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South Africa presents many attractive business opportunities for foreigners as an emerging market and a gateway into African markets with an established infrastructure and financial sector. A company incorporated under the Companies Act 2008 is the main business vehicle used in South Africa.

According to Chapter 2, Section 23 of the South African Companies Act, a foreign entity must register with the South African Companies and Intellectual Property Commission (CIPC) within 20 working days after it has begun to conduct business in South Africa.

To determine whether a company has started to conduct business in South Africa, the regulators will look at whether:

  • the entity has entered into any contracts of employment
  • the entity has engaged in a course of conduct such as would lead a person to reasonably conclude that the company intends to continually engage in business within South Africa. The following business activities will be considered; however, a decision cannot be made solely on the grounds of the foreign entity engaging in one or more of the below activities:
    • Holding any meeting(s) of shareholders or board of the foreign company, or otherwise conducting the internal affairs of the company
    • Establishing or maintaining any bank or other financial account
    • Establishing or maintaining offices or agencies for the transfer, exchange, or registration of the foreign company’s own securities
    • Creating or acquiring any debts, mortgages, or security interests in any property
    • Acquiring any interest in intellectual property

The two most common options for foreign entities seeking to conduct business in South Africa are to open a South African subsidiary company or to register a South African branch of the foreign entity. There is no requirement that a director or shareholder be a South African resident, but the company must appoint a South African resident as a compliance officer who can represent them at CIPC and the South African Revenue Services (SARS). The company must maintain at least one office with a registered address in South Africa.

Subsidiary Company

A subsidiary is created by registering a South African company in which the shares are predominantly or wholly owned by the foreign entity. The subsidiary is a legal entity separate from its holding company and capable of entering into agreements in its name without requiring the assistance of the foreign holding company, as would be the case with a branch. Foreign individual(s) may also open a company in South Africa and be the shareholder(s). The resulting company would follow the same regulations as a foreign subsidiary company would.

South African Branch of Foreign Company

A South African branch can be opened by registering the foreign entity as an external company in South Africa. It is important to note that an external company registered in South Africa is not a new legal entity but rather the foreign company remains the same legal entity which is merely registered in two countries. 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.

The below table compares a South African branch of a foreign entity and a subsidiary company.

BRANCH vs SUBSIDIARY

BRANCH

SUBSIDIARY

ENTITY

Registration of a branch of an existing foreign entity in South Africa, remains the same legal entity, with an additional South African registration number.

A South African company whose shares are predominantly or wholly owned by a foreign entity.

RESPONSIBLE PERSON IN SOUTH AFRICA

South African resident required as a representative for compliance at CIPC and SARS.

South African resident required as a representative for compliance at CIPC and SARS.

MINIMUM STATUTORY REQUIREMENTS

Registration with SARS, 2 provisional tax returns, and 1 annual income tax return. 1 annual CIPC return, maintenance of company records, maintenance of an office in South Africa.

Registration with SARS, 2 provisional tax returns, and 1 annual income tax return. 1 annual CIPC return, maintenance of company records, maintenance of an office in South Africa.

AUDITOR REQUIREMENT

Only required if the public interest score and the asset value are above the threshold.

Only required if the public interest score and the asset value are above the threshold.

INCOME TAX 

28% on nett profit

28% on nett profit

DIVIDENDS WITHHOLDING TAX

Only required if the public interest score and the asset value are above the threshold.

20% after declaration of dividend, this may be reduced in countries that have a double taxation agreement with South Africa.

Additional compliance regulations and registrations.

The following may be required in addition to your company registration:

  • Income tax
  • Registration for VAT, PAYE, UIF, SDL
  • Customs registrations
  • eFiling setup

All businesses must be registered for income tax at SARS and are automatically registered when a new company is opened.

Companies must register for Value Added Tax (VAT) on products if the company turnover exceeds ZAR 1 million per year. If the annual turnover is less than this, the company can register voluntarily. To register voluntarily, the company needs to show a minimum of R50,000 income earned in the past 12-month period.

PAYE stands for pay as you earn and is the tax deducted by an employer from an employee’s remuneration and paid over to SARS. A company needs to register for PAYE within 21 working days after it has become an employer.

UIF is the unemployment insurance fund. Companies are required to register for UIF if they have at least one employee who works for them for more than 24 hours a month. The employer and the employee must each contribute monthly 1% of the gross remuneration payable to the employee. The total monthly contribution is thus 2% of the employee’s gross monthly remuneration.

SDL stands for skills development levy. Employers need to register for SDL if their wage bill is predicated to be over R500 000 per annum (approximately R41 000 per month), or if they employ over 50 staff members. SDL equates to 1% of their payroll to the skills development levy fund every month, and the levy may not be deducted from the employee’s wages.

Registration with South African Customs is required for all commercial importing and exporting.

eFiling is the SARS online portal. All entities that interact with SARS need to register on eFiling to file taxes and submit regulatory requirements.

Tracy Venter

Tracy transitioned from industry to founding Import Export License in 2011, aiding importers and exporters with customs compliance. In 2014, she launched Trade Logistics, focusing on supporting startups and SMMEs in international trade. Since then, Tracy's team has assisted 35,000+ businesses, reaching 32,000 traders monthly through newsletters. She's contributed to publications like Entrepreneurs Magazine and SME Toolkit, spoken at trade events, and participated in customs forums. Import Export License helped with the pilot trial to launch customs' new online registration platform (RLA). Through Trade Logistics she has launched 3 online import-export training courses. She holds an Honours degree from Stellenbosch University and a Cum Laude Masters from Middlesex University. In her spare time, Tracy enjoys running, mountain biking, playing piano, and cherishing moments with her husband and four children.