DOING BUSINESS IN SOUTH AFRICA
For over a decade, Healy Consultants Group PLC has been efficiently and effectively assisting our Clients with establishing a business in South Africa. Our experts serve our Clients with i) South Africa company registration ii) Government compliance iii) license registrations iv) visa applications v) work space rental solutions and vi) employee recruitment solutions.
|Summary||LLC||Free zone LLC||Public limited company||Joint Venture||Branch office||Trust||Foundation|
|Also known as||Pty. Ltd.||IDZ Pty. Ltd.||Ltd.||Pty. Lrd.||Branch Office||Trust||Foundation|
|Best use of company?||All products and services||Manufacturing and export trading||To secure public funding||Trading||Specific projects||Tax planning||Tax Planning|
|How soon can you invoice Clients/sign sales contracts?||2 weeks||2 months||1 month||1 month||2 months||No||No|
|How soon can you hire staff?||2 weeks||2 months||1 month||1 month||2 months||No||2 months|
|How soon can you sign a lease agreement?||2 weeks||2 months||1 month||1 month||2 months||1 month||2 months|
|How long to supply corporate bank account numbers?||1 month||3 months||2 months||2 months||3 months||2 months||3 months|
|How long to supply company registration/tax numbers?||2 weeks||2 months||1 month||1 month||2 months||1 month||2 months|
|Corporate tax rate on annual net profits?||28%||15%||28%||28%||28%||18%-45%||28%|
|Limited liability entity?||Yes||Yes||Yes||Yes||No||No||No|
|Government grants available?||Yes||Yes||Yes||Yes||Yes||No||No|
|Resident director/partner/manager/ legal representative required?||No||No||No||No||Yes||No||No|
|Minimum paid up share capital?||US$1||US$1||US$3,800||none||none||none||none|
|Can bid for Government contracts?||Yes||Yes||Yes||Yes||Yes||No||No|
|Corporate bank account location?||HSBC SA||SCB SA||Deutsche Bank SA||Standard Bank||Nedbank||Absa Bank||Citibank SA|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||No||No|
|VAT payable on sales to local customers?||14%||14%||14%||14%||14%||N/A||N/A|
|Average total business set up engagement costs?||US$9,630||US$9,630||US$10,130||US$9,630||US$10,780||US$17,930||US$9,530|
|Average total engagement period?||2 months||4 months||3 months||3 months||4 months||3 months||4 months|
|Accounting and tax considerations||LLC||Free zone LLC||Public limited company||Joint Venture||Branch office||Trust||Foundation|
|Statutory corporate tax payable?||28%||15%||28%||0%||28%||18%-45%||28%|
|Legally tax exempt if properly structured?||No||Yes||No||Yes||No||Yes||Yes|
|Group HQ tax incentives?||Yes||Yes||Yes||No||Yes||Yes||Yes|
|Must appoint an auditor?||No||No||Yes||No||No||No||No|
|Withholding tax on payments to foreign shareholders?||15%||15%||15%||15%||15%||15%||N/A|
|Company Registration||LLC||Free zone LLC||Public limited company||Joint Venture||Branch office||Trust||Foundation|
|Resident director/partner/manager/ legal representative required?||No||No||No||No||Yes||No||No|
|Must appoint a South African resident public officer?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Minimum number of shareholders/partners?||1||1||1||2||Parent company||None||None|
|Maximum shareholding for foreigners?||100%||100%||100%||100%||100%||100%||100%|
|Minimum statutory paid up share capital?||US$1||US$1||US$3,800||US$1||none||none||none|
|Shelf companies available?||Yes||Yes||Yes||No||No||No||No|
|Time to incorporate a new entity?||2 weeks||2 months||5 weeks||1 month||2 months||1 month||2 months|
|Can easily convert to a PLC?||Yes||Yes||Yes||No||No||No||No|
|Can have preference shareholders?||Yes||Yes||Yes||Yes||No||No||No|
|Business Considerations||LLC||Free zone LLC||Public limited company||Joint Venture||Branch office||Trust||Foundation|
|Good entity for trademark registration?||Yes||Yes||Yes||No||Yes||No||No|
|Can secure an import and export license?||Yes||Yes||Yes||Yes||Yes||No||No|
|Government approval required for foreign owners?||No|
|Must file an annual tax return?||Yes|
|Must file annual financial statements?||Yes|
|Access to double taxation treaties?||Yes|
|Security deposit to be kept with Government?||No|
|Public register of shareholders and directors?||Yes|
|Sponsorship by a local citizen required?||No|
|Our Client needs to travel to South Africa for business set up?||No|
|Temporary physical office solutions available?||Yes|
|You need a local resident as bank signatory?||No|
|Can be wholly foreign owned?||Yes|
|The entity will likely be regulated by?||CIPC|
|Minimum number of directors/managers?||1|
|Bi-monthly VAT reporting to the Government?||Yes|
|Must sign an office lease agreement during incorporation?||No|
|Shareholders & directors documents to be attested/translated?||No|
|Each foreign director needs a personal income tax number?||No|
|Foreign director needs a residence visa?||No|
|Maximum number of staff allowed?||No maximum number for any entity|
|Expatriate to local staff ratio?||37 local to 1 expat|
|Can secure residence visa for business owner?||Yes|
|Other useful information|
|What will be included in my customer sales invoice?||Click link|
|This country has signed free trade agreements?||Yes|
|This country is a member of WIPO/TRIPS?||Yes|
|This country is a member of the ICSID?||No|
|Average custom duties suffered?||18.74%|
|Government foreign investment approval required?||No|
|Average monthly office rental? (US$ per sq m)||US$30|
|Minimum statutory monthly salary?||US$270|
|Average monthly US$ salary for local skilled employees?||US$700|
|US$ deposit interest rate? (1 year average)||8%|
|Overseas remittance currency controls?||Yes|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Very good|
|Crowd funding available in this country?||Yes|
Press the link headings below to read detailed, relevant, up to date information.
Advantages and Disadvantages
Advantages of South African company registration
- Setting up a business in South Africa is easy because:
- Incorporating an LLC requires a minimum paid-up share capital of US$1. Furthermore, the company setup process can be completed within 4 weeks;
- Only one director and one shareholder must be appointed, who can be of nationality. Consequently, a South African LLC can be 100% foreign owned.
- South African Government offers several R&D incentives including:
- R&D projects with initial investment less than US$400,000 are eligible for grants worth US$200,000. Similarly, projects with initial investment between US$400,000 and US$2,000,000 are eligible for grants worth US$500,000. Finally, projects with investment higher than US$2,000,000 are eligible for grants worth at least US$1,000,000;
- Private companies investing in R&D projects relating to science and technology, can receive refunds from the government worth 150% of the operating expenditure incurred;
- Resident companies investing in projects to determine the feasibility of foreign projects which could be implemented in the country to improve trade, are eligible for grants worth up to US$500,000;
- Certain small businesses can apply for grants worth i) US$80,000 to cover the costs of approved tools and machinery and ii) US$20,000 to cover the employee training and business development costs;
- Investments in the automotive industry, to improve the productivity of light motor vehicles, are eligible for grants worth between 20% and 30% of the value of the qualifying investment.
- South Africa resident companies enjoy several non-R&D incentives including:
- Dividends from foreign companies and capital gains from sale of holdings in a foreign company can be corporate tax exempt if the receiving entity holds 10% stake in the foreign entity;
- There are no withholding taxes levied on interest payments made to resident and non-resident companies;
- Companies investing in the tourism and manufacturing sectors can receive monetary grants of up to US$800,000 on investments higher than US$5 million;
- Monetary incentives up to US$33,000 per job created will granted to companies who set up business process outsourcing (BPO) operations in South Africa;
- Businesses investing in certain sectors of the South African economy are eligible for benefits including i) monetary grants worth US$300,000 to cover marketing, advertising and publicity costs ii) 80:20 cost sharing grants to finance the project and iii) monetary grants worth US$400,000 to cover travel, accommodation and exhibition costs for new trading businesses;
- South Africa has signed 73 Double Taxation Agreements and 45 Bilateral Investments Agreements to reduce withholding taxes on foreign payments and customs duties on imports/exports.
Disadvantages of South African company registration
- Every signatory of a South African corporate bank account must hold a South African work visa. Although a South African resident director is no longer required by law, Healy Consultants recommends that our Clients appoint a local director who will also be the bank signatory. To secure company registration and bank account opening in a timely manner, most of our Clients request Healy Consultants to appoint a nominee resident director. If required, Healy Consultants’ resident director service fee amounts to US$9,950 per annum;
- South Africa is a high tax country because i) corporate tax is 28% ii) VAT is 14% iii) capital gains for companies is 18% iv) asset tax is 1% v) withholding tax is up to 15% vi) average import duty is 19% and vii) transfer duty on immovable property is 8%;
- It is difficult to find qualified labor in South Africa because:
- Only 2% of the population holds a university degree;
- Only 39% of the population speaks fluent English, making language a barrier for foreign entrepreneurs.
- A South Africa resident business will face certain bureaucratic hurdles including:
- Repatriation of profits to a foreign country will require prior approval from the Central Bank (SARB);
- A South African resident will be required to be the signatory when opening a corporate bank account;
- Labor unions interfere with the simple employer-employee relationship, making it harder to hire or fire employees;
- South Africa’s Corruption Perception Index stands unfavorably at 69th out of a total of 174 countries.
- The South African Rand is one of the most volatile currencies in emerging markets, giving uncertainty to the value of foreign investment;
- South Africa is one of the world’s most dangerous countries to live in. It ranks as the 14th most homicidal country in the world.
- Setting up a business in South Africa is easy because:
Best uses for a South Africa company
- South Africa is an excellent place to setup a manufacturing and distribution company because:
- Incorporating in South Africa’s 5 Industrial Development Zones offers companies i) 100% exemption on custom duties ii) 100% exemption on VAT and iii) up to 30% grants on cost of plants, machinery, equipment, commercial buildings and vehicles;
- Investments in construction of infrastructure for industrial projects are eligible for grants covering between 10% and 30% of the total development costs;
- Companies moving machinery into South Africa can apply for a cash grant worth either i) 15% of the value of the equipment or ii) US$2.7 million, whichever is lesser;
- South Africa boasts Africa’s best infrastructure comprising of 31,000 km of train network, 8 international airports and 21 seaports facilitating easy mobilization of goods.
- South Africa is an excellent place to setup a manufacturing and distribution company because:
Business entities in South AfricaThe South Africa Companies Act allows registration of companies by foreigners in most industries, and the business entity most commonly setup by Healy Consultants for our Clients is the limited liability company, locally known as a private company (Pty. Ltd.). The main challenge for registration of a company in South Africa for businessmen living abroad is the need to appoint a local bank signatory. To protect their interest, most of our Clients request Healy Consultants to provide nominee services for such appointment. See our nominee services page for further details or read the page below for detailed information on the different types of business entities available in South Africa.
Doing business in South Africa with a local entity
The South African limited liability company (proprietary limited company)
- A South African limited liability company (locally known as a “proprietary limited company” or Pty. Ltd.) can be setup with 1 director and 1 shareholder, both of whom can be foreigners residing abroad. Furthermore, there is no statutory share capital requirement;
- Nonetheless, a company incorporated in South Africa is be required to appoint a public officer. This individual will be resident in South Africa and may be an employee of the company. He/she will be deemed to be the registered representative of the company in South Africa;
- All LLCs must submit an annual return and financial statements to the Companies and Intellectual Commission (CIPC). It is possible the company may be requested by the CIPC to submitted audited financial statements;
- Best uses for a South African proprietary limited company: The South African Pty. Ltd. is an attractive vehicle for most industries, thanks to its low share capital requirements. It is the type of entity most commonly setup by foreigners and locals alike in South Africa.
The South African free zone company (IDZ company)
- Our Clients may also choose to setup their operations in one of South Africa’s Industrial Development Zones (IDZ). For this purpose, our Clients will need to setup a Pty. Ltd. and open a corporate bank account. Our Client will additionally need to lease space within the IDZ and secure an operating permit. For further information, kindly refer to this free zone section;
- Best uses for a South African free zone company: The South African free zone company is an attractive vehicle for an export oriented manufacturing business. For further information, kindly refer to this free zone section.
The South African public limited company (public limited company)
- Under the Companies Act, this entity is referred to as the “public company”. A PLC may be setup with 3 directors and 1 shareholder, who can be foreigners and non-residents. Furthermore, there is no minimum share capital requirement; however, at incorporation, the company will be required to disclose how it plans to raise its capital;
- Like a Pty. Ltd., a PLC will i) appoint a resident public officer and ii) submit annual returns and tax returns. Additionally, the PLC will i) appoint a resident company secretary and ii) submit audited financial statements;
- Best uses for a South African public limited company: this business entity is recommended when our Client wishes to raise capital from the South African public. However, there is no obligation for the company to be listed on the local stock exchange.
The South African joint venture (joint venture company)
- Foreign companies may enter into joint venture (JV) with a South African company to offer goods/services in South Africa. A JV is generally used if two or more entities need to cooperate on a specific project. The joint venture can be a limited liability company (Pty. Ltd.) but it is also possible not to register one, in which case the partnership will be run as per the terms of the JV contract;
- Best uses for a South African joint venture: a joint venture is recommended when our Client plans to implement a project of a limited duration and already has a reliable joint venture partner in South Africa.
The South African partnership (Partnership)
- While partnerships exist in South Africa, the law does not provide for the possibility to register them with the Commercial Registrar. Moreover, all partners are subject to unlimited liability for the partnership debt and losses and at least one of them must reside in South Africa for the partnership agreement to be valid;
- Best uses for a South African partnership: we do not recommend our Clients to do business in South Africa through a partnership unless they already live in the country.
Doing business in South Africa with a foreign entity
The South African branch office
- In South Africa, this business entity is referred to as the “external company”. This entity is not considered separate from its overseas head office, which is consequently legally liable for all losses incurred by its South African branch;
- The branch registration process will be the same as company incorporation process. For a complete overview of the steps, please refer to this incorporation webpage;
- Like an LLC, the branch will also submit i) annual financial statements to the CIPC and ii) annual tax returns to the South Africa Revenue Service (SARS). The branch will also appoint a resident public officer as the “registered representative”;
- The income from a branch office will be taxed at the corporate tax rate. Furthermore, there will be no additional withholding tax or branch remittance tax on that income;
- Best uses for a South Africa branch office: registering a branch is advisable only in industries subject to high capital requirements (like the banking sector) or if our Clients expect that their customers will more confortable dealing directly with their company, rather than a South African subsidiary.
The South African representative office
There is no representative office in South Africa. Representative offices in this country are actually branches without commercial operations.
Table of comparison between different entity types
Operations and logistics LLC Free Zone Company PLC Joint Venture Partnership Branch Also known as? Pty. Ltd. IDZ Pty. Ltd. Ltd. Joint venture Pty. Lrd. Partnership Branch office Doing business in South Africa permitted? Yes Yes Yes Yes Yes Yes Allowed to sign contracts with local Clients? Yes Yes Yes Yes Yes Yes Allowed to invoice local Clients? Yes No Yes Yes Yes Yes Can rent local office premises? Yes Yes Yes Yes Yes Yes Allowed to import raw materials? Yes Yes Yes Yes Yes Yes Allowed to export goods? Yes Yes Yes Yes Yes Yes Accounting and tax Corporate tax rate? 28% 0% 28% 28% 0% 28% Corporate bank account? HSBC South Africa SCB South Africa DB South Africa Standard Bank South Africa SCB South Africa SCB South Africa Statutory audit required? No No Yes No No No Annual tax return to be submitted? Yes Yes Yes Yes No Yes Access to DTAAs? Yes Yes Yes Yes No Yes Company law Issued share capital required? None None None None None None Resident director required? No No No No Yes No Resident bank signatory required Yes Yes Yes Yes Yes Yes SA shareholder required? No No No No Yes No Minimum number of directors? 1 1 3 1 1 1 Minimum number of shareholders? 1 1 1 1 2 Parent company Individual shareholders allowed? Yes Yes Yes Yes Yes No Corporate director(s) allowed Yes Yes Yes Yes No No Corporate shareholders allowed? Yes Yes Yes Yes Yes Yes Public register of shareholders and directors Yes Yes Yes Yes No Yes Immigration Can the entity hire expatriate staff? Yes Yes Yes Yes No Yes How long to get work permit approved 1 month 1 month 1 month 1 month N/A 1 month Fees and timelines How long to set the entity up? 2 weeks 4 weeks 3 weeks 2 weeks 2 weeks 7 weeks How long to open corporate bank account? 4 weeks 4 weeks 4 weeks 4 weeks 4 weeks 4 weeks Estimate of engagement costs US$9,630 US$9,630 US$10,130 US$9,630 US$11,380 US$10,780 Draft invoice
The Black Economic Empowerment Certificate
- The Black Economic Empowerment (BEE) Certificate is a regulation voted in 2007 by the South Africa Government in order to promote entrepreneurship and employment of Black and Indian people in South Africa, who form an overwhelming proportion of the country’s population but who also suffer from poverty and work discrimination. This Law makes it mandatories for local businesses to go through an annual audit to determine whether the business i) is controlled and managed by directors and owners of black ethnicity ii) has hired black employees and has set training programs targeting this population and iii) works with black suppliers and subcontractors. Companies with a turnover below US$700,000 (ZAR10 million) are however exempted from such audit obligation;
- The results of the company on its BEE scorecard currently have no fiscal or economic consequences and is currently seen only as a tool to promote corporate responsibility and good governance.
South African industrial development zone (IDZ)Since 2003, Healy Consultants Group PLC assists our Clients with registration of their businesses in the South African Industrial Development Zones (IDZs) in order to benefit from the simplified customs compliance procedures when importing and exporting and to take advantage of the reduced taxes and other incentives;
The main South African IDZs
- Coega IDZ
- Inaugurated in 2001, Coega IDZ is the first and oldest industrial development zone in South Africa. It is strategically located in the South African Eastern Cape Province on the east-west trade routes to serve both the global and African markets;
- The IDZ’s main activity is manufacturing for export purposes and attract investments in i) the automotive industry, ii) processing of agricultural products, iii) metal logistics and energy, iv) business process services and v) aquaculture sectors.
- Richards Bay IDZ
- Linked to the Richards Bay international sea port, this IDZ is designed mainly for manufacturing and storage of minerals and mineral products. The seaport connects to the neighboring Mozambique up the larger east African region;
- The IDZ has world-class industrial infrastructure and a superb network of shipment routes suitable for global business and export oriented manufacturing investments.
- Dube TradePort
- Dube TradePort is the only industrial trade zone in African that incorporates an international airport with a cargo and warehousing facilities, a retail sector and offices, an agricultural section and hotels in one facility;
- The trade port contains two major development zones namely i) Dube AgriZone, specializing in agricultural and horticulture products and ii) Dube TradePort, focusing on manufacture of fashion garments, automotive and electronics.
Benefits of operating within an IDZ
- Our Clients will enjoy Government incentives including:
- A reduced corporate income tax at the rate of 15%;
- Relief from customs duties on goods imported into the IDZs for storage or materials for manufacture;
- Up to 30% grants on cost of plant, machinery, equipment, commercial buildings and vehicles;
- Exemption from VAT on water and electricity usage;
- Tax incentives on exported goods.
- Other advantages of registering your company in a South African IDZ include:
- Eligibility for exemption from employment taxes;
- Simplified customs procedures including registration and licensing and clearance of import/exported goods;
- Exemption from VAT on importation of machinery for manufacturing;
- Eligibility for Government grants and allowances of up to US$2.2million for approved projects;
- Access to world-class infrastructure and the best sea and airports in Africa suitable for international trade.
IDZ comparison Richards Bay East London Port Elizabeth Saldanha Bay Dube TradePort Summary IDZs used mostly by which industry? Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing & Logistics Average annual Industrial space rent per 1000 sq. m. US$35,000 US$25,000 US$30,000 US$30,000 US$60,000 How long to set the company up? 2 months 2 months 2 months 2 months 2 months How long to open company bank account? 3 weeks 3 weeks 3 weeks 3 weeks 3 weeks Quality of utilities Good Satisfactory Satisfactory Satisfactory Excellent Corporate bank account First National Bank Standard Bank HSBC Citibank ABSA Accounting and tax Corporate tax payable in South Africa 15% 15% 15% 15% 15% Tax registration certificate required Yes Yes Yes Yes Yes Annual audited financial statements Yes Yes Yes Yes Yes Company Registration Minimum number of directors 1 1 1 1 1 Minimum number of shareholders 1 1 1 1 1 Individual shareholders allowed Yes Yes Yes Yes Yes Corporate shareholders allowed Yes Yes Yes Yes Yes Corporate director(s) allowed No No No No No Public register of shareholders and directors Yes Yes Yes Yes Yes LLC company allowed? Yes Yes Yes Yes Yes Can be wholly foreign owned Yes Yes Yes Yes Yes Business considerations Allowed to sign sales contracts with South African Clients? Yes Yes Yes Yes Yes Allowed to invoice South African Clients? Yes Yes Yes Yes Yes Physical office space required Yes Yes Yes Yes Yes Allowed to import raw materials? Yes Yes Yes Yes Yes Allowed to export goods? Yes Yes Yes Yes Yes Can the entity hire expatriate staff in South Africa? Yes Yes Yes Yes Yes
- Coega IDZ
Tell us what you need - we’ll send you a customised proposal in 5 hours!
To help us engineer the optimum South Africa corporate structure, please complete the 3-minute questionnaire below; then press the submit button below.
Within 5 hours, one of our senior staff will ring or email you:
- Time to incorporate: Four weeks
- Cost to set up: US$9,630
- Minimum capital: US$1
- Physical office required: No
- Shareholders: 1
- Directors: 1
- Company secretary: No
- Resident director: No
- Corporate tax rate: 28%
- Corporate tax base: Worldwide
- Shelf companies: Available
- Main company type: Private limited company
Frequently asked questions
How to register a company in South African IDZ.
Does South Africa have a one stop facility for incorporating IDZ companies?Currently, the Department of Trade and Industry is working on creating a one stop shop facility which will assist Clients with project planning, licensing requirements, financial assistance and assistance with provision of basic utilities.
Useful links for South Africa
Government and public authority websites:
- PFK – South Africa tax guide 2013
- ENS Africa general corporate information for foreign Clients
- KPMG – Investing in South Africa and Africa
- South Africa: Economy Profile
- Companies Act 71 of 2008
- Business and Human Rights in South Africa
- Visa Requirements
- South African Company law for 21st Century
- Payment Systems in South Africa
- EY – Attractiveness survey 2013
- EY – Executing growth Africa 2014
- Zoning in on South Africa’s Industrial Development Zones