Accounting and tax
Below are some important information on accounting and tax reporting obligations in South Africa that our Clients may find useful.
VAT and Corporation Tax
- VAT is charged at a fixed rate of 14%. Companies with annual revenue higher than US$2.8 million must file monthly VAT returns, while others must file their returns every two months;
- Exports and certain supplies are zero-rated VAT, while other supplies including financial services, residential accommodation and public transport are VAT exempted;
- The standard corporate tax rate in South Africa is 28%; Companies with turnovers not exceeding US$1.6million pay tax at rates between 0% – 28%, depending on their annual taxable income.
Withholding Tax and Capital Gains Tax
- Dividends from a South Africa resident company will be subject to withholding tax of 15%. Dividends from foreign companies can be corporate tax exempt if the receiving entity holds a 10% stake in the distributing entity;
- Royalty payments to a non-resident entity are subject to withholding tax of 12%. Interest payments are completely tax exempt;
- Tax on capital gains varies annually, but are typically between 18.65% to 22.4%. Capital gains to a resident company from sale of holdings in a foreign company will be tax exempt if the resident company owns a 10% stake in the foreign company;
- Transfers of securities will be subject to a tax rate of 0.25%;
- South Africa has signed Double Taxation Treaties with 73 countries including Australia, Canada, China, Singapore and the USA to reduce withholding tax on foreign payments.
- Employers are required to contribute 1% of an employee’s gross income to the latter’s social security;
- A payroll levy, known as Skills Development Levy, of 1% is imposed on all companies with annual payroll costs higher than US$50,000. This tax is used to conduct training and re-training programs;
- Employers are required to contribute 2% of the employee’s salary to the Unemployment Insurance Fund.
Financial statements and filings
- All companies in South Africa must have their accounts reviewed each year by an independent accounting professional. Public and state-owned companies, along with those large enough to meet “public interest” criteria including revenue and employee thresholds, require an annual audit;
- All resident companies must file their tax returns within 12 months from the end of the company’s accounting year;
- Where provisional tax applies, payment is due twice a year, with the first payment due within 6 months of accounting year, and the second at the accounting year end.
Legal and compliance
- A South African LLC must appoint at least 1 director and 1 shareholder, while a PLC must have 3 directors and 7 shareholders. These individuals may be of any nationality. However, every South African company must appoint a resident public officer;
- After company registration, all businesses must lodge a Notice of Incorporation and Memorandum of Incorporation with the Companies and Intellectual Property Commission (CIPC);
- Under the 2008 Companies Act, it is mandatory for all South Africa resident businesses to have a registered office in the country;
- South Africa has exchange control regulations in placed, which requires all resident companies to obtain prior approvals from the Reserve Bank when transferring money in or out of the country, regardless the size of the transaction;
- All companies are required to register with the Department of Labor for Unemployment Insurance Fund when they hire employees;
- Anti-trust laws prevent South African resident companies from entering contracts which form cartels or monopolies.
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.