Type of Government
Multi party democracy.
Forms of Business Organisation
- Private or public limited liability company
- Close corporation
- External company (ie a branch of a foreign company)
- Trading trust
- Sole trader
Formation of a Business
Companies, close corporations and external companies (branches) must be registered with the authorities in Pretoria. Trustees of business trusts must be authorised by the relevant authorities before they can commence their duties.
A business generally has to register for various tax purposes, workmen’s’ compensation and the Unemployment Insurance Fund. Business licences are required for certain activities.
The taxation system is currently in a state of transition. From the years of assessment after 1 January 2001 income tax will levied on South African residents worldwide Income subject to certain exemptions. Non-South African residents will continue to be taxed on their South African Income only. Currently tax is levied on income from actual and deemed South African sources. The standard corporate tax rate is 30%. There is –
- a secondary tax on companies (but not branches) (STC) of 12.5% in respect of the excess of dividends declared over dividends received by the company;
- a net withholding tax of 12% of gross royalty payments to non residents;
- value added tax at 14%;
- income tax on branches of foreign companies at a rate of 35% (instead of normal corporate tax and STC);
- capital gains tax at an effective rate of 15% for all corporates (the rate differs depending on the status of the taxpayer);
- a number of other specific taxes and duties;
There is no tax on local dividends from companies and distributions from close corporations paid to residents but foreign dividends to residents may be subject to income tax.
Remittances of branch profits, dividends and interest payments to non residents are not subject to withholding tax.
South Africa has double taxation agreements with various countries including the Netherlands, United Kingdom, Germany, USA, Korea, Israel, France, Lesotho, Botswana, Mauritius, Namibia, and Zimbabwe.
Restriction on Foreign Investment
South Africa generally welcomes foreign investment and virtually all business activities (other than “strategic” industries) are open to foreign investors. There is no exchange control over non residents but certain exchange controls exist for South African residents. South Africa, Lesotho, Namibia and Swaziland have no exchange control restrictions between them by virtue of their membership of the Common Monetary Area.
Revenue can be repatriated, but exchange control approval is required for:
- a loan by a non resident to a South African resident;
- all applications for remittances of profits or dividends by business entities 75% or more owned or controlled by non residents if local borrowing facilities are available;
- payments of management fees by a South African company to a foreign affiliate;
- payments to non residents for the right to use know-how, patents, trademarks, copyright or other intellectual property.
Local borrowings by entities 75% or more owned or controlled by non residents, are restricted.
The Competition Board exists to prevent restrictive business practices and the creation of monopolies and new competition legislation now also provides for merger control. The Securities Regulation Panel regulates acquisitions and takeovers of all public companies and large private companies where a change in control occurs. The JSE Securities Exchange South Africa has regulations governing dealings in securities listed on it.
Protection is provided by statute for patents, trademarks, copyright and designs.
There are public registries for trademarks, designs and patents. South Africa is a signatory of the Berne and Paris Conventions.
Tariffs & Trade
Import tariffs and direct controls such as import permits exist. There is free and virtually unimpeded exchange of goods between member states of the Southern African Customs Union (Botswana, Lesotho, Namibia, South Africa and Swaziland). South Africa has recently concluded a trade agreement with the European Union (“EU”) for the establishment of a Free Trade Area (“FTA”) between South Africa and the EU. Furthermore, an agreement has been concluded between the members of the Southern African Development Community (SADC) (South Africa, Swaziland, Lesotho, Botswana, Namibia, Zimbabwe, Mozambique, Angola, Zambia, Malawi, Tanzania, Mauritius, Democratic Republic of Congo and Seychelles) providing for the liberalisation of trade and the establishment of a FTA.
Incentive Packages for investors in strategic industrial projects is available entailing tax allowances for approved investments.
Financing at reduced interest rates may be obtained from the Industrial Development Corporation. Financing and other assistance is also available to small and medium sized businesses and South Africa has been admitted to the European Community Investment Partner programme.
Marketing assistance and export credit guarantee schemes are available for exporters.
Membership of International and Regional Organisations
South Africa is a member of the Southern African Customs Union, Common Monetary Union, SADC, World Bank, International Monetary Fund, Organisation of African Unity, United Nations Organisation, the WTO and the British Commonwealth. South Africa has partially acceded to the Lomé Convention between the EU and several developing countries.