Starting a business in South Africa

Starting a business in South Africa

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If you're looking to start a business in South Africa, this guide explains all the different options for doing business in South Africa.

If you are a foreign company looking to operate in South Africa, you can either enter the market while maintaining your company's registration outside South Africa, or register and invest in a business in South Africa. Different conditions apply depending on your preferred structure of doing business in South Africa.

This guide clarifies questions about public, private and external companies in South Africa, closed corporations, corporate visas, business incentives and more.

Starting a business in South Africa

Your first consideration when planning to start a business or investment in South Africa is the method or vehicle most appropriate to the venture. Similar to elsewhere, the structure of your business will depend on a number of factors:

  • the number of participants in the company;
  • management and control policies to be put in place;
  • limited liability for the participants;
  • requirement of perpetual succession;
  • income tax considerations.


These factors will determine which investment method and business structure are best suited to your business, for example:

  • a branch or subsidiary of a foreign registered or external company;
  • a company – either a local private or public company;
  • a partnership – either limited or unlimited;
  • a close corporation (not an option for new companies);
  • a business trust;
  • the sole proprietor.


Foreign registered companies in South Africa

Companies registered outside South Africa may conduct business in South Africa in two ways. Firstly, the company can register a South African subsidiary. Alternatively, the company can register as an 'external company' in terms of section 23 of the Companies Act.

If none of the incorporators have a South African visa, then registering a South African subsidiary can prove problematic and it may be advisable to opt for an external company structure for the South African operations.

The incorporators of external companies do not need South African visas to register the external company. The Companies and Intellectual Property Commission (CIPC) must simply be informed in the prescribed manner of the company’s intention to operate in South Africa within 20 business days after it started to 'conduct business'.

When is a company deemed to be 'conducting business' in South Africa? Under the old companies act, the requirement was simply that the foreign-based company had established a place of business in South Africa. However, the new Companies Act stipulates that business is conducted only when the company is a party to an employment contract or when it acts in such a way as to appear that it will be continually operating in South Africa.

It is further stipulated that the following actions are, on their own, not enough to justify recognition as an external company 'conducting business' in South Africa:

  • conducting a meeting of the shareholders or board of the foreign company on South African soil, or otherwise conducting any of the company’s internal affairs within the country;
  • establishing or maintaining a bank account in the country;
  • establishing or maintaining offices or agencies within the country for the transfer, exchange, or registration of the foreign company’s own securities;
  • creating or acquiring any debts within the country, or any mortgages or security interests in any property within South Africa;
  • securing or collecting any debt, or enforcing any mortgage or security interest within South Africa; and
  • acquiring any interest in any property within the Republic.


External company

The external company may be allowed to convert to a local private company, subject to specific requirements. An external company is taxed at a flat rate of 33 percent but no STC is payable. Furthermore, 50 percent of capital gain is also considerable taxable income (effective capital gains tax rate of 16.5 percent).

Registering an external company in South Africa
In order to register as an external company, the applicants must provide the CIPC with the following:

  • form CoR20.1, duly completed;
  • the registration fee of R400;
  • a copy of the entity’s foreign Memorandum of Incorporation and registration certificate (or equivalent documents), together with translations (if applicable).


Once registered, the CIPC will issue a registration certificate to the external company on form CoR 20.2. The external company may continue trading while it waits for its CoR 20.2 certificate.

Foreign nationals are advised to seek professional advice when considering external companies, as South Africa does not have dual taxation treaties with all countries. If the country of origin of the foreign entity is not a party to a dual taxation treaty with South Africa, then the external company may end up paying income tax twice on the same earnings, which will usually be fatal to the entity’s prospects of success.

Starting a business in South Africa: Company types

You can also opt to start and register a business in South Africa. The Companies Act 71 of 2008, as amended by Act 3 of 2011, governs the formation of companies in South Africa. The most basic categorisation is the division between companies for profit and non-profit companies.

Non-profit companies (NPC)
Non-profit companies are incorporated for the benefit of the public. A minimum of three persons are required to incorporate and there are no securities to transfer to the public. Contrary to popular belief, non-profit companies may generate a profit but these profits may not be distributed to shareholders, not even after the company is closed down.

For profit companies
Companies for profit can further be sub-divided into:

  • state-owned companies
  • private companies
  • personal liability companies 
  • public companies.


The unifying characteristic of all private companies is that they are intended to generate financial returns for shareholders. Beyond that, each has the following basic unique characteristics, listed below.

State-owned companies
These are are owned by an organ or a division of state. The name is followed by the letters 'SOC'.

Private companies
Private companies are incorporated by one or more persons, must have at least one director and may not offer its securities (shares or debentures) to members of the public. Once registered, private companies have '(Proprietary) Limited' or '(Pty) Ltd.' after their name.

A private company must limit transferability of shares, and limit the number of shareholders to 50. A private company does not need to file financial statements with the Registrar of Companies (CIPC).

Personal liability
Personal liability companies are incorporated by one or more persons and must have a minimum of one director; directors of these companies (whether past or present) are jointly and severally liable for any debts and liabilities incurred by the company. These company types are registered by professionals such as accountants, engineers and lawyers. Once registered, the entity’s name is followed by 'Inc.' or 'Incorporated'.

In the old companies act (1973), these types of companies were referred to as Section 53(b) companies.

Public companies
Public companies are allowed to offer their shares to the public. Management of these companies is entrusted to a board of directors. Once registered, the company’s name is followed by 'Limited' or 'Ltd.'. While a minimum number of members is generally required (around seven members), the maximum number of members or the transferability of shares of a public company is not limited. Only public companies can be listed on the JSE Limited.

Close companies
This concept was introduced in 1985 and was meant to provide a more straightforward and less costly corporate entity for a single businessperson or a small group up to a maximum of 10 entrepreneurs. A closed corporation is not subject to the same legal requirements as a company (for example, it is not required to have annual financial statements audited or to hold annual general meetings) and it exists separately from its members who enjoy limited liability.

Prospective business owners can choose this option provided the close corporation was registered before 1 May 2011, as close corporations fell away under the most recent Companies Act.

Other types of companies
Beyond the above business types, prospective business owners can also choose from business trusts, unincorporated partnerships, joint ventures and sole proprietorships.

Corporate visas in South Africa – what changed?

In the past, corporate visas (formerly known as corporate permits) were recommended to many South African organisations which needed to bring foreign workers into the country en masse. Due to reforms of South Africa’s immigration policies, effective as of 26 May 2014, the holders of corporate worker certificates – which are the visas issued by the corporate visa holder organisation to its foreign workers – may not renew their corporate worker certificates or change their statuses while in the country.

Corporate worker certificates are now issued for a maximum period of three years and the worker’s spouse and children do not qualify for visas by extension. In order for the worker’s family to accompany him or her to South Africa, the dependents need to independently qualify for their own visas. The changes will cause many corporate visa holders to reassess how they utilise their corporate visas and the accompanying corporate worker certificates. The amount of training and investment into the worker must be weighed up against the worker’s three year maximum tenure. In the fields of technology and engineering, where a significant investment into training workers is needed before they are properly able to do the job, the corporate worker certificate visa may prove not to be a viable option. Rather, organisations in these fields should consider intra-company and critical skills visas.

One sector which is ideally suited to corporate visas is farming. Seasonal workers from neighbouring countries are ideally suited to compliment local labour shortages. As these labourers can enter the country for seasonal work and then return to their countries of origin, the corporate visa provides a cost-effective solution for shortages in the local unskilled labour market.

Legal advice

Before starting your business, you should find a reliable lawyer. Obtaining legal advice will help you identify any tax breaks available and will help you navigate through the bureaucratic process awaiting you.

Business incentives

Following is a brief list of various incentives available to businesses in South Africa. For a full guide, visit the Department of Trade and Industry’s website (www.thedti.gov.za).

Tax incentives
Various tax incentives are granted, including depreciation allowances in respect of capital assets. Hotel buildings are amortised over 20 years. The tourism support programme under the Department of Trade & Industry’s Enterprise Investment Programme provides cash grants.

Export incentives
Credit facilities are available from the Industrial Development Corporation for the exporting of capital goods and services from South Africa.

The state will, in certain instances, partially compensate exporters for certain costs incurred in respect of activities aimed at developing export markets. Assistance in the form of a grant is available from the Department of Trade and Industry for specific sectors with a view to developing new export markets.

Provisions exist for rebates or claw-back of certain duties applicable to imported goods, raw materials and components used in manufactured exported goods.

Government trade and investment agencies


General information

For more information, visit the Department of Trade and Industry of South Africa:

77 Meintjies Street, Sunnyside, Pretoria, Gauteng, 0002
T: 0861 843 384 (South Africa) | +27 (12) 394 9500 (from abroad)
E: contactus@thedti.gov.za
W: www.thedti.gov.za


Expatica / SAvisas.com

Parts of this guide were reprinted with permission of SAvisas.com, an independent firm of South African immigration lawyers.
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