How to register a 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, however.

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

Starting a business in South Africa
Foreign registered companies in South Africa
- External company
- Registering an external company in South Africa
Starting a business in South Africa: Company types
Corporate visas in South Africa – what changed?
Legal advice
Business incentives
- Tax incentives
- Export incentives
Useful resources

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;
limited liability for the participants;
requirement of perpetual succession;
income tax considerations.

These factors determine which investment method and business structure are best for 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

If you’re considering setting up an offshore company, there are several things you should bear in mind.

Offshore incorporation is a straightforward process in financial centers around the world. They provide a wide range of benefits to the company and company principals.

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 local subsidiary can prove problematic. It may be better to opt for an external company structure for the South African operations.

The incorporators of external companies don’t need South African visas to register the external company. The Companies and Intellectual Property Commission (CIPC) must be informed of the company’s intention to operate in South Africa within 20 business days after it started conducting business.

Working

The pros and cons of setting up an offshore company

When is a company conducting business in South Africa? The new Companies Act stipulates that business occurs only when the company is a party to an employment contract or when it appears as operating in South Africa.

The following actions are, on their own, not enough to justify recognition as conducting business in South Africa:

shareholder meetings, board meetings, or otherwise conducting the company’s internal affairs within the country
maintaining a bank account in South Africa
having offices in the country for the transfer, exchange, or registration of the company’s own securities
creating or acquiring any debts within the country, or any mortgages or security interests in any local property
securing or collecting any debt, or enforcing any local mortgage or security interest and
acquiring interest in any property

External company

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

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 should 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 for the benefit of the public. A minimum of three persons are necessary for incorporation and there are no securities to transfer to the public. Contrary to popular belief, non-profit companies may generate a profit but these profits cannot return to shareholders.

For-profit companies

Companies for profit fall into the following categories:

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

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

State-owned companies

An organ of the government owns these companies. Their names end with the letters ‘SOC’.

Private companies

Private companies involve 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 involve 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 necessary (around seven members), the maximum number of members or the transferability of shares of a public company is not limited. Only public companies can list on the JSE Limited, however.

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 were recommended to many South African organizations that 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 organization to its foreign workers – may not renew their corporate worker certificates or change their statuses while in the country.

Corporate worker certificates are now available 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, however. The amount of training and investment into the worker must be weighed up against the worker’s three-year maximum tenure. In technology and engineering, where a significant investment into training workers is necessary, the corporate worker certificate visa may not prove viable. Rather, organisations in these fields should consider intra-company and critical skills visas.

One sector which is ideal for corporate visas is farming. Seasonal workers from neighboring countries complement local labor shortages. As these laborers 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 labor market.

Legal advice

Before starting your business, you should find a reliable lawyer. Obtaining legal advice will help you identify any tax breaks available as well as 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, Industry, and Competition’s website.

Tax incentives

Various tax incentives are available, including depreciation allowances in respect of capital assets. Hotel buildings amortize over 20 years. The tourism support program under the Department of Trade & Industry’s Enterprise Investment Program 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 fact, 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 also exist for rebates or claw-back of certain duties applicable to imported goods, raw materials and components used in manufactured exported goods.