incorporators, directors and representative and power of attorney (if applicable).

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 25 days

Cost: 400 ZAR

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business that employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS) – www.efiling.co.za

Time: 12 days

Cost: None

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

Registration with the District Council

Businesses employing staff pay a gross revenue or salary related levy to the CMC.

Agency: Council

Time: N/A

Cost: N/A

Branch

A foreign company not wishing to incorporate a subsidiary in South Africa may instead wish to set up a representative office or a branch office. Although there are key differences between these types, there is no proper distinction between the registration of a representative style office and a branch office. Thus both would have the same basic steps.

If your business will be operating beyond the bounds of a representative office, such as wanting a more official and formal presence, legal entity status and ability to generate profit, a ‘full’ branch office registration would be required. The branch can perform commercial operations and enter into agreements but the principal company is responsible for all of the branch’s debts and liabilities.

Appoint a Representative

There is no need to appoint a local board of directors, however there must be one person residing in South Africa to accept service of any process and notices (there may also be local professional services that provide this service).

Agency: Organised within your own company

Time: N/A

Cost: N/A

Notarize Copy of the Memorandum Of Incorporation

When registering the ‘external company’ (in the next step), the founding documents of the company must be notarized certified copies. Thus before registering it is necessarily to arrange notarization from a local notary.

Various legal services providers may provide this function, and it may also be possible to get the documents legalized at the South African Department of International Relations and Cooperation. Note that South African diplomatic or consular representatives abroad can legalize official documents only if these were legalized by the relevant foreign authority in their country of accreditation, specifically for use within South Africa.

Agency: Legal and/or notarization/legalization service provider, possibly law firms or the South African Department of International Relations and Cooperation

Time: 1-2 days

Cost: No charge

Register as an “External Company”

The foreign company must register as an “external company” within twenty business days after it first begins to “conduct business, or non-profit activities”, as the case may be, within South Africa.

This can be done online via the Companies and Intellectual Property Commission (CIPC) and requires you to create a customer account, and deposit 400 ZAR into the CIPC bank account, and then complete and submit several forms and a copy of the company’s founding documents (memorandum of incorporation, etc). Further documents include: certified identity copy of applicant, certified identity copy or passport of all incorporators, directors and representative and power of attorney (if applicable).

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 25 days

Cost: 400 ZAR

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business that employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS) – www.efiling.co.za

Time: 12 days

Cost: None

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

Registration with the District Council

Businesses employing staff pay a gross revenue or salary related levy to the CMC.

Agency: Council

Time: N/A

Cost: N/A

Company

Private and public companies are incorporated entities under South African law. A private company is the most common type of business for foreign investors.

  • There is no requirement for local shareholders or directors.
  • The overall time to incorporate a company is estimated to be 2 months.

Reservation of Company Name

Under the new Act, name reservation is no longer mandatory before registering a company. Under the Companies Act, 2008, a company may be registered with or without a company name.

When a company is registered without a reserved name, its registration number automatically becomes the company name. This is the quickest way to register a company.

Thus this step is optional but still recommended. This process has a proposed name verified, approved and reserved. This procedure involves checks to ensure that the proposed name does not already appear on the names register.

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 7 days (note can be done at same time as second step)

Cost: ZAR 50

Registration of Company (File Articles of Incorporation)

The company must be registered with the South African Registrar of Companies through the Companies and Intellectual Property Commission (CIPC) within 21 days of the company being started. A company is incorporated by the lodging of a Notice of Incorporation (CoR 14.1) and Memorandum of Incorporation (CoR 15.1 A-E) and possibly other supporting documentation depending on the company. These forms are available for download from the CIPC’s website.

Memorandum of Incorporation: The Memorandum of Incorporation (MOI) generally should contain the following information:

  • Details of incorporators
  • Number of directors or alternate directors
  • Share capital (maximum issued)

Notice of Incorporation: The Notice of Incorporation, which is lodged with the MOI, generally should contain the following information:

  • Type of company
  • Incorporation date
  • Financial year-end
  • Registered address (main office)
  • Number of directors
  • Company name
  • Whether the company name will be the registration number
  • The reserved name and reservation number
  • List of four names to be checked by the Commission

The CIPC’s website allows business owners to register their companies online. Once you are registered as a CIPC customer you will be able to access the transactional website. After you have logged in, look for the ‘New Companies’ link under the ‘Companies’ tab.

Agency: Companies and Intellectual Property Commission (CIPC) 

Time: 3-6 days

Cost: ZAR 125

Note: drafting and preparing legally valid articles of incorporation will require additional time and legal fees.

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business who employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS)

Time: 12 days

Cost: None

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

Registration with the District Council

Businesses employing staff must pay a gross revenue or salary related levy to the district council.

With the exception of specialized enterprises, such as liquor stores and arms dealers, businesses no longer need a license to trade in South Africa. They are, however, required to register with the Regional Services Council (RSC) in the area in which they operate.

Once registered, the business is charged services levies based on its total bill for salaries and wages, as well as on gross sales. Returns and payments must be lodged on a monthly or annual basis as determined by the RSC. The rate of the levy varies from region to region and, in the case of the regional services levy, is required to be paid to the Regional Services Council in the region in which the employees render the services to the employer.

To register with your local RSC:

  • Complete and submit Form RSC1 at the offices of your local Regional Service Council. These vary from council to council, so can’t be made available for download online
  • You will receive confirmation of registration within approximately one month on a Form RSC2. This form will contain a reference number which should be quoted in all dealings with the RSC
  • Subject to prescribed payment terms, the RSC will send you a services account on Form RSC4 either monthly or annually

While our research found many sources talking about this step and registration requirement, there was no information available about the registration cost and processing time. This is presumably because the process will depend entirely on the local district council.

Agency: Regional Services Council (SRC)

Time: 1 day

Cost: No registration fee