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Incorporation

Setting up a company in South Africa

When setting up a company you may want to consider these factors:

  1. Business Factors

    Such as:

    – the industry and type of business

    – nationality of the headquarters/individual(s) and

    – presence of existing trade agreements or relationships

    Generally most kinds of ‘typical’ business do not require special permissions. However certain kinds of businesses may require further permissions, licenses or other requirements. Often businesses that are importing and exporting foodstuff, industries with heavy infrastructure such as oil and gas, and professional services in areas such as finance and banking are subject to more involved requirements.

  2. National Language

    Language is always important to keep in mind. South Africa has eleven official languages: Afrikaans, English, Ndebele, Sepedi, Sesotho, Seswati, Setswana, Tsonga, Venda, Xhosa and Zulu. Afrikaans and English are common languages and English is the business language. However while English is commonly used in public and commercial life, it is only the fifth most-spoken-at-home language. For business purposes English should be adequate.

  3. Visas

    Foreign nationals who wish to establish their own business or a partnership in South Africa must, apart from having sufficient funds to support themselves and their family, be able to invest at least ZAR 2.5 million in the business. The funds must originate overseas, be transferable to South Africa and belong to the applicant (i.e. emanate from the applicant’s own bank account). The business must also create jobs for South African citizens. After six months to a year, proof will have to be submitted that the business is employing South African citizens or permanent residents, excluding family members of the employer. Applications for work permits for self-employment can only be lodged at the South African Consulate in the applicant’s country of origin.

Your Options

The Republic of South Africa (also referred to as South Africa, SA or RSA) is a State in Southern Africa. It is a parliamentary republic comprising nine provinces, which is located at the Southern tip of Africa. Starting a business in South Africa is very easy: South Africa recently moved up two spots to rank 39th out of 185 countries in the World Bank Doing Business 2013 Report. No special permits are generally required for foreigners (apart from business and work permits) and locals to begin a business. Nonetheless, a range of typical administrative procedures have to be complied with.

There are a variety of forms which foreign businesses can take, including private and public companies, close corporations, partnerships, joint ventures and branches of foreign companies (“external companies”). Companies and close corporations are legal entities separate from their members. Close corporations can have up to 10 shareholders, all of whom have to be natural persons.

Foreign investors usually use the private version of a company or a branch. Foreign individuals sometimes use the close corporation but use is limited because exchange control regulations are applied more strictly to such entities.

Branches of foreign companies fall under the Companies Act of 1973 and are required to register as “external companies” with the South African Registrar of Companies in Pretoria. An external company is not required to appoint a local board of directors but must appoint a person resident in South Africa who is authorized to accept services of process and any notices served on the company. It must also appoint a registered local auditor and establish a registered office in South Africa.

Rep Office

In many cases, foreign companies setting up business in South Africa are not looking for income generating entities but more for an outsourced function for their international parent. The typical example of this is call centers however this form can also be used for sales and marketing purposes or outsourcing functions like IT and administrative centers. Thus technically speaking if the business conducts activities that do not generate taxable income it could constitute a outsourced or representative office, or possibly an ‘informal business’.

Such a structure technically needs no registration at all, however entering agreements and other debts would need to be organized by the foreign parent company. As such it may be necessarily to formally register. Since no official business structure exists this means that the process would be exactly the same as the branch office registration, however with less or possibly no tax registration steps.

Note: A possibly alternative approach to a representative office may be via Business Process Outsourcing providers based in South Africa. These services provide outsourced functions without requiring physical investment into South Africa.

Representative Office Registration Process

Appoint a Representative

There is no need to appoint a local board of directors, however there must be one person residing in South Africa to accept service of any process and notices (there may also be local professional services that provide this service).

Agency: Organised within your own company

Time: N/A

Cost: N/A

Notarize Copy of the Memorandum Of Incorporation

When registering the ‘external company’ (in the next step), the founding documents of the company must be notarized certified copies. Thus before registering it is necessarily to arrange notarization from a local notary.

Various legal services providers may provide this function, and it may also be possible to get the documents legalized at the South African Department of International Relations and Cooperation. Note that South African diplomatic or consular representatives abroad can legalize official documents only if these were legalized by the relevant foreign authority in their country of accreditation, specifically for use within South Africa.

Agency: Legal and/or notarization/legalization service provider, possibly law firms or the South African Department of International Relations and Cooperation

Time: 1-2 days

Cost: No charge

Register as an “External Company”

The foreign company must register as an “external company” within twenty business days after it first begins to “conduct business, or non-profit activities”, as the case may be, within South Africa.

This can be done online via the Companies and Intellectual Property Commission (CIPC) and requires you to create a customer account, and deposit 400 ZAR into the CIPC bank account, and then complete and submit several forms and a copy of the company’s founding documents (memorandum of incorporation, etc). Further documents include: certified identity copy of applicant, certified identity copy or passport of all incorporators, directors and representative and power of attorney (if applicable).

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 25 days

Cost: 400 ZAR

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

 

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business that employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS) – www.efiling.co.za

Time: 12 days

Cost: None

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

Registration with the District Council

Businesses employing staff pay a gross revenue or salary related levy to the CMC.

Agency: Council

Time: N/A

Cost: N/A

Branch Office

A foreign company not wishing to incorporate a subsidiary in South Africa may instead wish to set up a representative office or a branch office. Although there are key differences between these types, there is no proper distinction between the registration of a representative style office and a branch office. Thus both would have the same basic steps.

 

If your business will be operating beyond the bounds of a representative office, such as wanting a more official and formal presence, legal entity status and ability to generate profit, a ‘full’ branch office registration would be required. 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.

 

Branch Office Registration Process

Appoint a Representative

There is no need to appoint a local board of directors, however there must be one person residing in South Africa to accept service of any process and notices (there may also be local professional services that provide this service).

Agency: Organised within your own company

Time: N/A

Cost: N/A

 

Notarize Copy of the Memorandum Of Incorporation

When registering the ‘external company’ (in the next step), the founding documents of the company must be notarized certified copies. Thus before registering it is necessarily to arrange notarization from a local notary.

Various legal services providers may provide this function, and it may also be possible to get the documents legalized at the South African Department of International Relations and Cooperation. Note that South African diplomatic or consular representatives abroad can legalize official documents only if these were legalized by the relevant foreign authority in their country of accreditation, specifically for use within South Africa.

Agency: Legal and/or notarization/legalization service provider, possibly law firms or the South African Department of International Relations and Cooperation

Time: 1-2 days

Cost: No charge

 

Register as an “External Company”

The foreign company must register as an “external company” within twenty business days after it first begins to “conduct business, or non-profit activities”, as the case may be, within South Africa.

This can be done online via the Companies and Intellectual Property Commission (CIPC) and requires you to create a customer account, and deposit 400 ZAR into the CIPC bank account, and then complete and submit several forms and a copy of the company’s founding documents (memorandum of incorporation, etc). Further documents include: certified identity copy of applicant, certified identity copy or passport of all incorporators, directors and representative and power of attorney (if applicable).

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 25 days

Cost: 400 ZAR

 

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

 

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business that employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS) – www.efiling.co.za

Time: 12 days

Cost: None

 

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

 

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

 

Registration with the District Council

Businesses employing staff pay a gross revenue or salary related levy to the CMC.

Agency: Council

Time: N/A

Cost: N/A

Company

Private and public companies are incorporated entities under South African law. A private company is the most common type of business for foreign investors.

  • There is no requirement for local shareholders or directors.
  • The overall time to incorporate a company is estimated to be 2 months.

Company Registration Process

Reservation of Company Name

Under the new Act, name reservation is no longer mandatory before registering a company. Under the Companies Act, 2008, a company may be registered with or without a company name.

When a company is registered without a reserved name, its registration number automatically becomes the company name. This is the quickest way to register a company.

Thus this step is optional but still recommended. This process has a proposed name verified, approved and reserved. This procedure involves checks to ensure that the proposed name does not already appear on the names register.

Agency: Companies and Intellectual Property Commission (CIPC)

Time: 7 days (note can be done at same time as second step)

Cost: ZAR 50

Registration of Company (File Articles of Incorporation)

The company must be registered with the South African Registrar of Companies through the Companies and Intellectual Property Commission (CIPC) within 21 days of the company being started. A company is incorporated by the lodging of a Notice of Incorporation (CoR 14.1) and Memorandum of Incorporation (CoR 15.1 A-E) and possibly other supporting documentation depending on the company. These forms are available for download from the CIPC’s website.

Memorandum of Incorporation: The Memorandum of Incorporation (MOI) generally should contain the following information:

  • Details of incorporators
  • Number of directors or alternate directors
  • Share capital (maximum issued)

Notice of Incorporation: The Notice of Incorporation, which is lodged with the MOI, generally should contain the following information:

  • Type of company
  • Incorporation date
  • Financial year-end
  • Registered address (main office)
  • Number of directors
  • Company name
  • Whether the company name will be the registration number
  • The reserved name and reservation number
  • List of four names to be checked by the Commission

The CIPC’s website allows business owners to register their companies online. Once you are registered as a CIPC customer you will be able to access the transactional website. After you have logged in, look for the ‘New Companies’ link under the ‘Companies’ tab.

Agency: Companies and Intellectual Property Commission (CIPC) 

Time: 3-6 days

Cost: ZAR 125

Note: drafting and preparing legally valid articles of incorporation will require additional time and legal fees.

Open a Bank Account

A company can obtain a business account. There would be no currency restrictions in terms of ZAR deposits into this account, as the company is viewed as a legal identity in its own right and would be incorporated in South Africa.

When opening an account for in South Africa you will generally be required to provide the following documentation:

  • Founding statement and certificate of Incorporation (Form CK1) and an Amended Founding Statement (CK2), if applicable
  • One of the following documents reflecting the trade name and physical business address:
    • An original company letterhead
    • Electricity or water bill
    • A bank statement (from another financial institution)
    • Lease or rental agreement
    • Telkom account
    • SARS tax return statement

In addition you will be asked to provide information in respect of your source of income and the type of activities that can be expected on the account.

All members, authorized signatories and/or any other person who may act on behalf of the closed corporation must provide the same information and documentation as stated above, as well as written confirmation that they are authorized to act on behalf of the CC.

Agency: Commercial Banks

Time: 1 day

Cost: None

Registration for VAT and other Taxes

All businesses must be registered for income tax.

Only if your company turnover will exceed ZAR 1 million per year then you have to register for VAT, less than this you can register voluntarily.

Any business who employs at least one employee must register with the South African Revenue Service (SARS) for Pay As You Earn (PAYE) and Standard Income Tax on Employees (SITE).

There may be additional taxes. Furthermore the requirements for determining which taxes you need to register for, and the process for registering can be complex.

Registration for these can generally be done online.

Agency: South African Revenue Service (SARS) 

Time: 12 days

Cost: None

Registration of Unemployment Insurance with the Department of Labour

Businesses employing staff will have to contact the Department of Labour regarding mandatory contributions to the Unemployment Insurance Fund (UIF).

Agency: Department of Labour

Time: 4 days (can be combined with previous step)

Cost: None

Register for Occupational Injuries and Diseases Compensation

Businesses employing staff will also need to contact the Department of Labour regarding the Occupational Injuries and Diseases Act.

Agency: Department of Labour

Time: 10 days (can be combined with previous steps)

Cost: None

Registration with the District Council

Businesses employing staff must pay a gross revenue or salary related levy to the district council.

With the exception of specialized enterprises, such as liquor stores and arms dealers, businesses no longer need a license to trade in South Africa. They are, however, required to register with the Regional Services Council (RSC) in the area in which they operate.

Once registered, the business is charged services levies based on its total bill for salaries and wages, as well as on gross sales. Returns and payments must be lodged on a monthly or annual basis as determined by the RSC. The rate of the levy varies from region to region and, in the case of the regional services levy, is required to be paid to the Regional Services Council in the region in which the employees render the services to the employer.

To register with your local RSC:

  • Complete and submit Form RSC1 at the offices of your local Regional Service Council. These vary from council to council, so can’t be made available for download online
  • You will receive confirmation of registration within approximately one month on a Form RSC2. This form will contain a reference number which should be quoted in all dealings with the RSC
  • Subject to prescribed payment terms, the RSC will send you a services account on Form RSC4 either monthly or annually

While our research found many sources talking about this step and registration requirement, there was no information available about the registration cost and processing time. This is presumably because the process will depend entirely on the local district council.

Agency: Regional Services Council (SRC)

Time: 1 day

Cost: No registration fee

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in South Africa, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in South Africa they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in South Africa
  • the company needs help with tax, employment, immigration and payroll compliance in South Africa

The complexity of employment regulations in South Africa makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in South Africa allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in South Africa.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into South Africa. Read more about outsourced employment through Shield GEO

Summary of Set Up Steps

LiaisonOffice External Company Company Time Cost (ZAR)
Check and Reserve Trade Name No No Optional 7 day 50
Appoint a representative(e.g. requires SA residing member?) Yes Yes No N/A N/A
Notarise principal Articles of Incorporation Yes Yes No 1-2 days 0
Register as External Company Yes Yes No 25 days 400
File/Registration in Commercial Register No No Yes 3-6 days 125
Open Corporate Bank Account No Yes Yes 1 day 0
Register for VAT and other Taxes No Yes Yes 12 days 0
If employing people:
Registration of Unemployment Insurance with the Department of Labour Yes Yes Yes 4 days 0
Register for Occupational Injuries and Diseases Compensation Yes Yes Yes 10 days 0
Registration with the District Council Yes Yes Yes ? ?
TOTALS:*applications and processing times, not including internal document preparation, etc Rep. Office38-39 days400 Branch53-54 days400

 

Company30-43 days125-175

 

Conclusion

South Africa is a “middle income, emerging market” with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors.

A range of company types exist for foreigners wishing to do business in South Africa, including branch offices and subsidiary companies. Representative style offices or non-revenue generating outsourced operations are not part of a formal process and thus effectively fall under the same process as a branch office but with less tax obligations.

The processes for registering the company/branch itself appear relatively straight forward, low-cost and accessible thanks to a centralized online service. However somewhat counterbalancing this is the tax and welfare registrations, which are more complex and appear to be mostly up to the company to organize. In particular, a local ‘council levy’ is required but the process depends on the local district.

The processing times for many things appears much slower than most other countries, meaning it could take almost up to 2 months to fully register a business presence in South Africa. Perhaps mitigating this is the fact that all business types are able to start operating at any time – so long as they register within 21 days.

South Africa

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