ABOUT SOUTH AFRICA | Doing Business in South Africa
South Africa is a middle-income, developing country with abundant natural resources. The country has well-established financial, legal, communications, energy, and transport sectors.
Its stock exchange, the largest in Africa, ranks among the 10 largest in the world. Infrastructure to support business is modern and among the best in Africa.
The South African government is committed to open markets and a climate that supports investment and export. Initiatives have included the Reconstruction and Development Programme (RDP) and the Growth, Employment and Redistribution (Gear) macroeconomic strategy.
The RDP was the first major initiative after the end of apartheid in 1994, and it was aimed at meeting basic needs, developing human resources, building the economy, and democratising the state and society.
This was followed by the release of Gear in June 1996. Gear included tax incentives to stimulate new investment in labour-intensive projects, expansion of basic infrastructure, restructuring and partial privatisation of state assets, further tariff reduction, subsidies to promote economic efficiency, improved services to the disadvantaged, and integration into the global economy.
South African state revenue is raised primarily from taxing individuals, businesses and trusts. From January 2001, South Africa moved from a source-based system of taxation to a residence-based system, which means income is taxable wherever it is earned.
Foreign residents are taxed on their South African income only. The tax year runs from 1 March to the last day of February of the following year.
Some key tax points:
(See SARS for more)
South African law pertaining to trade and investment conforms to international norms. A range of legislation governs business activity, copyright, patent, trademarks, contractual disputes and labour relations.
South Africa subscribes to international conventions on industrial and intellectual property and is a signatory to the Paris and Berne conventions on intellectual property rights and copyright respectively.
Patents are granted for 20 years, usually with no option to renew.
Sanctity of contract is protected under the common law and independent courts ensure respect for commercial rights and obligations. Damages are compensatory and not punitive.
Most South African companies have a zero-tolerance approach to fraud and corruption and prosecute all offenders. Specialised commercial crime courts and special forensic police units devote themselves to prosecuting commercial crime.
South Africa also has stringent anti-money laundering legislation and, in June 2003, became a member of the elite, Paris-based Financial Action Task Group, which places onerous burdens on the select few countries allowed to join because of their efficacy in tracking and taking action against commercial crime.
Central to the regulation of business are the Companies Act of 1973, and the Close Corporation Act of 1984.
South Africa has double taxation agreements with a number of countries, including the US, UK, Canada, France, Germany, Japan and many others. Details may be obtained from the Department of Trade and Industry.
South Africa is a party to GATT (the General Agreement on Trade and Tariffs) and a member of the World Trade Organisation. Exports and imports are generally not impeded, but there are some controls in place of which the international trader should be aware. Foreign currency is freely available for imports and foreign services.
The more important laws include:
Regulation of business
Business operations in SA are regulated by government along free market lines. Such restrictions as there are generally apply to both local and foreign companies and relate in the main to employment practice.
Some strategic industries, including some air and rail transport, some telecommunications, electricity and water are wholly or partly state-owned (yet others are private). Government has committed itself to the privatisation and commercialisation of most of these services.
South Africa is a member of the International Labour Organisation.
Acquisitions and mergers
No specific restrictions apply as long as the transaction does not contravene monopoly rules or undesirable trade practices.
Listed companies involved in mergers are subject to the rules of the Securities Regulation Panel of the Johannesburg Stock Exchange (JSE) Securities Exchange.
The Harmful Business Practices Act can compel a company to change its method of doing business or to cease trading.
The Foodstuffs, Cosmetics and Disinfectants Act prohibits the import of harmful articles and substances, and regulates food and drugs.
Setting up a business
Foreign and local investors have a variety of forms of business operation to choose from:
The most common form of enterprise for foreign investors is the private company requiring only one member and director, who need not be resident in SA.
A branch of a foreign company is regarded as an external company if it establishes a place of business or owns immovable property in SA. The legal liability of an external company is not limited to the extent of its SA assets.
A subsidiary of a foreign company is regarded as a SA company.
All businesses must register with:
Imports and exports
The Customs and Excise Act and the Import and Export Act regulate the traffic in goods to and from South Africa.
South Africa is a member of the World Trade Organisation and complies with WTO (GATT) provisions.
There are rebates on the imported content of foreign goods manufactured in South Africa. Export licences are required only for strategic goods, some foodstuffs and a few other goods. Exchange control permission is required for payment for goods in a foreign currency.
There is a free exchange of goods between members of the Southern African Customs Union: Botswana, Lesotho, Namibia, South Africa and Swaziland.
Capital invested in South Africa can be freely returned, as can capital profits, dividends and branch profits. Non-residents are permitted to hold foreign currency accounts with South African banks.
Business transactions subject to exchange controls include: technical service payments, tender documentation, performance guarantees, court judgments, rental and lease payments, directors’ fees, legal fees, trade fair expenses, payments to visiting artistes and sportspeople, allowances for business travel and freight payments.
Foreign expatriates on a temporary contract to work in South Africa are exempt from exchange controls and may open a resident bank account.
If a non-resident grants a loan to a South African resident, the borrower is required to obtain approval for the amount and the interest rate to ensure that the rate is reasonable. Once approval is granted, interest is freely remittable.
There is a restriction on the local borrowing of businesses that are 75% or more owned and controlled by non-residents.
Local borrowings include overdrafts, local discounting, leasing of capital equipment, mortgage bonds, preference shares, debentures and local shareholders’ loans.
Technology agreements and agreements for the rights to use know-how, copyright, patents and trademarks are subject to exchange control approval.
For consumer goods a royalty of up to 4% of the factory price is acceptable; for intermediate and finished capital goods, up to 6% will be approved.
Other business transactions
In addition to the transactions listed above, technical service payments, tender documentation, performance guarantees, court judgments, rental and lease payments, director’s fees, legal fees, trade fair expenses, payments to visiting artists and sportsmen and women, allowances for business travel and freight payments are also subject to exchange control.
Foreign nationals on a temporary contract to work in South Africa are exempt from exchange controls and may open a resident bank account.
They may transfer funds abroad that are not being used to finance living expenses.
Visas and work permits
Non-residents entering South Africa for business purposes require a business visa, issued at a South African consulate or at the point of entry on arrival.
Permits are required for non-residents who work in South Africa. They should be applied for in the applicant’s home country prior to starting work in South Africa.
The decisive factor influencing the granting of work permits is whether or not a South African applicant can fill, or be trained to fill, the position applied for. Recently, the Government announced a new drive to recruit skilled foreigners, and a more pragmatic approach towards work permits has been adopted.
Corporate governance guru Bob Garratt, professor in corporate governance at the Tanaka Business school of Imperial College, London University, says in his 2003 book, Thin on Top: Why Corporate Governance Matters, that 'the two most broadminded and advanced codes of corporate governance and best practices are the King Commissions (1994, 2002, 2009 and 2016) in South Africa, which is unique as it consciously sets out to integrate corporate governance with racial and social equality; and the Commonwealth Association for Corporate Governance Guidelines (1997)'.
Companies listed on the Johannesburg Stock Exchange have to adhere to the King corporate governance guidelines and are expected to take them further in practice in the workplace. A company that fails to meet the King standards faces delisting.
South Africa has among the most strictly-controlled financial services industries in the world, with stringent anti-money laundering legislation and special police investigative units and commercial crime courts designed specifically to avoid the sort of financial scandals that have in recent times shocked the USA and some European countries.
Its corporate governance code – King IV report – have been branded one of the two best corporate governance codes in the world (along with the Commonwealth code). In June 2003, South Africa attained membership of the elite, Paris-based, Financial Action Task Group, which only allows membership to those that have demonstrated the tightest and most effective financial controls.
Many corporations have a zero-tolerance policy toward fraud and corruption. At financial services giant Sanlam, as an example, there is a written policy that if there is a criminal act, it will be met with criminal prosecution.
Sanlam will not accept an offer for not prosecuting; it prosecutes and demands repayment. It is a model increasing numbers of corporations follow.
As recently as 1995, banking for expatriates and South Africans, was a narrow, tightly-controlled market, but, within four years of South Africa’s new democratic government taking the reins, it had exploded into one of the fastest growing financial services markets in the world, and certainly the largest and most efficient on the African continent.
By far the vast majority of banking and financial services are situated in Gauteng with almost all headquartered in Johannesburg. Around 50 foreign banks entered the South African market following the lifting of sanctions, the whittling away of exchange controls, and democratic elections in 1994.
Since May 1995, foreign banks have been allowed to set up fully-fledged branches with access to the capital of their parent companies.
US Citibank reopened as did JP Morgan. European banks include Dutch bank ING and Swiss German banks Commerzbank and Societe Generale.
There have been partnerships between local and foreign financial institutions to finalise important deals or as a method to expand business over the long term.
In 2017, more than R2 trillion was invested in unit trusts, with investments in top companies, global equities, mining shares and bonds, among others.
The South African bond market is one of the most liquid in the world, with an annual turnover in excess of eight times market capitalisation, according to the JSE, Africa's stock exchange. The bond market average daily trading volume (excluding repurchase transactions) is of about R25-billion.
The development of systems and risk management in South African financial services is extremely sophisticated, with no defaults on bond issues.
South African markets are far more advanced in terms of technology, skills and risk management than those in eastern European or south-east Asian countries, including Japan.