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Set up a Subsidiary in South Africa

Set up a Subsidiary in South Africa

In order to set up a subsidiary in South Africa, the foreign company willing to expand to this market will need to commence the process for the incorporation of a public or limited liability company.

Our team specializing in company formation in South Africa will give you all the needed details about subsidiary creation, the obligations this legal entity will have in SA, as well as all the needed requirements.

Our South African lawyers offer complete legal solutions for business and have extensive experience in company law matters, alongside issues concerning contract law, employment or intellectual property law, and other areas of interest.

If you would like to receive personalized assistance when you commence the set up of a subsidiary in South Africa, do not hesitate to reach out to us.

Subsidiary creation in South Africa

The subsidiary is one of the two ways in which a foreign company can expand its activities to the South African market. The key difference from its alternative, the branch, lies in the fact that the foreign company is not fully liable for its SA subsidiary.

To set up a subsidiary in South Africa, the foreign legal entity will commence the incorporation of a South African private company. This will be registered and will function as a resident company, and it will observe the SA Companies Act.

The following steps are relevant for company creation in South Africa:

  1. Prepare the company documents: the Memorandum of Incorporation is prepared and our lawyers can assist with its drafting and vetting;
  2. Company name reservation: a company in SA can be registered with or without a name, however, for the name reservation, the founders will need to pay R50 for each proposed name (between 1 and 4 names can be submitted for proposal during one application);
  3. Registration: this is performed with the Companies and Intellectual Property Commission (CIPC); our team will assist you during this process;
  4. Licenses: special permits and licenses may be needed before the subsidiary can start its business operations, depending on the industry in which it will activate; licenses are needed for the import of many types of products, including pet food.

The time frame for incorporation is 5 days which is much shorter than in other countries, such as Korea, where investors opening a company must wait 4 weeks.

In some cases, an alternative to incorporating a new company for those who set up a subsidiary in South Africa is to purchase a shelf company. This is a legal entity that has been incorporated but has not been used for trading. Our lawyers in South Africa can give you more details about this alternative, based on your business needs.

SA subsidiary taxation

Taxation is one of the issues to consider when deciding to set up a subsidiary in South Africa. Unlike the branch, which is subject to taxation on its South African-sourced income, the subsidiary is subject to taxation on its worldwide income (being treated as a resident company).

Our tax attorney in South Africa highlights the main corporate taxes:

  • 27% corporate income tax rate (reduced from 28% for a limited period, for years of assessment that end on or after 31 March 2023);
  • a 20% withholding tax applies to dividend payments to foreign persons unless reduced by a double tax treaty (South Africa has signed more than 70 tax treaties);
  • a 15% standard value-added tax rate applies, with a 0% rate on certain types of goods and services;
  • 1% social security contribution by the employer (of the gross income for each employee; subject to a certain cap).

Working with a team of accountants in South Africa is needed and our team can assist you with bookkeeping, accounting, audit, and payroll services in a package that is suited to the subsidiary’s needs.

If you would like to set up a subsidiary in South Africa or wish to know more about other business forms and company incorporation, please contact our South African lawyers.

Our attorneys can also answer questions about immigration, for those foreign investors who are considering relocating to SA for business purposes.