Doing Business in South Africa - CA Divakar Vijayasarathy - DVS Advisors
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Doing Business in South Africa
CA Divakar Vijayasarathy
RESEARCH CREDITS Subash R CA Jugal Gala
Legends Used in the Presentation CIT Corporate Income Tax DTAA Double Taxation Avoidance Agreement EODB Ease of Doing Business FDI Foreign Direct Investment GDP Gross Domestic Product MAT Minimum Alternate Tax MOI Memorandum of Incorporation PCP GDP Per Ca Pita GDP PIT Personal Income Tax VAT Value Added Tax
Presentation Schema
Registration with Registration with
Country Overview Setting up Business
CIPC SARS
Incentives and Exchange Control Covid Impact and
VISA and Permits
Concessions Regulations Reforms
Conclusion
Country Overview
Demography and Wealth
• 59.3 Million People (2020)
Population
• 6th largest in Africa
• 25th in World
GDP
• Real GDP: $ 430 Billion (2nd highest in Africa)
• PCP GDP- $ 7346 (92nd in the world)
Urbanisation • 66% urbanized
. • Sparsely populated in the western half and densely
populated in eastern half
• Rich in gold, diamonds, platinum, iron ore, manganese and
Real Wealth chromite
• Holds 95% of world’s platinum reserves
• 8th Largest producer of Gold.
Currency • Currency Unit: South African Rand (ZAR/R)ER: $1= R16.5
R • Annual CPI: 3.1%
Business Environment
Sectoral contribution to GDP Ease of Trading Across
Finance, Business services- 22.86% Borders (World Bank)
Trading- 15.07% 145th rank
Manufacturing- 13.39%
Transport, Storage &
Communication- 9.5%
Mining- 7.89%
Employment EODB (World Bank)
Distribution
Overall: 84th rank
Services- 72.01% For starting
Industry- 22.91% business: 139th rank
Agriculture- 5.09%
Popular Locations for Setting Up Business
JOHANNESBURG
Mining industry of South Africa is centered in Johannesburg. It is also highly
popular for manufacturing, heavy industries, IT, real estate, banking, media &
retail. Jo’burg also houses some of the biggest shopping centres in Africa.
CAPE TOWN
Top city in SA in terms of EODB. Has a low cost of living and low-cost
infrastructure. Economic activity is dominated by finance, insurance, real
estate, logistics, wholesale/retail trade, wood product manufacturing, and
electronics. It is also an emerging BPO hub.
DURBAN
It is a city of ports and works as a center of industry, trade, and
construction. Has a flourishing manufacturing sector similar to that of
Johannesburg. Many international corporations such as Samsung, Toyota,
and Unilever have set base here.
PRETORIA
Economic activity is dominated by sectors such as iron and steel works,
railway carriage, heavy machines, automobile manufacturing, and copper
casting. It is also the home to the South Africa Iron and Steel Corporation
(ISCOR).Setting Up Business
Regulatory Agencies
Registrar of Companies
Companies and Intellectual
Property Commission (CIPC)
Tax Collecting Authority
South African Revenue Service
(SARS) Regulator for
Unemployment
Department of Labour for Insurance Fund
Unemployment Insurance
Overseas Exchange
Control Policy
South African Reserve BankTypes of Business Structure
Types of
Business
Structure
Sole
Company Partnership
Proprietorship
External Company
Private Personal
Public Company (branch of foreign
Company (Pty Liability
(Ltd) company operating
Ltd) Company (Inc)
within SA)
Private Companies and Branches are the most common structures. All Companies have to
be compulsorily registered with CIPC.
A sole proprietor or partnership concern need not be registered with CIPC.Registration with CIPC
Registration with CIPC (Steps/Time Taken/Cost)
Steps to Register
Supporting Documents to be uploaded
• Certified identity copy of applicant;
1 Create an account with CIPC (1 day/ no charge)
• Certified copies of the Identity Documents of the
Directors and Incorporators;
2 Login to your account and Register Company with • Lodgement of a passport copy is only accepted as
CIPC @ eservices.cipc.co.za (5 days/ R125-R475)
proof of identity for non-residents of South Africa.
3 Reserve Company Name (3 days/R 50) • The name confirmation certificate (COR9.4)
• Attach a certified copy of the company's founding
documents and a certificate of incorporation or
4 Open Company’s Bank Account (1 day/ no charge) comparable document.
Manual Registration Forms for
Manual
• Online registration cannot be done for public Registration
companies, personal liability companies, external
companies.
• Private companies not willing to adopt the standard Public, PLC and
Private with External
MOI provided by CIPC, should also undergo only customised MOI
manual registration.
• The relevant incorporation forms and supporting
documents must be scanned and e-mailed to CoR14.1 CoR 20.1
companydocs@cipc.co.za CoR14.1A CoR20.1A
CoR15.1B CoR21.2Other Conditions
Public
• Minimum Directors: 3 ; No maximum limit
Company
Private • Minimum Director: 1 ; No maximum limit
Company • No maximum limit for shareholders.
External • The external company will be treated only as a branch of an offshore company
Company • An external company is governed by the same founding documents as its head office.
Personal • Minimum Director: 1 ; No maximum limit for number of directors and shareholders
Liability • Present and past directors of PLCs are jointly and severally liable together with the
Company company for debts and liabilities arising during their periods of office.
There is no requirement for local ownership or directorship in the Companies Act.
However, a company must have a public officer responsible for dealings with the South African Revenue
Services, who must be resident in South Africa.Registration with SARS
Registration with SARS
CIPC and SARS are linked electronically, so as to retrieve information previously
provided at CIPC.
Income tax registration with SARS (1 day/ no charge)
• Bank Statement
• Copy of registration documents depending on the nature of the company.
• Copy of a valid identity document, driving licence or passport, temporary identity document,
work permit of two members/directors/shareholders of the company.
Documents to be submitted for VAT registration (7 days/ no charge)
VAT 101 form to be submitted to the nearest SARS branch together with the following
documentation:
• certified copy of certificate of incorporation;
• certified copy of proof of the company's residential address, not older than three (3) months;
• original bank statement, not older than three (3) months;
• original balance sheets and income statements (proof of annual turnover);
• original identity document and certified copy thereof of the representative vendor submitting
the VAT 101 form;
• certified copies of the identity documentation of the directors of the company; and
• original proof of residential address of the representative vendor.Tax Profile
18-45% 28% for all Individuals- Standard Rate Royalty,
VAT
Personal Tax
WHT
Corporate Tax
Capital Gains Tax
companies (No 18% 15% Dividend &
(has up to 7
Surtax or MAT) Interest- 15%
slabs) Companies- Threshold for
Self assessment 22.4% registration: R 1 (10% if DTAA in
Basic tax to be paid in
Exemption Million p.a. force)
3 instalments
Limit : R 83,100
DTAAs with 70+
jurisdictions
Return Due Date Type of Financial year
person
VAT return 25th of next month (submitted every two
months) (monthly for TO >R 30Mn) Company Period of 12 months ending on any
month
WHT Last day of the month succeeding the
return month in which tax has been withheld All other Period of 12 months ending on 29th
persons February
PIT return Between 1st Sept- 16th November 2020
CIT return Within 12 months from end of financial
year of the companyTax Snippets
Tax to GDP (%) Composition of tax revenue (%)
30.0 25.5 25.9 25.9 25.9 26.2
25.0 4.3
9.7
20.0 16.8 17.2 17.2 17.2 17.2 5.9
15.0
38.3
10.0 16.6
5.0
25.2
-
2014-15 2015-16 2016-17 2017-18 2018-19
South Africa African Avg PIT VAT CIT Fuel Levy Customs OthersGeneral Tax Incentives Reduced CIT of 15% for businesses established in SEZs Progressive (slab- based) tax rates ranging 7%-28% for small businesses (turnover< R 1 Mn). Simple tax of 1-3% on turnover for small businesses in place of VAT, CIT, CG tax and dividend tax. 150% deduction on R&D expenditure for all companies. Indefinite carry forward of trading losses. 20% standard deduction on capital gains. Energy efficiency savings incentive to provide a deduction of R 0.95 for each KWh saved by taxpayer against a baseline. Tax deduction on investment made by a person in shares of a Venture Capital Company Proposal in Budget (2020-21) to reduce the corporate tax gradually from 28%.
Sector-Specific Schemes and Initiatives
• Manufacturing Competitiveness Enhancement Programme (MCEP)- a support
scheme which offers manufacturing companies grants towards capital investment
and working capital facilities.
• For Capital Goods Industry – The Capital Projects Feasibility Programme (CPFP)-
The CPFP makes targeted grants that contribute to the cost of feasibility studies
into projects outside South Africa that are likely to increase local exports for South
General African capital goods and services.
Manufacturing
• Foreign Investment Grant (FIG)- FIG compensates qualifying foreign investors for
costs incurred in moving qualifying new machinery and equipment (excluding
vehicles) from abroad to South Africa.
• Sec 12I Tax incentive: For greenfield manufacturing companies having a minimum
investment of R200M, an additional depreciation allowance of 55%, an
investment deduction of R 900 Mn and a training deduction of R 30 Mn.
• Automotive Investment Scheme (AIS)- The AIS provides for a grant of 20-30% of
the value of qualifying investment in productive assets, as approved
Automotive by Department of Trade and Industry
Industry • People-Carrier Automotive Investment Scheme (P-AIS)- To stimulate growth in the
people-carrier vehicles industry by providing a cash grant of between 20 – 35% of
qualifying investmentsContd
• Mineral Beneficiation: Various SEZs containing mineral deposits have
been earmarked for beneficiation of precious metals and minerals.
Mining
• Accelerated deduction of capital expenditure for companies
engaged in Mining
• Clothing and Textiles Competitiveness Programme (CTCP)- Targeted
Textiles grants to grow and develop the clothing, textiles, footwear, leather
and leather goods manufacturing sectors.Visas and Permits
Types of Visas
Critical Skills Work Intra Company
Corporate Visa Business Visa General Work Visa
Visa Transfer Visa
• Temporary work • Issued to a foreign • To hire candidates • To transfer • To hire a foreign
authorisation national to reside such as engineers, employees of national for a job
granted to a and establish or CFOs, IT foreign companies position which
corporate entity invest in a new or specialists, to their branch or cannot be filled by
(e.g.mine,farmers) existing business technicians, subsidiary in a South African
to employ a pre- in South Africa. architects etc. South Africa citizen.
determined
number (at least • Validity: 3 years • Validity: 5 years • Validity: 4 years • Validity: 5 years
5) of skilled/ (renewable) (renewable) (non-renewable) (renewable)
unskilled workers.
• Other conditions: • Other Condition: • Other Condition:
• Validity: 3 years At least 60% of the Skill transfer plan Granted only
(non-renewable) employees in must be when employer
business should developed to has proved that
be SA citizens or transfer skills to a the position
permanent SA citizen. cannot be filled by
residents. SA citizen.
Application for all Visas are made to the Department of Home Affairs. In addition to a Visa, a residence
permit should also be taken by the foreign national moving to work in SA.
In all cases the entity will have to demonstrate the need to hire foreign nationals.Exchange Control Regulations
FDI and Repatriation Norms Non-residents may purchase securities without restriction and freely transfer capital in and out of South Africa. Foreign ownership is limited in agriculture, fisheries and marine, broadcasting and print media, defense force, energy and mineral resources and telecommunications and transport. Free repatriation of investment proceeds, dividends and branch profits, interest, royalties or similar fees for the use of know-how, patents or similar property
FDI Snippets
FDI Inflows to South Africa Sector-wise-Capital inflow (%)
6.00 5.57 45.00 39.40
40.00
4.62 35.00
5.00 30.00 25.53
25.00
4.00 20.00 16.61
15.00 10.95
3.00 10.00 6.39
2.22 2.06 5.00
2.00 1.52 1.51 1.32
-
0.48 0.75 0.59
1.00
-
2015 2016 2017 2018 2019
FDI inflow ($ Bn) FDI inflow % of GDP
UK, Belgium, Netherlands and USA are the major contributors of FDI contributing about 65%-80%
of total FDI inflowsCovid-19 Impact and
ReformsCovid Impact
Post-Covid
Business Expectations
disruption
• Unemployment
• GDP shrank an rate increased • Prolonged
annualized 51% in Q2. • Turnover below the to 30.1% in Q1
normal range for 90% contraction of
• Steepest decline of • Decrease in economy is
GDP since 1990. of the firms total employed expected till 2021
• More than 25% of people by 2.2
firms adopted lay off • Household and
Mn Corporate Debt
and about 30% of firms
Decline in GDP expected to
decreased their Unemployment
working hours increaseCovid Reforms
• Accelerated VAT refunds- VAT vendors will be permitted to file monthly claims
instead of filing every two months.
• Deferral of Self-assessment tax payments
Tax • Deferral of employer’s liability on Pay As You Earn tax.
measures • Four-month holiday for companies’ Skills development levy contributions.
• Deferral of Income tax payments for businesses with TO < R 100 Mn
• Debt-Relief Schemes for small businesses affected by Covid on satisfaction of
certain conditions
• SA President Cyril Ramaphosa announced a $26 billion fiscal stimulus package,
the largest in his country’s history, to tackle the economic fallout. The package
would be spent on credit guarantee scheme, income protection, tax deferrals
and health measures.
Fiscal
• Reduction in repo rate from 6.25% to 3.75% to increase liquidity and reduce
measures lending interest rates
• Grant of moratoriums for borrowers with no-default pre-covid.
• Formulation of price regulations to control the increase in prices of essential
products during the pandemicConclusion Lack of high-skilled labour force, high unemployment (30%), recent increase in labour strikes and immigration laws make the employment of foreign workers more complicated. The high income inequality and corruption among top officials are also causes for concern. Nevertheless, South Africa has large market potential and a competitive domestic economy which can help to tide past the economic contraction caused by Covid. The country also enjoys a strategic geographical location, that makes it an ideal hub to access the sub-Saharan markets. There has also been a shift from traditional industries to production and financial services which reflects the path of its global peers.
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