Accounting and tax for companies registered in South Africa
Below is some important information on accounting and tax reporting obligations in South Africa that our Clients may find useful.
VAT and Corporation Tax
- Value Added Tax (VAT) in South Africa is charged at a fixed rate of 15%. 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 corporation tax in South Africa is rated at 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 and interest payments to a non-resident entity are subject to withholding tax of 15%;
- 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 (SDL), of 1% is imposed on all companies with annual payroll costs higher than US$34,000 (ZAR500,0000). 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 (UIF).
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;
- Anti-trust laws prevent South African resident companies from entering contracts which form cartels or monopolies.
The Black Economic Empowerment Certificate
- All Companies are required to register with the Department of Labor for Unemployment Insurance when they hire employees;
- Under the South African labour law, an employee may work for a maximum of 45 hours in a week. Beyond that, the employee is entitled to overtime pay;
- South Africa does not mandate a national minimum wage; however, certain sectors will have a minimum wage;
- An employee is entitled to annual paid leave of 15 working days and paid sick leave of 10 days;
- In 2007, the South Africa enacted The Black Economic Empowerment (BEE) Certificate to promote entrepreneurship and employment of Black and Indian people. Under this law, local businesses will be audited annually to determine whether the business hires black/Indian employees or works with black/Indian contractors. Companies with a turnover below US$700,000 (ZAR10 million) are however exempted from such audit obligation. For additional information on South Africa’s Broad Based Black Economic Empowerment program can be viewed on this “how to become BEE compliant article“.