Employing in South Africa: What You Need to Know
South African employment law appears complex and confusing when looking from an outside view although in some ways there are many similarities to other countries. South Africa taxes residents on their worldwide income, whereas non-residents are taxed only on income sourced in South Africa or deemed to be from a source in South Africa.
South African employment laws are mandatory for any employees that fall within their jurisdiction. Therefore, they apply to foreign nationals working in South Africa.
For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in South Africa.
- Time Off in South Africa
- Medical Leave in South Africa
- Annual Leave Accrual Entitlement
- Maternity Leave in South Africa
- Employee Termination in South Africa
- Pension in South Africa
Key Factors to Consider When Employing in South Africa
There are several key areas to be aware of within South Africa’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the South African laws and rules for both South African employees as well as foreign nationals.
Employee Entitlements
| Information | Explanation |
|---|---|
| Time Off Work ? | Family Leave Employees who have been in employment with the same employer for more than 4 months and who work for the same employer for at least 4 days per week is entitled to 3 days Family Responsibility Leave full pay per annum, with the exception of Domestic employees whose entitlement is 5 days. |
| Annual Leave Accrual Entitlement ? | The employee is entitled to 15 working days per annum on full pay. However the law states “21 consecutive days”(section 20 (2) (a) of the Act) and reference to a calendar will show that 21 consecutive days is 15 working days based on a 5 day week, or 18 working days based on a 6 day week. Study or Religious Leave Labour Law does not regulate leave for study or religious holidays. At present the situation is that should an employee wish to take leave for the purpose of religious holidays other than an official public holiday, then the employee must take paid annual leave or unpaid leave. Official site: http://www.labourguide.co.za/conditions-of-employment/437-types-of-leave |
| Paid Sick Leave Entitlement ? | During the first 6 months of employment, the employee is entitled to 1 day sick leave for every 26 days worked. On the first working day of month number 7, the balance of the 30 days becomes available to the employee, less any days taken sick during the first 6 months of employment. |
| Maternity Leave in South Africa ? | The Act entitles the pregnant employee to four months unpaid maternity leave. |
Employment Termination
| Information | Explanation |
|---|---|
| Termination of Employment ? | If the employee has not performed in a satisfactory manner, the employer cannot simply dismiss him. The employer must be able to show that a proper procedure of evaluation, counseling, guidance and training has taken place, that the employee has been given a reasonable opportunity (with the assistance of a fellow employee or representative (if required) to state his case and to state what they think is the cause of the problem, and to state and implement (within reason) what measures the employee suggests are required to rectify the problem. Notice must be given in writing (except when it is given by an illiterate worker). If the worker has been employed 6 months of less, 1 weeks notice is required. If the worker has been employed for between 6 months and 1 year, 2 weeks notice is required. If the worker has been employed more than 1 year, 4 weeks notice is required.
A collective agreement may reduce the 4 week notice period to not less than 2 weeks. Official site: http://www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-termination |
Pension
| Information | Explanation |
|---|---|
| Pension Requirements ? | South Africa has a pension and employee insurance fund scheme. However, there is no statutory requirement for employers or employees to make pension contributions. Employers may make a tax deductible contribution to a private pension fund of up to 10% of the employees salary. They can contribute a further 10% although it is taxable by SARS. Employee contributions are tax deductible and it appears there is no limit to this. |
GEO Solutions or DIY Employment in South Africa?
Companies entering South Africa must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or South Africa Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a South African entity established that can run payroll.
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.
A DIY approach will typically take up to 2 months in South Africa until there is a properly incorporated company ready to run payroll, and can have a significant cost if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
Shield GEO
Shield GEO provides a fully outsourced employment service in South Africa. Companies expanding into South Africa can contract with Shield GEO to employ and payroll their staff on their behalf in South Africa. Shield GEO then assumes the legal responsibility for these employees, becoming the Employer of Record, sponsoring them on work permits, complying with local employment law and running their monthly payroll.
Outsourcing Employment Through a GEO Employer of Record Service
Using Shield GEO Employer of Record Services in South Africa
Companies entering South Africa can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities. A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in South Africa makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.
The company that is expanding into South Africa contracts with the GEO to employ and payroll their staff on their behalf. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.
Payroll
| Payroll | South Africa |
|---|---|
| Management Fee for Employer of Record Services / Monthly Payroll Costs | Please contact us for a quote |
| Notes | Shield GEO pays the employee on a monthly basis. Income tax and social security (UIF) are deducted at source and paid to the South African tax authorities. Payroll must be run in South African Rand (ZAR) which is prone to fluctuation so foreign exchange must be considered when funding the payroll in a different currency. The World Bank estimates it takes employers in South Africa 50 man days per year to ensure compliance with payroll / labour taxes. |
| Currency ? | ZAR |
| Tax | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Income Tax Rates | Monthly Taxable Income |
||||||||||||||
|
|||||||||||||||
| Tax Returns Supplied | Yes |
||||||||||||||
| Corporate Tax Requirements | Tax year 1st March to end February Businesses must register with SARS as a tax payer and submit an annual tax return 12 months after the end of the relevant tax year. Businesses are also required to supply provisional tax returns every six months and pay tax based on estimated figures for that period. |
||||||||||||||
| Employers Social Security and statutory contributions |
Unemployment Insurance Fund (UIF). Employers contribute to the fund at a rate of 1% of the employee’s remuneration up to earnings of ZAR 178,464 Note than an expatriate’s employment income is normally exempt from UIF, subject to certain conditions being met. |
||||||||||||||
| Employees Social Security and statutory contributions |
Unemployment Insurance Fund (UIF). Employees contribute to the fund at a rate of 1% of the employee’s remuneration up to earnings of ZAR 178,464. Note that an expatriate’s employment income is normally exempt from UIF, subject to certain conditions being met. |
||||||||||||||
| Insurance requirements | Shield GEO covers employees under their Professional Indemnity Policy. Private Medical Insurance is not compulsory but is recommended. |
||||||||||||||
| Can supply private health care | Yes on request |
||||||||||||||
| Can assist opening bank accounts | Yes |
||||||||||||||
Work Permits
| Work Permits | |
|---|---|
| Can Sponsor Work Permit |
Yes, Shield GEO is able to sponsor foreign workers on South African General Work Permits which allow them to work in South Africa. As the Employer of Record, Shield GEO handles all of the formalities and employment requirements in South Africa. The client maintains responsibility for day to day employee management. |
| Work Permit cost | USD $2500 |
| Work Permit processing time | 45 – 65 days
|
| Work Permit process |
Shield GEO’s South African entity must initially apply for an SAQA evaluation which takes 2-3 weeks. Then the candidate must lodge the Work Permit application in person at the South African Consulate in their country of residence. The processing time is 30 days (Consulate dependent). Once the application is approved the employee can then enter South Africa to commence their assignment. Documentation required (some are nationality dependent: CV, passport copy, 2 passport photos, medical report, radiological report, police clearance certificate, application form. |
| Can Work Permit be processed in country | No |
| Switch Business Visa to Work Permit? | No |
| Can Spouse work on dependent visa? | No |
Business Visas
| Business Visas | |
|---|---|
| Can do Business Visa | Yes |
| Business Visa Cost | USD $400 USD |
| Business Visa processing time | 5-10 days Consulate Dependent |
Payroll and Tax in South Africa
There are specific rules for payroll and taxation in South Africa, depending upon whether your company employs foreign nationals or South Africans. South Africa taxes residents on their worldwide income, whereas non-residents are taxed only on income sourced in South Africa or deemed to be from a source in South Africa.
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). Businesses employing staff must also pay a gross revenue or salary-related levy to the district council. Once registered, the business is charged services levies based on its total bill for salaries and wages, as well as on gross sales.
The primary concerns for a foreign company that needs to comply with tax laws in South Africa are: individual income tax for employees, unemployment insurance, payroll tax, VAT tax, withholding tax, business income tax and permanent establishment concerns.
- Income Tax Rates in South Africa
- Corporate Income Tax in South Africa
- Corporate Tax Requirements in South Africa
- Employer's Social Security and Statutory Contributions
- Employee's Social Security and Statutory Contributions
- Payroll Tax in South Africa
- Sales Tax in South Africa
- Withholding Tax in South Africa
- Other Tax
- Time Required to Prepare and Pay Tax
- Time Required to Start a Business
| Information | Explanation |
|---|---|
| Remote Payroll ? | A remote payroll in South Africa is where a foreign company, i.e. a non-resident company, payrolls a resident employee in South Africa. One option for a non-resident company is to payroll its employees (local and foreign) in South Africa is to use a fully outsourced service like a GEO, which will employ and payroll the staff on their behalf. |
| Local Payroll Administration ? | In some cases, a company will register their business in South Africa under one of the forms available, (Branch Office or Company) but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. However, the payroll calculations, payments and filings can all be outsourced to the payroll provider. |
| Internal Payroll ? | Larger companies with a commitment to South Africa may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a South African payroll, and can fulfill all tax, withholding, and payroll requirements. This approach carries significant costs and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with South African employment laws. |
| Fully Outsourced Payroll & Employment ? | Companies can outsource the employment and payroll of their staff in South Africa to a GEO, like Shield GEO. This is possible for South African nationals and foreigners. The GEO manages all aspects of payroll for workers in South Africa including taxes, withholding, social security payments and other statutory requirements. The GEO becomes the Employer of Record and employs the staff on behalf of the client. Staff are paid monthly with tax and social security deducted at source and paid to local authorities. The GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Business Income Tax) and a Management Fee. The GEO provides the employees with payslips. |
Jump to...
Setting up payroll in South Africa
| Information | Explanation |
|---|---|
| Currency ? | ZAR |
Tax Figures
| Information | Explanation | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate Income Tax ? | Corporate income tax rate is 28% |
||||||||||||||
| Income Tax Rate ? |
|
||||||||||||||
| Payroll Tax ? | N/A |
||||||||||||||
| Sales Tax ? | 14% |
||||||||||||||
| Withholding Tax ? | 15% |
||||||||||||||
| Other Tax ? | N/A |
||||||||||||||
| Time to prepare and Pay Taxes ? | 203 hours |
||||||||||||||
| Time required to start a Business ? | 43 days |
Immigration and Work Permits in South Africa
Foreign workers are required to have the proper visas and work permits in South Africa, as established by immigration laws. Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity. If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits. You must apply for visa in a South African embassy before you arrive in South Africa, and must read all requirements and make sure you follow these requirements to the letter. A visa will take different times to process depending on the visa type and embassy which processes the application. The cost will depend on the type of visa and country of application. Unfortunately the visa process and requirements are also influenced by the type of visa, nationality of the applicant and which Embassy it the application is lodged with. For example the Embassy may require the applicant to:
- Lodge a cash deposit equivalent to the value of a return trip to their home country
- Show a police clearance certificate from every country where the applicant has lived (for 12 months or longer) since the age of 18.
- Supply medical and radiology reports
- Show bank statements
- Supply a vaccination certificate (most commonly if the applicant has travelled in a region prone to Yellow Fever)
- Show they have medical coverage for their time in South Africa
Use your own company?
Companies who are properly incorporated and registered in South Africa can organise General Work Visas for their foreign workers. It takes 2-4 months dependent on whether the company is already registered for sponsorship. The processing time varies dependent on the country of residence of the employee.
The processing steps are:
Employee supplies documentation to Company
Company gathers required documentation
- Written undertaking to cover any deportation costs related to applicant and dependents
- Written undertaking to inform the Director-General if the applicant fails to comply with the visa conditions
- Written undertaking to the Director General if the terms of the employment change
- Proof of company registration with the CIPC (Commission on Intellectual Property and Companies)
- Employment contract signed by employer and applicant. The contract must show the employment is conditional on General Work Visa approval, and that the employee is being paid a suitable market salary or better.
- Supporting letter from Employer to state why the General Work Visa is required for this particular applicant
- A completed application form: DHA-1738
- Proof of the position being advertised in the national print media in South Africa
Company applies for an SAQA (South African Qualifications Authority) evaluation of the applicants qualifications (2-3 weeks).
Company applies to Department of Labor for certificate confirming no local person could be employed in the position
Company must confirm to the Department of Home Affairs each year that the employee remains employed as well as update the Department as to the terms and conditions of the employment including the job description.
When this process is complete (1-2 months) the employee must lodge the Work Permit application in person at the South African Consulate in their country of residence. The processing time is 30 days (Consulate dependent). Once the application is approved the employee can then enter South Africa to commence their assignment.
Employee documentation required :
- Completed application form
- CV
- passport copy
- 2 passport photos
- medical report (from within last 6 months)
- radiological report (from within last 6 months)
- police clearance certificate(from within last 6 months) covering every country where the applicant has spent at least 12 months since they turned 18 years old.
- birth certificate
- marriage certificate if applicable
Shield GEO Solution?
Shield GEO can organise General Work Visas for foreign workers in South Africa. It costs USD $2,500 and takes between 45-65 days. The processing time varies dependent on the country of residence of the employee.
The processing steps are:
- Employee supplies documentation to Shield GEO
- Shield GEO applies for an SAQA (South African Qualifications Authority) evaluation of the applicants qualifications (2-3 weeks).
When this is complete the candidate must lodge the Work Permit application in person at the South African Consulate in their country of residence. The processing time is 30 days (Consulate dependent). Once the application is approved the employee can then enter South Africa to commence their assignment.
Employee documentation required :
- Completed application form
- CV
- passport copy
- 2 passport photos
- medical report (from within last 6 months)
- radiological report (from within last 6 months)
- police clearance certificate(from within last 6 months) covering every country where the applicant has spent at least 12 months since they turned 18 years old.
- birth certificate
- marriage certificate if applicable
Types of visas in South Africa
| Category | Description of Visa |
|---|---|
| General Work Visa | Visa is for the length of the employment contract which must be demonstrated to the Director-General every year and up to a maximum of 5 years. The visa is linked directly to the employer who sponsors it. If the employee changes employers they must apply for a new General Work Visa. |
| Critical Skills Work Visa | Valid for 3 years. Can be obtained without a job offer but the visa holder must show that they are employed in their field within 12 months of receiving the Critical Skills Work Visa. |
| Intra-Company Transfer Work Visa | For an employee transferring from a foreign company into the South African branch or affiliated company. |
| Entreprenuer Visa (Business Permit) | For applicants who want to start a business in South Africa. The visa is issued for 3 years and is extendable. Must invest at least ZAR 5,000,000 into South Africa and the business must employ at least 60% South African residents. Requires approval from the South African Department of Trade and Industry (DTI). The DTI will assess whether the business is feasible and will make a positive contribution to South Africa’s national interest. |
| Business Visa | This is a temporary visa for business purposes. Not to be confused with the Business Permit above. |
Setting up a company in South Africa
When setting up a company you may want to consider these factors:
-
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.
-
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.
-
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.
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 Employer of Record Overview
South Africa
Join 5000+ employers managing overseas employees