DOING BUSINESS IN SOUTH AFRICA IN 2020
For almost two decades decade, Healy Consultants Group PLC assists our Clients to start a business in South Africa, including i) company registration and multi-currency corporate bank account opening and ii) accounting and tax considerations and iii) regulatory license and Government grants and iv) office rental and employee recruitment.
| Compare different South Africa entities | LLC | Free zone LLC | PLC | 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 | Manuf/ export trading | To get pub. funding | Trading | Specific projects | Tax planning | Tax Planning |
| How soon to invoice Clients? | 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 a/c? | 1 month | 3 months | 2 months | 2 months | 3 months | 2 months | 3 months |
| How long to supply co. reg / 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 |
| Res. director/partner/ legal rep. required? | No | No | No | No | Yes | No | No |
| Must appoint a South African resident Public Officer? | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| Minimum paid up share capital? | US$1 | US$1 | US$1 | none | none | none | none |
| Can bid for Government contracts? | Yes | Yes | Yes | Yes | Yes | No | No |
| Corporate bank account location? | Nedbank | Absa Bank | Old Mutual Bank | 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? | 15% | 15% | 15% | 15% | 15% | N/A | N/A |
| Average total business set up costs? | US$12,330 | US$9,630 | US$18,680 | US$9,630 | US$15,480 | 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 | PLC | 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 |
| WH tax on payments to foreign s/holders? | 15% | 15% | 15% | 15% | 15% | 15% | N/A |
| Company Registration | LLC | Free zone LLC | PLC | Joint Venture | Branch office | Trust | Foundation |
| Res. director/partner/ legal rep. required? | No | No | No | No | Yes | No | No |
| Must appoint a South African resident public officer? | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| Min. 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$1 | 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 | PLC | 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 |
| Govt 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 kept with government? | No |
| Public register of shareholders and directors? | Yes |
| Sponsorship by a local citizen required? | No |
| Our Client must travel to South Africa? | No |
| Temp. 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 |
| Sign office lease during incorporation? | No |
| S/holder/director docs attested/translated? | No |
| Foreign director needs personal tax no.? | 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 |
| 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% |
| Govt foreign investment approval required? | No |
| Average monthly office rental? (US$/sq m) | US$30 |
| Minimum statutory monthly salary? | US$270 |
| Average US$ salary for local skilled staff? | US$700 |
| US$ deposit interest rate? (1 year average) | 1.6% |
| Overseas remittance currency controls? | Yes |
| Banking considerations | |
| 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 |
South Africa business setup summary
Press the link headings below to read detailed, relevant, up to date information.
Advantages and Disadvantages
Advantages of South African company registration
- Company registration in South Africa is straightforward because:
- A South Africa LLC requires a minimum paid-up share capital of just US$1;
- Incorporation is completed in just two weeks;
- Only one director and one shareholder are needed, and they can be any nationality and non-resident;
- It is helpful that the business language of South Africa is English.
- A South African company enjoys good regional and global market access through trade agreements and customs unions. Furthermore, South Africa’s transport networks (road, rail and air) connect it with regional states, facilitating trade;
- Government incentives available to foreign investors include:
- Dividends and capital gains received from a foreign company are exempt from South Africa corporate tax if the South Africa LLC holds at least a 10% stake in the foreign company;
- Companies investing in tourism and manufacturing may be eligible for grants of between 15% and 30% of the total investment amount, up to US$2.07 million;
- R&D projects are eligible for government grants of up to US$1 million, and operating expenditure refunds. Check out the Capital Projects Feasibility Programme and SEDA Technology Programme for details of financial support for foreign investors;
- Companies setting up Business Process Outsourcing (BPO) operations in South Africa are eligible for grants of up to US$8,550 for every job created;
- South Africa has signed more than 100 Double Taxation Agreements and 50 Bilateral Investment Agreements to reduce withholding taxes on foreign payments and customs duties on imports/exports;
- Incorporating in an Industrial Development Zone offers 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 for industrial projects are eligible for grants of between 10% and 30% of 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 less.
- South Africa hosts the largest and best-established African stock exchange – with a market capitalisation of US$727 billion. Some successful foreign entrepreneurs list their companies on the Johannesburg Stock Exchange (JSE);
- The country boasts the continent’s best transport infrastructure, with good air and rail networks, and seaports located on global shipping routes. The country therefore has good access to global markets;
- In 2018, South Africa enacted legislation protecting foreign investments. In theory, South African courts protect foreign investments and foreign investors in the same way a South African citizen.
Disadvantages of South African company registration
- South African taxes are high including i) 28% corporation tax ii) 15% VAT iii) 18% capital gains for companies iv) 1% asset tax v) up to 15% withholding tax vi) 19% average import duty and vii) 8% transfer duty on immovable property;
- Doing business in South Africa is challenging for multinational Clients because:
- The country is considered corrupt by global standards, with weak enforcement of anti-corruption legislation. Consequently, foreign investments may not be adequately protected;
- Repatriation of profits overseas requires Central Bank (SARB) approval;
- The South African economy is unstable because:
- In mid-2020, the economy is suffering its worst downturn in a century, and has for years been running fiscal and current account deficits. In early 2020, the country was downgraded to full junk status by Moody’s;
- The economy suffers from political instability and violent crime, thus unattractive for foreign employees to relocate to South Africa. Unfortunately, the country has the world’s fifth highest murder rate;
- Unemployment is currently running at almost 30%, increasing the risk of further civil unrest;
- South Africa suffers from frequent power outages. The country’s severe electricity shortage threatens key economic sectors such as mines and manufacturing;
- The South African rand is one of the world’s most volatile currencies. Consequently, foreign investors receiving and making payments in rand are exposed to volatile exchange rates, while the value of South African assets and investments is uncertain.
- Even though English language proficiency in the working population is high, multi-national Clients’ experience the following problems with local employees:
- It is difficult to recruit qualified labour in South Africa. There is a shortage of local skilled IT specialists, engineers, health professionals and financial executives. Only 7% of the population holds a university degree;
- Labour unions interfere with simple employer-employee relationships, making it harder to hire or fire employees;
- Computer literacy and digital among the population is low. As of 2020 only one in 10 South Africans has a computer at home.
- A South African LLC must appoint a Public Officer (click link) who is a tax resident in South Africa. This is an additional annual expense for foreign investors. Healy Consultants’ annual Public Officer fee is US$2,950.
- Company registration in South Africa is straightforward because:
Best uses for a South Africa company
- South Africa is an excellent place to set up a manufacturing and distribution company because:
- Incorporating in one of South Africa’s five 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 for industrial projects are eligible for grants of between 10% and 30% of 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 less.
- South Africa is an excellent place to set up a manufacturing and distribution company because:
Company registration
- Time to incorporate: Four weeks
- Cost to set up: US$12,530
- Minimum capital: US$1
- Physical office required: No
Required appointments
- Shareholders: 1
- Directors: 1
- Company secretary: No
- Resident director: No
- Public Officer: Yes
Key facts
- Corporate tax rate: 28%
- Corporate tax base: Worldwide
- Shelf companies: Available
- Main company type: Private limited company
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Useful links for South Africa
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