Starting up a business in South Africa is a straightforward process, however, investors need to be mindful of a number of mandatory steps.
Those who are ready to start the process of company formation in South Africa can reach out to our South African law firm for complete solutions related to corporate formation.
The business visa, required for those who wish to enter the country for long-term purposes related to company formation or investment, can be the first step for entrepreneurs who wish to relocate to the country.
Foreign investors who are interested in immigration to South Africa can apply for permanent residency after five years of having lawfully lived in the country based on a temporary residence permit. Our team can provide you with complete information on how to apply for the temporary residence permit for business purposes, as well as the documents required for this purpose. We can also give you details on the documents needed for your family members, if they apply for a residence permit at the same time.
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Types of companies available when starting up a business in South Africa
The first step after deciding to open a business in South Africa is to select a suitable business form.
The following types of legal entities are available to those who open a company in South Africa:
- Private company: one shareholder and one director; cannot offer the shared to the public; the liability of the founders is limited; this is the most popular business form for those interested in starting up a business in South Africa;
- Public company: can list their shares to the public; have at least three directors and are subject to more complex reporting rules;
- Non-profit company: they can be with members or without members; can be used for civil society organizations and other purposes;
- Personal liability company: for this business form, the directors are personally liable for the debts and obligations of the business; this is an important issue to keep in mind when you decide to set up a company in South Africa;
- Foreign (External) company: a foreign company incorporated abroad that is present on the South African market; subject to certain requirements.
Understanding the characteristics of the available business forms is a key step before starting up a business in South Africa.
The private company is often chosen both by local and foreign investors given its advantages:
- it is a separate business form from its founders;
- it can be used for small or medium companies, at the same time allowing the business to grow in time;
- it can access funding more easily or it can easily raise capital;
- it is easy to transfer ownership and it does not cease to exist if one of the founders withdraws or passes away;
- the duration of the company is unlimited, or until deregistered.
Investors who choose to set up this business form for company formation in South Africa do need to be aware of the applicable liabilities in the case of company directors, as well as the compliance requirements.
The private company has a more complex set-up process (given the use of the Memorandum of Incorporation) and it has other costs for management, compared with a sole trader or a partnership.
The experts at our law firm in South Africa can give you more details about each of these upon request.
| Quick Facts | |
|---|---|
| Types of companies |
Private company |
|
Minimum share capital for starting up a business in South Africa |
Not mandatory for the private company |
|
Minimum number of shareholders |
1 for the private company |
| Number of directors | 1 for the private company
|
| Local director required for starting up a business in South Africa (Yes/No) | No |
| Mandatory steps for company formation |
Apply for a company name reservation (if not, the company’s name will be the registration number |
| Residency requirements for foreign company owners |
Not applicable |
| Time frame for the incorporation (approx.) | 5 days following the complete application in case of a private company |
| Corporate tax rate | 28% standard rate |
| Dividend tax rate | Generally exempt between residents. A 20% withholding tax rate applies for dividends paid to foreign companies, trusts or individuals (subject to tax treaties) |
| VAT Rate in South Africa | 15% standard rate; 0% rate or exemption for certain transactions |
| Number of Double Taxation Treaties (approx. ) | > 70 |
| Annual accounting/filing requirements in South Africa | Annual income tax returns. Advance provisional tax payments take place biannually |
| Special licenses for starting up a business in South Africa | Industry-specific |
| Tax exemptions or incentives | Lower tax rate for small companies, research and development deductions, tax allowances, special rates for companies in special economic zones, oil and gas income tax incentives and others |
Steps for company formation in South Africa
Apart from choosing the right business structure, investors will want to:
- choose an available company name;
- open a bank account;
- obtain special permits and licenses; this is mandatory and the licenses depend on the business field in which the company activates.
When they choose to open a company in South Africa as a private company, investors can select between a standard and a customized Memorandum of Incorporation. If you choose the latter, our team can help you draw up customized corporate documents.
Company taxation in South Africa
Investors who open a company in South Africa will also be interested in the taxation requirements. Our team briefly lists these below:
- Corporate income tax: investors interested in starting up a business in South Africa should keep in mind that this tax has a value of 28%;
- Withholding tax: 20% in case of dividend payments to individuals, trusts, and foreign persons; exemptions apply;
- Value-added tax: 15% standard rate and 0% reduced rate for some types of goods and services;
- Social security contributions: the employer generally pays 1% of the gross income for each employee; if you choose to set up a company in South Africa, we can give you more information about these contributions.
For a complete list of taxes, please reach out to our tax lawyers in South Africa.
Small and medium companies are required to register for VAT purposes when the earned income in a consecutive 12-month period is likely to exceed R 1 million.
We can also offer details about individual taxation if you are self-employed or derive income from employment. Our immigration lawyers in South Africa can tell you more about how you will be taxed.
If you need to open a company in another country, such as the Cayman Islands, we can put you in touch with our local partners.
The business visa for South Africa
Foreign nationals who are interested in company formation in South Africa need to apply for a business visa prior to coming to the country for their business purposes.
Obtaining a business visa can be the first step for those investors who ultimately wish to immigrate to South Africa.
The business visa will allow the holder to remain in the country for more than 90 days and it is useful for those who wish to open a company and remain in South Africa to run it.
The documents required for the business visa application are the following:
- proof of sufficient to invest in the country; the minimum amount is at least R5 000 000 in cash or at least R5 000 000 in cash and capital;
- proof of business feasibility issued by the Department of Trade and Industry;
- proof of being able to have at least 60% of the staff employed for the business be composed of South African citizens or permanent residents.
As far as the minimum contribution is concerned, a foreign investor interested in company formation in South Africa can invest a minimum of R 5 million in an existing business, or invest the amount in a new company, at the same time presenting a business plan for a foreign-owned business.
When the investor chooses to open a locally registered company, he will abide by the existing laws for company formation (the same that apply to citizens of South Africa).
The financial proof is to be approved through a certificate issued by a chartered accountant in the country.
The company in which the foreign national will invest will be registered with the Companies and Intellectual Properties Commission (as needed), any other relevant professional bodies or boards, the South African Revenue Services, and other institutions, as required.
The holder of the business visa (who can also start the process for company formation in South Africa) is allowed to study in South Africa part-time without having to change the purpose of the existing visa.
The business visa can be renewed upon its expiration.
The application for renewal is submitted during the previous visa’s period of validity.
Foreign investors who are interested in immigration to South Africa can apply for permanent residency after five years of having lawfully lived in the country based on a temporary residence permit.
If you want to know more about residency in South Africa, and how you can apply for temporary residency based on a business visa, our team can answer your details. We can also analyse your situation and provide you with details on how to change the visa type if your situation has changed during the time you have been living in South Africa.
Our team is able to help you with more details about the process of starting up a business in South Africa, as well as remaining in the country for temporary or permanent residency purposes.
Reach out to us if you want to open a company in Cape Town or in another city and contact our immigration lawyers in South Africa if you plan to relocate here for business purposes.