GUIDE – DOING BUSINESS INSOUTH AFRICA

1

BOWMANS

2

07 TheCountryataGlance

08 GeneralConsiderations

15 InvestmentIncentives

17 FinancialFacilities

19 ExchangeControls

22 Import/ExportRegulations

27 StructuresforDoingBusiness

37 RequirementsfortheEstablishment

ofaBusiness

42 OperationoftheBusiness

47 CessationorTerminationofBusiness

50 LabourLegislation,RelationsandSupply

54 TaxonCorporations

61 TaxonIndividuals

65 GeneralTaxConsiderations

66 ImmigrationRequirements

69 ExpatriateEmployees

Contents

Guide – Doing Business in South Africa

3

BOWMANS

Our Firm

Bowmans is a leading Pan-African law firm. Our track record of providing specialist legal services, both domestic and cross-border, in the fields of corporate law, banking and finance law and dispute resolution, spans over a century.

WithsixofficesinfourAfricancountries

andover400specialisedlawyers,

wearedifferentiatedbyourgeographical

reach,independenceandthequalityoflegal

servicesweprovide.

Wedrawonouruniqueknowledgeofthe

Africanbusinessenvironmentandin-depth

understandingofthesocio-politicalclimate

toadviseclientsonawiderangeoflegal

issues.Ouraimistoassistourclientsin

achievingtheirobjectivesassmoothlyand

efficientlyaspossiblewhileminimisingthe

legalandregulatoryrisks.

Ourclientsincludecorporates,multinationals

andstate-ownedenterprisesacrossarange

ofindustrysectorsaswellasfinancial

institutionsandgovernments.

Ourexpertiseisfrequentlyrecognised

byindependentresearchorganisations.

WehavebeennamedAfricanLegalAdviser

byDealMakersforthelastthreeconsecutive

yearsandSouthAfricanLawFirmofthe

Yearfor2016bytheWho’s Who Legal.Most

recently,wewontheTechnology,Mediaand

TelecommunicationsTeamoftheYearAward

attheprestigiousAfricanLegalAwardshosted

byLegal WeekandtheCorporateCounsel

AssociationofSouthAfricain2017.Thefirm

wasalso‘highlycommended’intheAfrican

LawFirmoftheYear–LargePracticeand

LitigationandDisputeResolutionTeamof

theYearcategories.

4CONTENTS PAGE

Bowmans offices

Relationship firm

Significant transaction or advisory experience

Bowmans offices

Relationship firm

Significant transaction or advisory experience

SOUTH AFRICA MOZAMBIQUE

NIGERIA

KENYA

TANZANIA

UGANDA

Bowmans offices

Relationship firm

Significant transaction or advisory experience

SOUTH AFRICA MOZAMBIQUE

NIGERIA

KENYA

TANZANIA

UGANDA

Our Footprint in Africa

Bowmans offices

Relationship firm

Significant transaction or advisory experience

SOUTH AFRICA MOZAMBIQUE

NIGERIA

KENYA

TANZANIA

UGANDA

Bowmans offices

Relationship firm

Significant transaction or advisory experience

SOUTH AFRICA MOZAMBIQUE

NIGERIA

KENYA

TANZANIA

UGANDA

Bowmans offices

Relationship firm

Significant transaction or advisory experience

SOUTH AFRICA MOZAMBIQUE

NIGERIA

KENYA

TANZANIA

UGANDA

Weprovideintegratedlegalservices

throughoutAfricafromsixoffices(Cape

Town,DaresSalaam,Durban,Johannesburg,

KampalaandNairobi)infourcountries

(Kenya,SouthAfrica,TanzaniaandUganda).

WeworkcloselywithleadingNigerianfirm

UdoUdoma&Belo-Osagie,andMozambique-

basedboutiquefirm,TacianaPeãoLopes&

AdvogadosAssociados.Wealsohavestrong

relationshipswithotherleadinglawfirms

acrosstherestofAfrica.

WearerepresentativesofLexMundi,aglobal

association,withmorethan160independent

lawfirmsinallthemajorcentresacrossthe

globe.Thisassociationgivesusaccesstothe

bestfirmsineachjurisdictionrepresented.

Guide – Doing Business in South Africa

5CONTENTS PAGE

BOWMANS

Guide to Doing Business:South Africa

SouthAfricaisaheterogeneous

countryintermsofcultureand

religionandisknownforits

diversityofpeople.

6CONTENTS PAGE

6

BOWMANS

SECTION I – THE COUNTRY AT A GLANCE

A.SOUTHAFRICA

SouthAfricaislocatedatthesouthernmosttip

ofAfrica,borderingBotswana,Mozambique,

Namibia,SwazilandandZimbabwe,and

surroundingthekingdomofLesotho.

Withinitsbordersliehugeopportunitiesfor

foreigndirectinvestment,driveninpartbythe

tremendousgrowthinopportunitiesonthe

Africancontinent,fromwhichSouthAfrica,

throughitswell-developedinfrastructure,

financialservices,telecommunicationsandlegal

systems,iswellplacedtobenefit.

B.LANGUAGES

SouthAfricahas11officiallanguages:Afrikaans,

English,Ndebele,NorthernSotho,Sotho,Swazi,

Tsonga,Tswana,Venda,XhosaandZulu.

C.EXCHANGERATE

Overthepastyear,SouthAfrica’scurrency,the

Rand(ZAR)hassteadilylostvalueagainstthe

USDollar(USD),andcurrently(October2015)

tradesatapproximatelyZAR13toUSD1.

TheRand/Euroexchangeratehassimilarly

dropped,andiscurrentlyapproximately

ZAR15toEUR1(October2015).

D.CLIMATE

SouthAfrica’sclimaterangesfrom

Mediterraneaninthesouthwesterncornerof

SouthAfricatotemperateintheinteriorand

subtropicalinthenortheast.

E.CULTURALANDRELIGIOUSINFLUENCE

INBUSINESS

SouthAfricaisaheterogeneouscountryin

termsofcultureandreligionandisknownfor

itsdiversityofpeople.Giventhisdiversityof

culturalandreligiousbackgrounds,itisdifficult

togeneralise,althoughbusinessetiquettelargely

mirrorsthatofWesterncountriesandthereare

few,ifany,culturalorreligiousinfluencesonthe

waybusinessisconducted.

Therearedistinctdifferencesinbusinessculture

whencomparingthedifferentinstitutional

relationships.Business-to-the-publicservices

canvary,butthebusiness-to-businessculture

isgenerallyveryprofessionalandofan

internationalstandard.

OfficehoursaresimilartothoseinWestern

countriesandmostSouthAfricanbusiness

peopledonotworkonweekends.Exceptions

includebankemployeesandGovernment

workersasbanksandGovernmentoffices

areoftenopeninthemorningsforahalfday

onSaturdays.

F.INFRASTRUCTUREANDTRANSPORTATION

ThetransportinfrastructureinSouthAfrica

ismodernanddevelopedwithfurtherplansfor

developmentoverthenext10years.Thereare

anumberofoptionsfortravellingwithinSouth

Africa,includingdomesticflights,buses

andtrains.

Duetoitssize,SouthAfricahasanumber

ofairlinesthatprovideadomesticservice

amongthecountry’s10principalairports.

AirportsCompanySouthAfricaisresponsible

foroperatingtheseairports.Thethreemajor

internationalairportsinthecountryare

Johannesburg,CapeTownandDurban.

Guide – Doing Business in South Africa

7CONTENTS PAGE

BOWMANS

Anumberofairlinecompaniesoperatedirect

flightstoCapeTown,DurbanandJohannesburg

fromAsia,Australia,majorEuropeancities,the

MiddleEastandtheUnitedStates,aswellas

fromotherAfricancountries.

SouthAfrica'sroadnetworktotalssome

73000kilometresofpavedroadsand

approximatelyafurther680000kilometres

oflocalunpavedroads.Travelbycarorbus

isacheaperalternativetotravellingbyair

andisgenerallysafeandaffordable.

TheSouthAfricanrailindustryispubliclyowned

andrunbyTransnetanditssubsidiaries.Due

todwindlingpassengernumbers,Transnethas

movedtowardsfreightasameansofmaximising

theearningpotentialofthenetwork.

G.TELECOMMUNICATIONS

Telecommunicationsisoneofthefastest

growingsectorsofSouthAfrica’seconomy,

drivenbyexplosivegrowthinmobilephone

useandbroadbandconnectivity.Witha

networkthatis99.9%digitalandincludes

thelatestinfixed-line,wirelessandsatellite

communication,thecountryhasthemost

developedtelecomsnetworkinAfrica.

SouthAfricahasfourlicensedmobileoperators:

8ta(asubsidiaryoftheparastatalTelkom,which

istheonlylicensedproviderofpublicswitched

telecommunicationsservices),CellC,MTNand

Vodacom(majorityownedbyUK’sVodafone).

Mobilepenetrationisestimatedatmorethan

10%,oneofthehighestratesintheworld.

H.PUBLICSERVICES

Eskom,astate-ownedutilityorganisation,

isresponsibleforprovidingthemajorityof

SouthAfrica’selectricity.Electricityisgenerally

availableacrossSouthAfrica,althoughsomevery

ruralpartsarenotyetconnectedtothegrid.

Duetothedensepopulationinthecities,

increasedurbanisationandageingpower

stations,thereissignificantpressureon

electricitysupplyatpeaktimes,whichhasledto

majorenergyconcernsandintermittentblack-

outs,knownas'loadshedding'.

SouthAfricahasseveralprimary-energy

resourcesinabundance,includingcoal,wind

andsolar.Thereisalsoapotentiallylargegas

resourcebaseandanopportunitytotapinto

theregion’slarge-scalehydropowerprospects.

Inaddition,theSouthAfricanGovernment

hasnuclearplans,whicharebeingpromoted

toensuresecurityofsupplyandtolowerthe

country’scarbonemissions.

Insomeareas,gasisdelivereddirectlyinto

homes.Alternatively,itcanonlybebought

ordeliveredincanisters.Gascanisterscan

beboughtatpetrolstationsandgasdelivery

servicesoperateinmosttownsandcities.

Waterissuppliedbylocalmunicipalitiesand

isnormallychargedbasedonhousehold

consumption.Watersuppliesareofgood

qualityandtapwaterisdrinkable.

SECTION II – GENERAL CONSIDERATIONS

A.INVESTMENTPOLICIES

SouthAfricawelcomesforeigninvestment,

inboththepublicandprivatesectorsand

inallspheresoftheeconomy.

AlthoughSouthAfricafacessocialchallenges

inrespectofunemployment,alargecurrent

accountdeficit,avolatilecurrencyandslowing

demandforcommodities,thereissignificant

scopeforforeigndirectinvestmentinthefast-

movingconsumergoods,financialservices,

hospitality,pharmaceuticals,resources,retail,

telecommunicationsandinformation

technologysectors.

8CONTENTS PAGE

Keysectorsthatcontributeto

thegrossdomesticproductare:

%of

GDP

Agriculture,forestryandfishing 2.3%

Miningandquarrying 7.9%

Manufacturing 12.5%

Financial,realestateand

businessservices 19.8%

TheDepartmentofTradeandIndustry(DTI)

offersawiderangeofincentiveschemesto

encouragethegrowthofcompetitive

newenterprisesandthecreationof

sustainableindustries.

Moreinformationonthevarious

initiativescanbefoundat

www.investmentincentives.co.za

Inflation

TheinflationrateinSouthAfricawas

recordedat4.6%inAugust2015.

Incentivesandrestrictionsonforeign

investment

Therearefewrestrictionsonforeigninvestment

inSouthAfrica,withtaxbreaksandincentives

forsmallenterprises,strategicindustrial

projectsandexporters.

Althoughthereisnooverarchingpieceof

legislationwhichlimitsforeignownership,

thereareanumberofstrategicsectorsin

whichregulationsaffectingforeignentryor

ownershiparecommonlyfound.Thesectors

whicharesubjecttosuchregulationsare:

agricultureandfisheries,broadcastingand

printmedia,businessservices(eg,accountancy,

legalservices),defenceandaerospace,

energy,financialservices,naturalresources,

nuclearenergyandmaterials,realestate,

telecommunicationsandtransport.

Inadditiontothis,theLandHoldingsBill

(indraftform)willproposetolimitforeign

nationals’ownershipofland,withforeign

nationalsbeingrestrictedfrombuying

agriculturallandinSouthAfrica.TheBillhas

yettobetabledinParliament,andhasbeen

metwithsubstantialcontroversy.

Defactorestrictionsoninvestment

ThePromotionandProtectionofInvestmentBill

wastabledinParliamenton27July2015.The

Bill,whichisanticipatedtobecomelegislation

imminently,regulatestheprotectionofforeign

investors.Itisintendedtopromoteinvestmentby

modernisingthecurrentinvestmentregimeand

achievingabalanceofrightsandobligationsthat

willapplytoallinvestorswheninvestingin

SouthAfrica.

Importantly,itprovidesaforeigninvestorwith

thesamerightsasadomesticinvestorand

providesthatforeigninvestorswillbetreated

nolessfavourablythandomesticinvestors.

Therehasbeencontroversysurroundingthe

protectionstandards‚suchastheabilitytoseek

recoursefromaninternationaltribunaland

guaranteedmarket-relatedcompensationforany

expropriation.However,theDTIhasdefended

theBill,sayingthatSouthAfricahasoneofthe

highestlevelsofinvestorprotectionandforeign

investorswillalwaysbenefitfromthelegal

protectionofpropertyrightsgrantedbythe

SouthAfricanConstitution.

TheBilliscurrentlyunderreviewandislikely

tobeamendedinduecourse.

SouthAfrica’smajoreconomicsectors

SouthAfrica’seconomywastraditionallyrooted

intheprimarysectors–theresultofawealth

ofmineralresourcesandfavourableagricultural

conditions.Butrecentdecadeshaveseena

structuralshiftinoutput.

Guide – Doing Business in South Africa

9CONTENTS PAGE

BOWMANS

B.DIPLOMATICRELATIONS

SouthAfricaisactiveintheUnitedNations,the

AfricanUnionandtheCommonwealth

ofNations,andhasestablisheddiplomatic

relationswiththemembersofthese

organisationsinthepost-apartheidera,as

wellaswithmanyothercountries.

Acomprehensivelistofforeignrepresentation

inSouthAfricaisavailableontheDepartment

ofForeignAffairswebsite:

www.dfa.gov.za/foreign/forrep/index.htm.

Travelrestrictions

TherearenotravelrestrictionsinSouthAfrica.

Immigrationcontrolsarediscussedunder

Section XVI.

C.GOVERNMENT

TheElectoralSystem

Electionsareheldatnational,provincialand

municipallevelsandfollowafive-yearcycle,

withnationalandprovincialelectionsheld

simultaneouslyandmunicipalelectionsfollowing

twoyearslater.Theelectoralsystemisbasedon

party-listproportionalrepresentation.Nochange

inthepresentGovernmentisanticipated.

PoliticalStability

ThepresentGovernmentisstable,withthe

AfricanNationalCongress(ANC)currently

holdingamajorityof62.1%intheNational

Assembly.Overthepastdecadethismajority

hasdiminishedslightly,withtheofficial

opposition,theDemocraticAlliance(DA),

increasingitssupportbase.ThoughtheANC

continuestoenjoyalargemajorityinthe

legislature,thelastdecadehasseenan

increaseinservicedeliveryprotests.

TheJudicialSystem

Section165oftheConstitutionoftheRepublic

ofSouthAfrica(Constitution)enshrinesthe

independenceofthecourtsbyprovidingthat

nopersonororganofstatemayinterferewith

thefunctioningofthecourts.Tothisend,the

courtsareempoweredtoapplytheConstitution

andthelawimpartiallyandwithoutfear,favour

orprejudice.

Inaddition,thedoctrineofseparationof

powerscreatesasystemofchecksandbalances

wherebythethreearmsofGovernment

(namely,theLegislature,theExecutiveandthe

Judiciary)areseparatedinordertoensuregood

governance,preventtheabuseofpowerand

enhanceStateefficiency.

Thusinprinciple,thejudicialsystemis

impartialasitisstructurallyorganisedin

suchawaythattheJudiciaryshouldnotbe

influencedbytheotherarmsofGovernment

inrelationtoitsfunctionsandresponsibilities.

Whiletherehavebeeninstances,particularly

withinthelastfewyears,wherethe

independenceoftheJudiciaryhasbeen

broughtintoquestion,thegeneralperception

isthattheSouthAfricanjudicialsystemisalive

andthatithassuccessfullymanagedtomaintain

itsindependenceandimpartiality.

TheLegislativeSystem

TheConstitutionisthesupremelawofSouth

Africaandprovidesforaseparationofpowers

amongthethreebranchesofGovernment,

namelytheLegislature(Parliament,provincial

legislaturesandmunicipalcouncils),the

ExecutiveAuthorityandtheJudicialAuthority.

ChapterfouroftheConstitutionsetsoutthe

nationallegislativeprocessanddeterminesthat

ParliamentisthenationallegislatureofSouth

Africa.BothHousesofParliament(theNational

AssemblyandtheNationalCouncilofProvinces)

playaroleinthisprocess.

TheNationalAssembly,asthenational

legislature,haslegislativeauthority(thepower

tomakelaws)inthenationalsphereof

Government.Consequently,theNational

Assemblyhasthepowertopassnewlaws,to

10CONTENTS PAGE

amendexistinglaws,andtorepealoldlaws.

Thesamepowerisexercisedbyprovincial

legislaturesintheprovincialsphereof

Governmentinrespectofprovinciallaws,and

bymunicipalcouncilsinthelocalsphereof

Governmentinrespectofmunicipalby-laws.

D.DISPUTERESOLUTION

Withregardtocommercialdisputes,parties

toacontractmaychoosewhichlawgoverns

thecontract.However,thereareanumberof

SouthAfricanlawswhichprovideforsituations

inwhichSouthAfricancourtshaveexclusive

jurisdiction.Forexample,theBillsofExchange

Act34,1964identifiescertaincircumstances

inwhichSouthAfricahasexclusivejurisdiction

overcontractsrelatingtobillsofexchange.

Strictlyspeaking,theJudiciaryisan

independentbranchofGovernmentwhich

issubjectonlytotheConstitutionandit

exercisesitsfunctionbasedonthelaw.

However,intheresolutionofdisputes,the

courtsdotakeintoaccountmattersof

publicpolicy,andthusthedisputeresolution

methodsinSouthAfricaarenotcompletely

devoidofallpoliticalinfluence,althoughthey

canbecategorisedasmainlynon-political.

Alternativedisputeresolution

Thefollowingtypesofalternativemethodsof

disputeresolutionareavailable:

• Arbitration–thisisanadjudication

processwhichtakesplacepursuantto

anagreementbetweenthepartiestoa

dispute,referringthatdisputeforfinal

determinationtoanindependenttribunal

appointedbyoronbehalfoftheparties.

• Mediation–thisisadisputeresolution

processthroughwhichathirdparty

acceptabletoallpartiestoadisputehelps

tobringthepartiestoanagreedsolution.

Themediatorusuallyhasnodecision-

makingpowersandcannotimposea

bindingconclusionorsettlementon

theparties.

Otherdisputeresolutionmechanismsare

alsopermittedwheretheyarecontemplated

byindustrypractice.Forexample,Dispute

AdjudicationBoards,asenvisagedbythe

FIDICRulesforengineeringdisputes.

Timetakentoresolvedisputes

Theamountoftimerequiredtoresolvea

disputevariesdependingontheurgencyof

thematter,thecomplexityofthematterand

theco-operationofthepartiesincomplying

withthetimeframeswithinwhichpleadings

shouldbefiled.

ItisalsoimportanttonotethatSouthAfrican

courtshaveasignificantbacklogofcases,

whichcancreatedelaysincourtprocesses.

However,significantstepshavebeentakento

expeditethedisputeresolutionprocess,suchas

theintroductionofinterlocutorycourtstohear

"sideissues"thatariseintheprocessofresolving

disputes.Thesestepsareaimedatfacilitating

theefficiencyofthecourtsinhearingmatters.

Alternativedisputeresolutionmethods,such

asarbitrationandmediation,areincreasingly

becomingthepreferredmethodsofdispute

resolutionforpartieswhowishtosettledisputes

inashortertimeframe.Thisisparticularlyso

duetothefactthatpartieshavemorecontrol

overthejudicialprocessandareabletoagree

ontheirowntimeframesanddeadlinesforthe

submissionofpleadingsandevidence.

Accordingly,amattercantakeanythingfrom

eightmonths(ininstanceswherethematter

issimpleandthepartiesareco-operative)to

fiveyearsormore(ininstanceswherethematter

iscomplex,thepartiesareunco-operative,or

thematterhasbeentakenonappealtoits

highestappealablepoint–theSupremeCourt

ofAppealorConstitutionalCourt,dependingon

thenatureofthematterandthelowercourtin

whichitoriginated).

Guide – Doing Business in South Africa

11CONTENTS PAGE

BOWMANS

Theenforcementofforeignjudicialdecisions

inSouthAfrica

Itispossibletoenforceforeignjudgements

inSouthAfricabyregisteringthejudgement

withalocalcourtundertheEnforcement

ofForeignCivilJudgementsAct32,1988.

However,thescopeofthisActisextremely

narrowandonlyappliestojudgementsfrom

countriesdesignatedbytheMinisterofTrade

andIndustryaspublishedintheGovernment

Gazette.Thusfar,onlyNamibiahasbeen

designated(SeeGovernment GazetteNumber

17881publishedon1April1997).

Inmostcases,aclaimantwishingtohavea

foreignjudgementenforcedinSouthAfrica

mustapplytoalocalcourtforanorder

recognisingthejudgementanddeclaringit

tobeenforceableinSouthAfrica.Oncethe

judgementhasbeenrecognisedbyalocal

court,theclaimantcanobtainawrit

ofexecutionandproceedtoenforce

thejudgement.

Inordertosucceedwithanapplicationto

recogniseandenforceaforeignjudgement,

theclaimantisrequiredtoshowthat:

• thejudgement:

• wasfinalandconclusive;

• wasnotobtainedbyfraudorinany

manneropposedtonaturaljustice;and

• doesnotcontravenetheProtectionof

BusinessesAct99,1978.(ThisActrequires

thattheconsentoftheMinisterofTrade

andIndustrybeobtainedbeforecertain

foreignjudgementscanbeenforced.

TheActwouldappearnottoinclude

loansfrom,orguaranteesto,foreign

lenders.However,onlytwojudgements

todatewhichdealwiththeActsupport

thatanalysis.);

• theenforcementofthejudgementis

notcontrarytopublicpolicyinSouth

Africa;and

• theforeigncourtinquestionhadjurisdiction

andcompetenceaccording

toapplicablerulesonconflictsoflaws.

Aforeignjudgementwillprobablynotbe

recognisedinSouthAfricaiftheforeigncourt

exercisedjurisdictionoverthedefendantsolely

byvirtueofanattachmenttofoundjurisdiction

oronthebasisofdomicilealone.SouthAfrican

courtswillnotenforceforeignrevenueor

penallaws.

TheenforcementofSouthAfrican

judgementsabroad

Generally,therearenoprovisionsinSouth

Africanlawprohibitingtheenforcementof

foreignjudgementsabroad.Therefore,inorder

toenforceadomesticjudgementabroad,aparty

mustconsultthelawsoftheparticularforeign

jurisdictionforguidance.Therearecertain

instances,however,particularlywithreference

totheEnforcementofForeignCivilJudgements

Act32,1988whereSouthAfricahasagreedto

reciprocalenforcementofciviljudgementswith

certaincountries.Zimbabweisonesuchexample.

Varioustribunals

ThereisasystemofordinarycourtsinSouth

Africawhicharenotsubject-matter-specific.

Thentherearespecialistcourtswhichhave

beenestablishedfortheadjudicationofspecific

matters.Theseinclude:theLabourCourt,the

LabourAppealCourt,theSpecialistIncome

TaxCourt,theElectoralCourt,theCompanies

Tribunal,theCompetitionCommission,the

CompetitionTribunal,theCompetitionAppeal

Court,theConsumerCommissionandthe

ConsumerTribunal.Eachofthesespecialised

courtshasbeenestablishedintermsof

legislationgoverningthesubjectmatter

inquestion.

SouthAfricahasasinglenationalcourtssystem

throughoutallofitsnineprovinces.

12CONTENTS PAGE

Cantheinvestorchoosetobesubject

tothecountry’sjurisdictionornot?

Partiestoacontractmayagreeonthe

governinglawofthecontract.Therefore,

aninvestorcanchoosetobesubjecttothe

country’sjurisdictionornot,subjecttocertain

limitationsinrespectofmattersregardingover

whichSouthAfricahasexclusivejurisdiction.

E.ENVIRONMENTALCONSIDERATIONS

Thelevelofconcernforthenatural

environmenthassteadilyincreasedglobally.

SouthAfricahasmirroredthistrendasis

evidentfromtheriseininternationaltreaties

andnationallegislation,thepowersafforded

toenvironmentalregulatorsandtheincrease

non-Governmentalorganisations.

Theenvironmentalrightsenshrinedin

theConstitutionandrelevantnational

andprovinciallegislationarethebasisfor

environmentalpolicy.SouthAfricahas

wide-ranginglegislationwhichaimsto

protecttheenvironment,includinglaws,

regulationsandby-laws.

Strictenvironmentalregulationand

increasinglyrigorousenforcementmakes

environmentalcomplianceakeyconsideration

todoingbusinessinSouthAfrica.Asinmany

internationaljurisdictions,specialisedcounsel

isrequiredtoeffectivelymanagecorporate

environmentalrisksanddecision-making.

Environmentalregulations

Please refer to Section VIII, Part C.

F.INTELLECTUALPROPERTY

Thelawsprotectingintellectualproperty

Protectionofvariousdifferentaspectsof

intellectualpropertyisprovidedbywayofthe

followinglegislation:

Trademarks

• TradeMarksAct194,1993

• TradeMarkRegulations,1995

• MerchandiseMarksAct17,1941

Patents

• PatentsAct57,1978

• PatentRegulations,1978

Designs

• DesignsAct195,1993

• DesignRegulations,1999

Copyright

• CopyrightAct98,1978

• CopyrightRegulations,1978

• RegistrationofCopyrightinCinematograph

FilmsAct62,1977

• RegistrationofCopyrightinCinematograph

FilmsRegulations,1980

Miscellaneous

• CounterfeitGoodsAct37,1997

• Performers’ProtectionAct11,1967

• PlantBreeders’RightsAct15,1976

• PlantBreeders’RightsRegulations,1977

Notably,SouthAfricadoesnotconduct

asubstantiveexaminationoffiledpatent

applications.Thus,aslongasthenecessary

formalitiesareinplace,anapplicationwillbe

acceptedandgrantedintheforminwhichitwas

filed.Theonusthereforeremainsontheapplicant

toensurethatitspatentapplicationremainsina

validform.

Internationaltreaties

SouthAfricasubscribestothefollowing

internationaltreatiesandagreements:

Guide – Doing Business in South Africa

13CONTENTS PAGE

BOWMANS

• BerneConventionfortheProtectionof

LibertyandArtisticWorksof1886

• BudapestTreatyontheInternational

RecognitionoftheDepositofMicro-

OrganismsforPurposesofPatentProcedure

• ParisConventionParisConventionforthe

ProtectionofIndustrialPropertyof1884

• PatentCo-operationTreaty

• InternationalConventionfortheProtection

ofNewVarietiesofPlants(UPOV)

• WIPOConvention

• WTO/TRIPS(AgreementonTrade-Related

AspectsofIntellectualPropertyRights)

SouthAfricaisalsoasignatorytothefollowing

treatiesorconventions,buthasnotyetacceded:

• TradeMarkLawTreaty

• WIPOCopyrightTreaty

• WIPOPerformancesandPhonograms

Regulatoryguidelinesforlicences

Please refer to Section VIII, Part F.

Royalties

RoyaltiespayablebyaSouthAfricanresident

entitytoaforeignpartyrequirepriorapproval.

Royaltiesaredividedintotwocategories:

royaltiesassociatedwithaprocessof

manufacture;andotherroyalties.

Withregardtoroyaltiesassociatedwitha

processofmanufacture,theSouthAfrican

ReserveBank(SARB)hasdelegateditsauthority

totheDTI.Thismeansthatapplicationsfor

approvalofsuchroyaltiesmustbesubmittedto

theDTI.TheDTIfurtherdistinguishesbetween

royaltyagreementscoveringconsumergoods

andthoseforintermediateandcapitalgoods.

TheDTIgenerallyrestrictstheroyaltyrateto:

• Sixpercentofex-factorysellingpricefor

intermediateandcapitalgoods;and

• Fourpercentoftheex-factorysellingprice

forconsumergoods.

Royaltiesinexcessofthisthresholdcanbe

motivatedandapprovedonanexceptionsbasis.

However,inpractice,royaltiesexceeding8%are

rarelyapproved.

Withregardtootherroyalties,applicationsfor

approvalmustbesubmittedtotheFinancial

SurveillanceDepartmentoftheSARB(FinSurv)

itself.FinSurvismoreflexiblethantheDTIin

relationtotheroyaltyrateanddoesnotapply

the4%to6%guidelinesappliedbytheDTI.

Asaresult,royaltiesofmuchhigherratesare

sometimesapproved.

Partiesapplyingforapprovalaregenerally

requiredtosubmitanopinionfroman

independenttransferpricingspecialistthat

theproposedroyaltyisacceptableforSouth

Africantransferpricingpurposes(i.e.thatthe

royaltyhasbeendeterminedonanarm’slength

basis).Also,thereisaconsiderableonusplaced

onlocalofficebearers,whoarerequiredto

confirmthattheSouthAfricancompanyhas

receivedandbenefitedfromtheintellectual

propertyinquestion.

Please also refer to Section V, Part C.

Competitionlaws

Competitionlawsdoinprincipleapply

tolicences.However,insofarasthereare

competitionlawconcerns,afirmmay

specificallyapplytotheCompetition

Commissionforanexemptionfromthe

provisionsapplyingtoprohibitivepracticesin

termsofsection10(4)oftheCompetition

Act89,1998.

14CONTENTS PAGE

SECTION III – INVESTMENT INCENTIVES

A.EXPORTINCENTIVESANDGUARANTEES

ThemainGovernmentbodytaskedwith

assistingexportersistheDTI.Variousincentives

areprovidedtoSouthAfricanfirmstoexport

theirproductsinternationally.

TheDTIhassetuptheExportMarketingand

InvestmentAssistance(EMIA)scheme,which

compensatesexportersforthecostsinvolved

indevelopingexportmarketsforSouthAfrican

productsandservices,andisadministeredby

TradeandInvestmentSouthAfrica’s(TISA)

exportpromotionunit.

TheEMIAschemeoffersexportersincentives

andfinancialassistancewithmarketresearch,

trademissionsandshowcasingproductsand

servicesatinternationalexhibitions,among

otherthings.Costscoveredcaninclude

exhibitionfees,standconstruction,traveland

dailyallowances.

Assistanceisdividedbetweenindividualand

groupofferingsandeachschemehasitsown

definedcriteria.ThosewhoqualifyforEMIA

assistanceinclude:

• SouthAfricanmanufacturersandexporters;

• SouthAfricanexporttradinghouses

representingatleastthreesmall,

mediumandmicroenterprises(SMMEs)

orbusinessesownedbyhistorically

disadvantagedindividuals(HDIs);

• SouthAfricancommissionagents

representingatleastthreeSMMEsor

HDI-ownedbusinesses;and

• SouthAfricanexportscouncils,industry

associationsandjointactiongroups

representingatleastfiveSouth

Africanentities.

Additionalincentiveschemesapplicable

tocertaincategoriesofexportersinclude

thefollowing:

• SectorSpecificAssistanceScheme

(SSAS)–theSSASisareimbursable

80:20cost-sharinggrantofferingfinancial

supporttoexportcouncils,jointaction

groupsandindustryassociations.The

schemehasasub-programmespecially

designedtoassistemergingexporters.

Eligibleenterprisesarenon-profitbusiness

organisationsinsectorsandsub-sectors

oftheindustriesprioritisedbytheDTI.

• AutomotiveInvestmentScheme(AIS)–

theAISisanincentiveschemedesigned

togrowanddeveloptheautomotive

sectorthroughinvestmentinnewand/or

replacementmodelsandcomponentsthat

willincreaseplantproductionvolumes,

sustainemploymentand/orstrengthenthe

automotivevaluechain.Asub-programmeof

thisschemeisthePeople-carrierAutomotive

InvestmentScheme(P-AIS)whichprovidesa

non-taxablecashgrantofbetween20%and

35%ofthevalueofqualifyinginvestmentin

productiveassetsapprovedbytheDTI.

• CriticalInfrastructureProgramme

(CIP)–theCIPisacost-sharinggrant

forprojectsdesignedtoimprovecritical

infrastructureinSouthAfrica.Thegrant

coversqualifyingdevelopmentcostsfrom

aminimumof10%toamaximumof30%

towardsthetotaldevelopmentcostsof

qualifyinginfrastructure.Itismadeavailable

toapprovedeligibleenterprisesupon

thecompletionoftheinfrastructure

projectconcerned.

• FilmIncentives–theSouthAfrican

Governmentoffersapackageofincentives

topromoteitsfilmproductionand

post-productionindustry:

Guide – Doing Business in South Africa

15CONTENTS PAGE

BOWMANS

•theForeignFilmandTelevision

ProductionandPost-Production

incentiveattractsforeign-based

filmproductionstoshootonlocation

inSouthAfricaandconductpost-

productionactivities.Thisincentive

contributestowardscreating

employment,enhancingthecountry’s

internationalprofileandincreasing

thecountry’screativeandtechnical

skillsbase;

•theSouthAfricanFilmandTelevision

ProductionandCo-Productionincentive

aimstoassistlocalfilmproducers

intheproductionoflocalcontent.A

sub-programmeofthisincentiveis

theSouthAfricanEmergingBlack

Filmmakersincentive,whichaimstoassist

bigproductionsandthuscontribute

towardsemploymentcreation;and

•theSouthAfricanEmergingFilmmakers

incentivewhichisavailabletoSouth

Africanblack-ownedqualifying

productions.

• ManufacturingInvestmentProgramme

(MIP)–theMIPisareimbursablecashgrant

forlocalandforeign-ownedmanufacturers

whowishtoestablishanewproduction

facility,expandanexistingproduction

facilityorupgradeanexistingfacilityin

theclothingandtextilessector.

• Furthermore,provisionismadeinthe

CustomsandExciseAct91,1964(Customs

Act)forgeneralrefundstoexporters,

aswellasalargenumberofspecific

drawbacksandrefundsofcustomsand

exciseduties.Theseconcessionsare

availabletomanufacturersaswellasto

merchantswhoimportgoodsforre-export.

Inrespectofexportfinancing,theIndustrial

DevelopmentCorporation(IDC)makes

financingavailableatreducedratesforselected

expansionschemesthatareexpectedtoresult

inincreasedforeignexchangeearnings.The

IDCfurtherprovidesfinancingofcreditfor

exportersofcapitalgoodsatreducedrates.

Inaddition,Governmentalinsuranceisprovided

bytheExportCreditInsuranceCorporation

(ECIC),anagencyoftheDTI.TheECIC

providesexportcreditandforeigninvestment

insurancecoveronbehalfoftheGovernment.

TheECICaimstofacilitateSouthAfricanexport

tradebyunderwritingexportcreditloansand

investmentsoutsidethecountrytoenable

SouthAfricancontractorstowincapitalgoods

andservices’contractsinothercountries.

TheCreditGuaranteeInsuranceCorporation

furtheroffersexportersinsurancecovering

domesticorinternationaldebtors,whichmeans

exportersareprotectedagainstnon-payment.

Formoreinformation,visittheSouthAfrican

RevenueService(SARS)andDTIwebsites

www.sars.co.zaand

www.thedti.gov.za.

B.FOREIGNINVESTORGRANTSAND

SUBSIDIES

Grantsandsubsidiesareavailableforarange

ofactivitiesandarenotlimitedtoonesector

oftheeconomy.

Theapplicationprocessandtheduration

thereofwillvarydependingonthetypeof

grantappliedfor.Investorsmayapplyboth

toinstitutionsintheprivatesphereandto

GovernmentthroughtheDTI,whichoffers

awiderangeofincentiveschemes.More

informationonthevariousGovernment

investmentinitiativescanbefoundat

www.investmentincentives.co.za.

16CONTENTS PAGE

C.FOREIGNINVESTORTAXINCENTIVES

Therearenonationaltaxincentivesaimed

specificallyatforeigninvestors.Thereare

alsonoregionaltaxincentiveswhich,for

example,offerbeneficialtaxratestotaxpayers

conductingbusinessincertainareas.

Thereare,however,nationaltaxincentives

aimedatencouragingspecifictypesof

investmentincertainareas,suchas,for

example,specialdeductionsinrespectof

theerectionorimprovementofbuildingsin

urbandevelopmentzones.

SECTION IV – FINANCIAL FACILITIES

A.FINANCIALINSTITUTIONS

SouthAfrica’sfinancialservicessector,backed

byasoundregulatoryandlegalframework,

issophisticated,boastingdozensofdomestic

andforeigninstitutionsprovidingafullrange

ofservices,includingcommercial,retailand

merchantbanking,mortgagelending,insurance

andinvestment.

TheSouthAfricanbankingsystemiswell

developedandeffectivelyregulated,

comprisingacentralbank,theSARB,as

wellasafewlarge,financiallystrongbanks

andinvestmentinstitutions,andanumber

ofsmallerbanks.Manyforeignbanksand

investmentinstitutionshaveoperationsin

SouthAfrica.

Thenon-bankingsectorisoverseenbythe

FinancialServicesBoard(FSB),anindependent

body,responsiblefortheregulationoffinancial

marketsandinstitutions,includinginsurers,

fundmanagersandbrokingoperations.

TheNationalCreditRegulatorisresponsible

forregulatingtheSouthAfricancredit

industry,includingtheregistrationof

creditproviders,creditbureauxanddebt

counsellors.Itisresponsibleforenforcing

compliancewiththeNationalCredit

Act34,2005,andisfocusedondeveloping

anaccessiblecreditmarkettomeetand

promotetheneedsofpeoplewhoare

marginalised,especiallyeconomically.

Bankaccounts

Itisnotnecessaryforaninvestorto

openabankaccountinthecountry.

Requirementsforopeninga

bankaccount

Therequirementsmayvaryslightlyfrom

banktobank,butthefollowingbasic

documentationisrequired:

Personalaccount(resident)

Toopenaresidentbankaccountasaforeign

national,itisnecessaryto:

• declareallthefundsorforeignassets

broughtintothecountry;

• completetheForeignNationalDeclaration

andConfirmationofEmploymentbya

SouthAfricanEmployerform;

• provideawrittendeclarationthatforeign

assetswillnotbegiventoathirdparty

residentinSouthAfrica;and

• providethebankwithcopiesof:

•validpassport;

•workorstudypermit;

•proofofaddressinSouthAfricasuch

asutilitybill;and

•copiesofrecentstatementsfrombank

inthehomecountryorsolidevidence

ofbankinghistory.

Guide – Doing Business in South Africa

17CONTENTS PAGE

BOWMANS

Personalaccount(non-resident)

Toopenanon-residentaccountitis

necessarytoprovide:

• atleasttheminimumopeningdeposit;

• acertifiedcopyofthenon-resident’s

passportauthenticatedathis/her

overseasbank;and

• bankstatementsfromthelast

threemonths.

Businessaccount(SouthAfricancompany)

ToopenabusinessaccountforaSouth

Africancompany,itisnecessarytoprovide:

• theCertificateofIncorporation;

• constitutionaldocumentsofthecompany:

MemorandumofIncorporation(MOI)or

MemorandumandArticlesofAssociation;

• anycertificateofchangeofnameof

company(ifapplicable);

• identificationdocumentsofdirectors,

signatories,principalexecutiveofficer,

shareholderswith25%ormorevotingrights

andpersonsactingonbehalfofcompany;

• proofofphysicalortradingaddress

ofbusiness;and

• bankstatementsofbusiness(ifexisting)

fromthelastthreemonths.

Businessaccount(externalcompany)

Toopenabusinessaccountforanexternal

company,itisnecessarytoprovide:

• thecertificateofregistrationor

constitutionaldocumentsofthe

externalcompany;

• proofoflistingofacompanylistedona

foreignstockexchange(ifapplicable);

• theofficialincorporationdocuments

fromrelevantforeigncountry;

• noticeofpersonauthorisedtoaccept

serviceonbehalfofexternalcompany;

• tradenameandphysicalbusiness/head

officeaddress(inforeigncountryandin

SouthAfrica)verificationdocuments;

• contentsofregisterofdirectors,auditors

andofficers;

• identificationdocumentsofdirectors,

signatories,ManagerofAffairsinthe

Republic,shareholderswith25%ormore

votingrightsandpersonsactingonbehalf

ofcompany;

• thelastthreemonthsbankstatements

ofbusiness(ifexisting);and

• informationinrespectofthesourceof

incomeandthetypeofactivitiesthat

canbeexpectedontheaccount.

Bankaccountrestrictions

Dependingontheinvestor’svisa,thetypeof

bankaccountwhichtheinvestormaymaintain

maybelimited.Whileonatouristvisa,the

investormayonlyopenanon-residentbank

account,whichhasallthefeaturesofanormal

bankingaccountbutcannotgenerallyreceive

depositsinSouthAfricanRands(ZAR).There

areexceptionstotherule,suchasifthe

investorownsaproperty.

Iftheinvestorhasavalidvisaconfirming

temporaryorpermanentresidencythenheor

sheoritmayopenaresident’saccount,which

isinessencea‘normal’bankaccountwithno

specialrestrictions.

TheSouthAfricanbankingsystem

SouthAfricahasawell-developedand

regulatedbankingsystem.Thebankingsector

iscontrolledbythecountry’scentralbank,

theSARB.Itcomprisesanumberoflarge

andfinanciallysoundcommercialbanksand

investmentinstitutions.

Investmentandmerchantbankingremainsthe

mostcompetitivefrontintheindustry,while

thecountry’s‘bigfive’banks–ABSA,Capitec,

18CONTENTS PAGE

FNB,NedbankandStandardBank–dominate

theretailmarket.

ThebanksareregulatedbytheBanksAct94,

1990,apieceoflegislationbasedlargelyon

Australian,BritishandCanadianlegislation.

Inrecentyears,SouthAfricahasamended

itsexchangecontrolandfinancialmarket

regulationsspecificallytoattractinvestors

fromothercountries.

TheSouthAfricanstockmarket

TheJohannesburgStockExchangeisan

establishedexchangewhichiscurrentlyranked

the19thlargeststockexchangeintheworld

bymarketcapitalisation.Itisalsothelargest

exchangeontheAfricancontinent.

Bankloans

Bankloansarepossible.However,the

requirementsforapplyingforaloandiffer

frombanktobank.

SECTION V – EXCHANGE CONTROLS

A.BUSINESSTRANSACTIONS

TheExchangeControlRulingsdefinethese

conceptsasfollows:

A‘resident’isdefinedtomean“anyperson

(ie:anaturalpersonorlegalentity)whohas

takenuppermanentresidence,isdomiciled

orregisteredinSouthAfrica.Forthepurpose

oftheRulings,thisexcludesanyapproved

offshoreinvestmentsheldbySouthAfrican

residentsoutsidetheCMA.However,such

entitiesarestillsubjecttoexchangecontrol

RulesandRegulations.”

A‘non-resident’means“aperson(ie:anatural

personorlegalentity)whosenormalplaceof

residence,domicileorregistrationisoutside

theCMA.”

Theterm‘national’isnotdefinedintheRulings,

but‘foreignnationals’aredefinedas“natural

personsfromcountriesoutsidetheCMA

whoaretemporarilyresidentinSouthAfrica,

excludingthoseonholidayorbusinessvisits.”

The‘CMA’istheCommonMonetaryArea

consistingofLesotho,Namibia,SouthAfrica

andSwaziland.”

Restrictionsonconductingbusinesswith

nationals,residentsornon-residents

SouthAfricanresidentsaresubjecttoexchange

controlsintermsoftheExchangeControl

Regulations,issuedundertheCurrencyand

ExchangesAct9,1933.

TheFinancialSurveillanceDepartment(FinSurv)

(previouslyknownastheExchangeControl

Department)oftheSARBisresponsibleforthe

day-to-dayadministrationofexchangecontrols.

AllofthemajorSouthAfricanbankshavealso

beenappointedtoactasauthoriseddealers

inforeignexchange(AuthorisedDealers).

AuthorisedDealersmaybuyandsellforeign

exchange,subjecttoconditionsandwithin

limitsprescribedbyFinSurv.

Thepurposeofexchangecontrolsis,inter alia,

toregulateinflowsandoutflowsofcapitalfrom

SouthAfrica.SouthAfricanresidentsarenot

permittedtoexportcapitalfromSouthAfrica

exceptasprovidedforintheExconRules.

NoSouthAfricanresidentisthusentitledto

enterintoanytransactionintermsofwhich

capital(whetherintheformoffundsor

otherwise)oranyrighttocapitalisdirectly

Guide – Doing Business in South Africa

19CONTENTS PAGE

BOWMANS

orindirectlyexportedfromSouthAfrica

withouttheapprovalofeitherFinSurvor,in

certaincases,byanAuthorisedDealer.Ifan

applicationhastobesubmittedtoFinSurv,

oneshouldgenerallyexpectadelayofatleast

threeormoreweeks,whiletransactionswhich

canbeapprovedbyanAuthorisedDealercan

oftenbeapprovedwithinacoupleofdays.

Exchangecontrolsdonotapplytonon-

residents,butnon-residentsmaybeimpacted

indirectlyasacquisitionsofSouthAfricanassets

andtransactionswitharesidentmayrequire

exchangecontrolapproval.

Reportingrequirements

Allcross-borderpaymentshavetobeconducted

viaAuthorisedDealers,whoareobligedtoreport

allcross-borderforeignexchangetransactions

toFinSurv.

Investorloanrestrictions

Thereisnorestrictiononanon-residentinvestor

receivingloansfromanothernon-resident.

However,itisnotcommonforapprovaltobe

grantedforloansbyresidentstonon-residents:

• PriorFinSurvapprovalisrequiredfor

loansbySouthAfricancorporatestonon-

residents,whichapprovalwillusuallyonly

begrantedinexceptionalcircumstances.

• Individualsmay,aspartoftheiroverall

discretionarylimitofZAR1millionperyear,

grantloanstonon-residents.

Inaddition,the‘localborrowingrestrictions’

mayimpactnegativelyontheabilityofan

‘affectedperson’toraiseSouthAfrican

financialassistance:

• Brieflysummarised,alocalcompanywill

bean‘affectedperson’(asdefined)ifa

non-residentowns75%ormoreofthe

capitalorvotingrightsinthelocalcompany.

• Until2009,anaffectedpersoncouldborrow

locallyuptoalimitof300%oftheRand

valueoffundsintroducedfromoffshore,

providedthatthislimitwas100%inthe

caseofinvestmentinresidentialproperties

andfinancialtransactionssuchasportfolio

investments,securitieslending,hedgingand

repurchaseagreements.

• Sincetherelaxationofthelocalborrowing

restrictionsin2009,anaffectedperson

maynowborrowlocallywithoutrestriction

tofinanceforeigndirectinvestmentinto

SouthAfricaorfordomesticworkingcapital,

subjecttheretothatthe100%limitwouldstill

applytoinvestmentsinresidentialproperties

andtofinancialtransactionssuchasportfolio

investments,securitieslending,hedging

andrepurchaseagreements.However,an

increaseinthelocalparticipationinanon-

residentcontrolledentityincreasesitsability

toborrowlocally.

Residentsmayborrowfundsfromnon-residents,

butpriorexchangecontrolapprovalisrequired

toensurethattheresidentborrowerwillbe

abletoremitinterestandtorepaythecapital

offshore.Dependingonthenatureandtheterms

oftheloan,theloancouldeitherbeapprovedby

anAuthorisedDealer,orbyFinSurv.

Forexample,inthecaseofashareholder’sloan

totheSouthAfricansubsidiaryofanon-resident

parent,suchloancouldnormallybeapproved

bytheAuthorisedDealeritself,unlesstheterms

oftheloanfalloutsidetheSARBguidelines

issuedtoAuthorisedDealers,inwhichcasean

applicationtoFinSurvwouldberequired.

B.INVESTMENTCONTROLS

Restrictionsondirectinvestment

Exchangecontrolsdonotapplytonon-

residents,butnon-residentsmaybeimpacted

indirectlyasacquisitionsofSouthAfricanassets

andtransactionswitharesidentmayrequire

20CONTENTS PAGE

exchangecontrolapproval.Forexample,ifa

non-residentinvestoracquiressharesina

SouthAfricancompany,thenon-resident

shouldcomplywithcertainformalitiesin

ordertoprotectitsinvestment:

• Intermsoftheexchangecontrol

regulations,nopersonisentitledto

transferSouthAfricansharesfromor

intothenameofanon-residentwithout

exchangecontrolapproval.

• Theapprovalgenerallyisaformalitywhich

canbegrantedbyanAuthorisedDealer

andisevidencedbytheendorsementof

thesharecertificateinthenameofthe

non-residentwiththewords"non-resident".

However,approvaltoFinSurvmaybe

requiredincertaincircumstances.

• Thisendorsementensuresthatsale

proceedsoftheshares,whichbelongtoa

non-resident,canbetransferredabroad.It

isalsoarequirementfortheremittanceof

profits(seebelow).

• Insofaraslistedsharesareconcerned,these

aredematerialisedandarefreelytradable,

subjecttothebrokeragesorSouthAfrican

sellers(throughtheirCapitalSecurities

DepositoryParticipantsorCSDPs)ensuring

thatfullconsiderationisreceivedfrom

SouthAfricannon-residentsforthesaleof

suchshares.

Also,shouldanon-residentinvestormake

loanstoaSouthAfricanresident,itisimportant

thatpriorapprovalisobtained.Suchapproval

isnecessaryinorderfortheAuthorised

Dealerinvolvedtopermitthepaymentof

interestandrepaymentofcapitaltothe

non-residentcreditor.

Ifanon-residentcarriesonbusinessinSouth

Africa,itislikelythatthenon-residentwillbe

requiredtoregisterasanexternalcompanywith

theSouthAfricanCompaniesandIntellectual

PropertyCommisson(CIPC)(please refer to the

information in Section VII, Part H).

Anexternalcompanyisoftenreferredtoasa

"branch".A"branch"isgenerallyregardedasa

residentfromanexchangecontrolperspective,

eventhoughitdoesnotconstituteaseparate

legalperson.

Therearenorestrictionsonindirect

investmentsinSouthAfricafromanexchange

controlperspective.Investorsalsoneednot

makedeclarationsregardingthenatureof

theirinvestmentfromanexchange

controlperspective.

C.MONEYTRANSFER

Thereisafreedeterminationofexchangerates

inSouthAfrica.

Restrictionsonthetransferofmoneyintoor

outofthecountry

Allcross-borderflowsoffundsrequireexchange

controlapproval.Althoughnon-residents

technicallyarenotsubjecttoexchangecontrols,

itisimportantforanon-residenttoconsiderthe

impactofexchangecontrolsonitsinvestments

and/orotherbusinessdealingswithresidents.

Forexample:

• Whenacquiringshares,thenon-resident

endorsementofthesharesisrequiredbefore

dividendscanberemitted.AnAuthorised

Dealerwouldalsogenerallyrequireevidence

thatthedividendismadefromrealisedor

earnedprofits.

• Ifaloanismadetoaresidentborrower,prior

approvalfortheloanshouldbeobtainedin

ordertoensurethattheresidentborrower

wouldbeentitledtopayinterestandrepay

capitalasperthetermsoftheloan

(asapproved).

• Anycross-borderlicenceagreementin

termsofwhichanon-residentprovides

know-howorotherintellectualpropertyto

aresidentwouldrequireexchangecontrol

approvalbyFinSurv.Theexchangecontrol

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21CONTENTS PAGE

BOWMANS

approvalensuresthatroyaltieswillbe

freelyremittableoffshore.Generally,

approvalwillbegrantedwheretheroyalties

areforanarm’slengthamount.Any

advancepaymentsofroyalties,evenifsuch

paymentsmayberecoupedfromfuture

royaltiespayable,areinvariablydeclined.

TheSARBisalsonotinfavourofminimum

paymentsshouldtheroyaltynotreacha

certainamountduringaspecificperiod–

theroyaltypayableshouldbeinproportion

totheproductionorsalesachieved.

• Shouldanon-residentrenderservicestoa

resident,itisadvisabletoconsiderthebasis

onwhichfeesarechargedbeforeservices

arerendered,todeterminewhetherthe

residentwouldbeabletomakepayment

onsuchbasis.

Restrictionsontheremittanceofprofits

Theremittanceofprofitsdoesnotrequire

approvalfromFinSurvoranAuthorisedDealer.

Thereare,however,formalitiesthatneedtobe

compliedwith,whichincludethesubmissionby

non-listedcompaniestoanAuthorisedDealer

ofanauditor’scertificateconfirming, inter alia,

thattheprofitdistributionismadefromrealised

orearnedprofits.

Reportingrequirements

Allcross-borderpaymentshavetobe

conductedviaAuthorisedDealers,whoare

obligedtoreportallcross-borderforeign

exchangetransactionstoFinSurv.

Hardcurrency

Hardcurrencycanbetakenoutofthecountry

butitissubjecttorestrictions.Forexample,

SouthAfricanresidentsmaynotimportor

exportSARBnotes,orbanknotesoftheother

CMAcountries,inexcessofZAR25000

perperson.Thesameappliestovisitorsto

SouthAfrica.

Restrictionsalsoapplytotheexportof

Krugerrandcoins.Forexample,residentsmay

exportKrugerrandcoinsofuptoZAR30000

asgiftstonon-residents,whilenon-resident

visitorsmayexportupto15Krugerrandcoins,

providedthattheycanprovethatthecoins

werepurchasedwithforeigncurrency.

SECTION VI – IMPORT/ EXPORT REGULATIONS

A.CUSTOMSREGULATIONS

SouthAfricaisamemberoftheGeneral

AgreementonTariffsandTrade(GATT).

CustomsvaluesaresetbytheGATTvaluation

code.TheGATTagreementinvolvessix

valuationmethodswhichmustbeapplied

instricthierarchicalorder.

Themethods,inorderofprecedence,are:

• thetransactionvalueofthegoods(iethe

priceactuallypaidorpayable);

• thetransactionvalueofidenticalgoods;

• thetransactionvalueofsimilargoods;

• the‘deductive’method(wherethecustoms

valueisderivedfromthesellingpriceofthe

importedgoodsinSouthAfrica);

• the‘computed’method(wherethevalue

isderivedfromthebuilt-upcostofthe

importedgoods);and

• theso-called‘fallback’method,being

oneoftheotherfivemethodsapplied

moreflexibly.

However,mostgoodsarevaluedusingmethod

one,whichistheactualpricepaidorpayable

bythebuyerofthegoods.The‘freeonboard’

priceformsthebasisforthevalue,butallows

forcertaindeductions(suchasinterestcharged

onextendedpaymentterms)andadditions

(suchascertainroyalties).

22CONTENTS PAGE

Customsofficialspayparticularattentionto:

• therelationshipbetweenthebuyer

andseller;

• paymentsoutsideofthenormaltransactions

(suchasroyaltiesandlicencefees);and

• restrictionsthathavebeenplacedon

thebuyer.

Thesefactorscanresultinthepricebeing

increasedforthepurposeofdetermining

customsvalue,directlyaffectingthe

dutypayable.

TheCustomsandExciseDivision(Customs)

ofSARSrequiresproofofthevalueofthe

importedgoods,andmayquerywhichof

theaboveprescribedmethodswereusedto

determinethecustomsvalue.

SouthAfricaisafoundingmemberofthe

WorldTradeOrganisation(WTO)andhas

enteredintothefollowingtradeagreements:

• AgreementbetweentheGovernment

oftheRepublicofSouthAfricaandthe

GovernmentoftheUnitedStatesof

AmericaregardingMutualAssistance

betweentheirCustomsAdministrations.

• SouthernAfricanCustomsUnionAgreement

betweentheGovernmentsoftheRepublic

ofBotswana,theKingdomofLesotho,

theRepublicofNamibia,theRepublic

ofSouthAfricaandtheKingdomof

Swaziland(SACU).

• MemorandumofUnderstandingbetween

theGovernmentoftheRepublicofSouth

AfricaandtheGovernmentofthePeople’s

RepublicofChinaonpromotingBilateral

TradeandEconomicCo-operation.

• SouthernAfricanDevelopmentCommunity

FreeTradeAgreement(FTA).SADC

comprisesAngola,Botswana,Democratic

RepublicoftheCongo,Lesotho,Malawi,

Mauritius,Mozambique,Namibia,Seychelles,

SouthAfrica,Swaziland,Tanzania,Zambia

andZimbabwe.HoweverAngola,the

DemocraticRepublicofCongoand

SeychelleshaveyettojointheSADC

FTAeventhoughtheyaremembers

ofSADC.

• Trade,DevelopmentandCo-operation

Agreement(TDCA)FreeTradeAgreement

betweenSouthAfricaandtheEuropean

Union(EU).

• FreeTradeAgreementbetweenSACU

andtheEuropeanFreeTradeAssociation

(EFTA).EFTAcomprisesIceland,

Liechtenstein,NorwayandSwitzerland.

• PreferentialTradeAgreementbetween

SACUandSouthernCommonMarket

(Mercosur).MercosurcomprisesArgentina,

Brazil,ParaguayandUruguay.

TheCustomsActandtheInternationalTrade

andAdministrationAct71,2002(ITACAct)

togetherwiththeirrespectiverulesand

regulationsarethetwoprincipalpiecesof

legislationthatgovernthegeneralmovement

ofgoodsintoandoutofSouthAfrica.

IntermsoftheCustomsAct,aprospective

importermustberegisteredasacustoms

clientandthereafterobtainanimportlicence

fromCustomsinordertoimportgoodsinto

SouthAfrica.

Themovementofgoodsintoandoutof

SouthAfricaispolicedbySARS.Thebasic

functionthatSARSperformsatthepoints

ofentryandexitintoandoutofSouthAfrica

istodetectanddetain.SARSpolices

contraventionsofthetaxlegislationinSouth

Africa,aswellasotherlegislationsuchasthe

healthandmedicinescontrollegislationand

environmentallegislation,tonameafew.

Everyimporterofgoodsmustlodgea

declarationtoCustomsbeforethegoods

areimportedintoSouthAfrica.Aseparate

declarationmustbepresentedinrespectof

eachimporterandinrespectofeachimporting

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23CONTENTS PAGE

BOWMANS

vessel,aircraftorvehicleandmust,among

others,indicatewhethertheimportofgoods

issubjecttoaspecificpermitorcertificate.

Customsmustthencheckwhethertherelevant

conditionshavebeenadheredto.Supporting

documentsarenotsubmittedatthetimeof

applyingforimportationbutmustonlybe

submitteduponrequestbyCustoms.

TheCustomsActimposescustomsduties

whicharelocatedinschedulestotheCustoms

Act,listedaccordingtotheWorldCustoms

Organisation’s(WCO)HarmonisedSystemof

TariffClassification.Importdutiesandtariffsare

usuallycalculatedasapercentageofthevalue

ofthegoods.Howevermeat,fish,tea,certain

textileproductsandcertainfirearmsattract

ratesofdutycalculatedeitherasapercentage

ofthevalueorascentsperunit(forexample,

perkilogramormetre).Additionalad valorem

excisedutiesareleviedonawiderangeof

luxuryornon-essentialorluxuryitemssuch

asarcadegames,firearmsandperfumes.The

schedulesprovidethetariffheadingforthe

relevantproductwhichisthecodethatisused

throughouttherestoftheschedules.Itwillalso

indicatewhetheranyordinarycustomsduty

ispayableand,ifso,atwhatrateaswellas

thepreferentialrateifthegoodsareimported

withinoneofthetradeagreements.

Goodsthatareproducedormanufactured

inBotswana,Lesotho,NamibiaorSwaziland

attractnodutywhenimportedintoSouth

Africaforconsumptionorusebecausethese

countriesarepartofSACU.

Inaddition,unlessacommodityislistedin

theValue-AddedTaxAct89,1991(VATAct)

asbeingexempt,VATisalsopayableonall

importedgoods,includinggoodsthatare

importedfromSACUcountries.

Formoreinformation,refertotheSARS

website:www.sars.gov.za.

B.EXPORTS

IntermsoftheCustomsAct,aprospective

exportermustberegisteredasacustomsclient

andthereafterobtainanexportlicencefrom

Customsinordertoexportgoodsoutof

SouthAfrica.

ThemovementofgoodsintoandoutofSouth

AfricaispolicedbySARS.Thebasicfunctionthat

SARSperformsatthepointsofentryintoand

exitoutofSouthAfricaistodetectanddetain.

SARSpolicescontraventionsofthetaxlegislation

inSouthAfrica,aswellasotherlegislationsuch

asthehealthandmedicinescontrollegislation

andenvironmentallegislation,tonameafew.

Everyexporterofgoodsmust,beforethe

goodsareexportedfromSouthAfrica,lodgea

declarationtoCustoms.Aseparatedeclaration

mustbepresentedinrespectofeachexporter

andinrespectofeachexportingvessel,aircraft

orvehicleandmust,amongothers,indicate

whethertheexportofgoodsissubjecttoa

specificpermitorcertificate.

Customsmustthencheckwhethertherelevant

conditionshavebeenadheredto.Supporting

documentsarenotsubmittedatthetimeof

applyingforexportation,butmustonlybe

submitteduponrequestbyCustoms.

Anexportpermitisrequiredinordertoexport

certaingoodsoutofSouthAfrica.TheITACAct

givesITACtheauthoritytocontrolthemovement

ofgoodsintoandoutofSouthAfricabywayof

permits.TheMinisterofEconomicDevelopment

mayprescribebynoticeintheGovernment

Gazette thatnogoodsofaspecifiedclassor

kind,ornogoodsotherthangoodsofaspecified

classorkindmaybe(a)exportedfromSouth

Africa;or(b)exportedfromSouthAfrica,except

undertheauthorityof,andinaccordancewith

theconditionsstatedinapermitissuedbyITAC.

24CONTENTS PAGE

Exportcontrolmeasuresorrestrictionsare

appliedtoenforcehealth,securityandsafety

andtechnicalstandardsthatarisefromdomestic

lawsandinternationalagreementsandare

limitedtothosethatareallowableunderthe

relevantWTOAgreements.

SouthAfricaalsosubscribesto,supportsand

participatesinseveralinternationalagreements

andarrangementspertainingtocontrols

regardingthenon-proliferationofweaponsof

massdestruction,conventionalarmsanddual

usegoods.

SouthAfricadoesnotcurrentlyimpose

exportduties.

C.FOREIGNTRADEREGULATIONS

SouthAfricacurrentlydoesnothaveanytrade

sanctionsagainstanycountry.Ifthisweretobe

implemented,thedecisionwouldbetakenbythe

DepartmentofForeignAffairsandimplemented

bySARS.However,asamemberoftheUnited

Nations,itabidesbytheUnitedNations’Security

CouncilResolutions.

Anycomplaintregardingatradebarriershould

belodgedwiththerelevantenquirypoint.The

DepartmentofAgriculture(andtoacertain

extent,theDepartmentofHealth)isresponsible

forsanitaryandphytosanitary(SPS)issueswhile

theSouthAfricanBureauforStandards(SABS)

dealswithtechnicalbarrierstotrade(TBT).

Therelevantbodywouldthenconsiderthe

technicalnatureofthematterandnotifythe

InternationalTradeandDevelopmentDivision

(ITEDD),adivisionoftheDTIaboutthetrade

concerninquestion.Anyconsultationswillthen

takeplacewithITEDDandtherelevant

technicalcommittee.

Feedbackontheoutcomeofanyconsultations

willbegiventotheAgriculturalTradeForum(in

SPSmatters),whichischairedbytheMinister

ofAgriculture,ortotheDTI(inTBTmatters).

SouthAfricaengagesinbilateralconsultations

withthetradingpartyconcernedwithaview

toresolvingforeigntradebarriers.Failureto

resolveanissuethroughbilateralconsultations

canleadtoaformallodgingofatradeconcern,

forinstance,attheWTOSPSCommittee

meetingsoraformaldeclarationofadispute

undertherelevanttradeagreement.

D.IMPORTS

Licensingrequirementsintermsofthe

CustomsActarefoundinSchedule8.

Anyperson,whetherlocatedinSouthAfricaor

not,whoimportsorexportsgoodsorremoves

bondedgoodsmustapplyforregistration/

licensingontheprescribedDA185formand

respectiveannexures.Iftheimporter,exporter,

removerisnotlocatedinSouthAfrica,he

orsheorithastheadditionalobligationto

nominatearegisteredagent.

Aforeignimporter,exporterorlicensed

removermayapplyforregistrationorlicensing

ifrepresentedbyaregisteredagent.

Suchregisteredagentis:

• anaturalperson,asareferencetoanatural

personordinarilyresidentinSouthAfrica

atafixedphysicaladdressinSouthAfrica;

• ajuristicperson,asareferencetoa

juristicentity:

•whichisincorporated,registeredor

recognisedintermsofthelawsofSouth

Africaorofanothercountry;and

•thathasaplaceofbusinessataspecific

physicaladdressinSouthAfrica.

Theregisteredagentisliableforthefulfilment

ofallobligationsimposedoneitherthe

importer,exporterorlicensedremover.

Guide – Doing Business in South Africa

25CONTENTS PAGE

BOWMANS

Iftheapplicantisaforeignerandisnot

representedbyaregisteredagentorhasnot

yetnominatedaregisteredagent,hisorher

applicationmustbeentertainedbutsuspended

untilanominatedandapprovedregistered

agenthasbeenappointedandapproved.

TheCustomsActimposescustoms

dutieswhicharelocatedinschedulesto

theCustomsActandarelistedaccording

totheWCO’sHarmonisedSystemofTariff

Classification.Importdutiesandtariffsare

usuallycalculatedasapercentageofthevalue

ofthegoods.Howevermeat,fish,tea,certain

textileproductsandcertainfirearmsattract

ratesofdutycalculatedeitherasapercentage

ofthevalueorascentsperunit(forexample,

perkilogramormetre).Additionalad valorem

excisedutiesareleviedonawiderangeof

luxuryornon-essentialitemssuchasarcade

gamesandperfumes.

TheCustomsActallowsfortheimpositionof

quotasorsafeguardduties.Totheextentthat

anysafeguardmeasuresareinplace,South

Africacan(anddoes)imposequotasoncertain

goodsforlimitedperiodsoftime.Anexample

wouldbethequotaonclothingimportsfrom

Chinawhichenduredforafewyears.The

permitswereadministeredbytheDTIand

werepolicedbySARS.Thereiscurrentlya

safeguarddutyimposedontheimportation

offrozenpotatochipsorFrenchfries.

TheNationalIndustrialParticipation(NIP)isa

programmethatseekstoleverageeconomic

benefitsandsupportthedevelopmentof

SouthAfricanindustrybyeffectivelyusing

theinstrumentofGovernmentprocurement.

TheNIPprogrammeismandatoryonall

Governmentandparastatalpurchasesor

leasecontracts(goodsandservices)with

animportedcontentequaltoorexceeding

USD10million.

TheprogrammeistargetedatSouthAfrican

industries,enterprisesandsuppliersofgoods

andservicestoGovernmentorparastatals,

wheretheimportedcontentofsuchgoodsand

servicesequalstoorexceedsUSD10million.

ThefirstcustomerofNIPistheSouthAfrican

industrythatbenefitsthroughtheNIPbusiness

planswhich,whenimplemented,generatenew

oradditionalbusinessactivitiesthroughone

ormoreofthefollowing:investment,export

opportunities,jobcreation,increasedlocal

sales,smallandmediumenterprisesandblack

economicempowermentpromotion,research

anddevelopmentandtechnologytransfer.

ThesecondcustomersofNIParetheforeign

supplierswhobenefitfromtheprogramme

throughincreasedparticipationintheSouth

Africaneconomy.

Inthecaseofforeigncustomers,theimported

contentofthepurchaseorleasecontractfor

goodsandservicesmustbeequaltoorexceed

USD10milliontoqualifyforparticipation.Inthe

caseofSouthAfricanindustries,participationis

dependentonenterprisecapabilitytosatisfythe

requirementsofboththeNIPprogrammeand

theforeignsupplier.

E.MANUFACTURINGREQUIREMENTS

Asageneralrule,itisnotrequiredthatthe

manufacturedproductmustcontainingredients

orcomponentswhicharefoundorproduced

locally.Importedgoodsmaybeusedto

manufacture.Therequirementtouselocally

producedgoodsmayariseifthemanufacturer

wishestoparticipateinanincentiveschemethat

mayhavelocalcontentrequirements.

Ifimportedpartsaredeclaredforimportationfor

manufacturingpurposestobeincorporatedinto

afinalproductthentheymustbeincorporated

intothefinalproduct.Ifthereisachangeinthe

purposefortheimportationorwhatisintended

withtheimportedgoodsandthisaffectsthe

taxstatusoftheimportedgoods,thecustoms

authoritymustbeapproachedtoamendthe

26CONTENTS PAGE

initialdeclarationtoensurethatthecorrect

positionisdeclared.

F.PRODUCTLABELLING

Labellingrequirements

TheimportationintoorthesaleinSouthAfrica

ofspecifiedgoodsisprohibitedunless:

• Atradedescriptioninaccordancewith

theConsumerProtectionAct68,2008

isappliedtheretoclearlystating:

•thecountryinwhichtheywere

manufactured,producedoradapted;

•thatimportedgreigefabricwasused

(ifimportedfabricisusedtoproduce

dyed,printedorfinishedfabricin

SouthAfrica);or

•“MadeinSouthAfricafromimported

materials”forlocallymanufactured

productsusingimportedmaterials.

• SuchgoodsconformtotheSouthAfrican

nationalstandardforfibrecontentand

carelabellinginaccordancewith

Government NoticeNo.2410of2000.

• Atradedescriptionisappliedtoitstating

clearlywhetherthegoodshavebeen

reconditioned,adapted,rebuiltorremade.

• Atradedescriptionisappliedthereto

stating“MadeinSouthAfrica”ifthe

goodswerewhollyassembledor

madeinSouthAfrica.

• Thegoodsarecorrectlylabelled.

Labellingrequirementsareapplicablein

respectofcertainclothing,leathergoods,

shoesandtextileslistedintheHarmonised

CustomsTariff.Theyalsoapplytousedor

second-handproductswhichareimported

fordomesticconsumption.

Productsoriginallyexportedasfromthe

dateofimplementationoftheregulationand

re-imported,whichareintendedforsalein

thelocalmarketmustbesubjecttolabelling

requirementsaswell.

Therearealsoexclusionsandexemptionsthat

applyinrespectofcertaingoods.

SECTION VII – STRUCTURES FOR DOING BUSINESS

A.GOVERNMENTALPARTICIPATION

Generally,theGovernmentwillnotseekto

participateintheownershiporoperationof

anentityinSouthAfrica.

TheGovernmentparticipatesatan

ownershiplevelinState-OwnedEnterprises

(SOEs)andengageswiththeprivatesector

throughPublic-PrivatePartnerships

(PPPs)andinvestmentthroughSOEsin

privatecompanies.

Thereisnorequirementthatprivate

companiesorpubliccompaniesthat

arenotSOEshaveanydegreeofState

ownership,regardlessoftheindustryin

whichtheyoperate.

SOEsareregisteredcompanieslistedas

“publicentities”inSchedule2orSchedule3

ofthePublicFinanceManagementAct1,1999

(PFMA).Theseinclude,forexample,thePublic

InvestmentCorporationandtheNational

EmpowermentFund.

WhileSOEsmayownsharesinpublicor

privatecompaniesinSouthAfrica,theSOE

willholdsharesintheordinarycourse,onthe

samebasisasothershareholdersinthatentity.

Again,thereisnorequirementinanyparticular

industrythatanentitybeownedorpart-

ownedbyanSOE.

EntitiesmayalsoengageinPPPswithpublic

institutions.APPPisacontractbetweena

publicsectorinstitutionoramunicipalityand

aprivateparty,inwhichtheprivateparty

assumessubstantialfinancial,technicaland

Guide – Doing Business in South Africa

27CONTENTS PAGE

BOWMANS

operationalriskinthedesign,financing,building

andoperationofaproject.Theprivateparty

mayperformaninstitutionalormunicipal

function,oruseStateormunicipalpropertyfor

itsowncommercialpurposes.Althoughthere

maybecommercialincentivesforanentityto

engageinPPPs,thereisnorequirementto

dosoforanyparticularindustry.

AlthoughGovernmentwillnotseekan

ownershipstakeassuchinanentityestablished

inSouthAfrica,broad-basedblackeconomic

empowerment(B-BBEE)legislationand

regulationsmayinfluencehowanentity

structuresitsownership.AlthoughtheB-BBEE

regulatoryframeworkdoesnotimposeblack

ownershiptargetsonbusinessesasamatter

oflaw,itdoescreateincentivesforincreasing

blackownershipforentitieswishingtodo

businesswiththeState,orintendingtoprovide

goodsandservicestootherentitiesdoing

businesswiththeState.

Restrictionsoncapitalisation

Fromataxperspective,theSouthAfrican‘thin

capitalisation’rules(whichformpartofthe

transferpricingrulesasprovidedforinsection

31oftheIncomeTaxAct58,1962(ITA))could

effectivelyrestricttheamounttobeadvanced

toasubsidiarybywayofsharecapital.

Thincapitalisationreferstothefundingofa

businesswithadisproportionatedegreeofdebt

inrelationtoequity,whichenablestheforeign

investortoreceiveinterestincome(whichwas

exemptuntilanewwithholdingtaxoninterest

cameintoeffecton1March2015)andconfers

onthecompanythebenefitofdeductingthe

interestpaid(relativetothenon-deductibility

ofdividendspaidonequitycapital).Thin

capitalisationmeasuresaredesignedtolimitthe

deductionofinterestonexcessivedebtfunds.

TheSouthAfricantransferpricingrules,

includingthethincapitalisationrules,were

amendedwitheffectfrom1April2012,

providing inter alia thatthegeneraltransfer

pricing(arm’slength)provisionswillbe

appliedtodeterminewhetheracompany

isthinlycapitalized.

SARSpublishedadraftinterpretationnote

onthincapitalisationin2012.SouthAfrica’s

thincapitalisationrulespreviouslyprovided

fora‘safeharbour’debttoequityratioof3:1,

whichisnolongerapplicable.Eachfunding

structurewouldhavetobeconsideredtaking

intoaccountallrelevantfactors,suchasthe

(proposed)fundingstructure,thefinancial

strategyofthebusiness,thebusiness

strategy,theuseofcomparabledata,etc.

AccordingtoSARS,thearm’slengthamount

ofadebtisthelesseroftheamountthatcould

havebeenborrowedandtheamountthat

wouldhavebeenborrowedinatransaction

betweenindependentpersons.SARSwill

considerataxpayertobethinlycapitalized

if,amongotherfactors,someorallofthe

followingcircumstancesexist:

• thetaxpayeriscarryingagreaterquantity

ofinterest-bearingdebtthanitcould

sustainonitsown;

• thedurationofthelendingisgreaterthan

wouldbethecaseatarm’slength;and

• therepaymentorothertermsarenotwhat

wouldhavebeenenteredintooragreedto

atarm’slength.

Thethincapitalisationrulesshouldbe

consideredtakingintoaccountsection23Mof

theITA,whichwasintroducedafterthedraft

interpretationnoteonthincapitalisationwas

published.Thissectionprovidesforalimitation

ofinterestdeductionsinrespectofdebtsowed

topersonsnotsubjecttotaxunderChapter

IIoftheITA.Thissectioncontainsaformula

whichrestrictstheinterestdeductiontoa

percentageof‘adjustedtaxableincome’as

definedinthesection.

28CONTENTS PAGE

Investor’staxconsequences

Thiswoulddependonthenatureandstructure

oftheinvestment.Please refer to Sections XII

and XIII.

B.JOINTVENTURES

JointventuresarepermittedinSouthAfrica.

A‘jointventure’isnotadistinctlegalentity

underSouthAfricanlawandthereisnolegal

frameworkregulatingjointventuresspecifically.

Jointventurescanbeformedusingvarious

legalstructuresincludingpartnerships,business

trustsorincorporatedentities.

Therearenoregistrationorincorporation

proceduresspecifictojointventures.Depending

onthelegalstructurethatajointventuretakes,

specificregistrationorincorporationprocedures

willneedtobeadheredto.Seetherelevant

sectionbelowinthisregard.

ThereisnorequirementinSouthAfricanlaw

thataSouthAfricannationalbeaparticipant,

managerordirectorofajointventure.

C.LIMITEDLIABILITYCOMPANIES

Limitedliabilitycompaniesarepermitted.

Althoughtherearevariousstructuresfordoing

businessavailabletoinvestorswhowishto

establishacorporatepresenceinSouthAfrica,

themostcommonformofstructureusedis

alimitedliabilitycompany,whichisgoverned

bytheCompaniesAct71,2008(Companies

Act).Themostcommontypeoflimitedliability

companyinSouthAfricaistheprivatecompany

(asopposedtoaSOEorapubliccompany).

TheCompaniesActprovidesthatapersonis

not,solelybyreasonofbeinganincorporator,

shareholderordirectorofacompany,liablefor

anyliabilitiesorobligationsofthecompany,

excepttotheextentthattheCompanies

Actorthecompany’sMOIprovidesotherwise.

TheMOIisthefoundingdocumentofthe

companyanditsetsouttherights,duties

andresponsibilitiesofshareholders,directors

andthirdpartiesinrespectofthecompany.

Aninvestormayeitherincorporateanew

limitedliabilitycompanywiththeCIPC,orit

maypurchaseaso-called‘shelfcompany’.

Incorporatinganewlimitedliabilitycompany

initiallyrequiresthereservationofacompany

nameattheCIPC.Ifthenameisavailable,

anamereservationcertificateisissuedto

theincorporatorsofthenewlimitedliability

companywhichisvalidforaperiodof

sixmonths.

Inordertoincorporatealimitedliability

company,anoticeofincorporation(NOI)must

befiledwiththeCIPCintermsofwhichthe

‘incorporator’ofacompanyinformstheCIPCof

theincorporationofthatcompany,forpurposes

ofhavingitregistered.An‘incorporator’means

apersonwhoincorporatedacompany(an

incorporatormayeitherbeanaturalperson

orajuristicperson).ANOImustbefiledina

FormCoR14.1andmustbeaccompaniedby

acopyoftheconstitutionaldocumentsofthe

company.Alternatively,theNOImaybe

filedelectronically.

OncetheCIPCacceptstheNOI,assoonas

practicablethereaftertheCIPCmustassign

auniqueregistrationnumbertothecompany

afterwhichitwillissueanddelivertothe

companya‘registrationcertificate’inthe

Form14.3,datedasofthelaterofthedate

on,andtimeatwhich,itissuedthecertificate

orthedate,ifany,statedbytheincorporators

intheNOI.

Aregistrationcertificateisconclusiveproof

thatallrequirementsfortheincorporationof

Guide – Doing Business in South Africa

29CONTENTS PAGE

BOWMANS

thecompanyhavebeencompliedwithand

thatthecompanyisincorporatedunderthe

CompaniesActasfromthedate,andthetime,

ifany,statedinthecertificate.Acompanymay

begintradingassoonasithasreceivedits

registrationcertificate.

Thefirstincorporatorofthecompanytobe

incorporatedimmediatelybecomesadirector

ofthecompanyuponthecompanybeing

successfullyregisteredattheCIPC.However,

thefirstincorporatoronlyservesuntila

sufficientnumberofotherdirectorssatisfy

therequirementsoftheCompaniesActor

thecompany’sMOIhavebeenfirstappointed

orfirstelected.Thusifthecompanytobe

incorporatedwillhaveadirectorwhoisnotthe

samepersonastheincorporator,thedirector

(andnottheincorporator)willbethesole

directorofthecompanyonceincorporated.

Section66(2)(a)oftheCompaniesAct

providesthataprivatecompanymusthave

atleastonedirector.

Alternatively,aninvestormaypurchase

aso-called‘shelfcompany’,whichisan

existinglimitedliabilitycompanypurchased

‘offtheshelf’fromanauthorisedshelf

companysupplier.Theexistingshelfcompany

information(includinginformationrelatingto

theshareholders,directorsandofficersofthe

company)canthenbeamendedwiththenew

companyinformationprovidedbytheinvestor.

Shelfcompaniesincorporatedinaccordance

withtheCompaniesActgenerallyhaveno

sharesinissuewhentheyarepurchased.The

existingornewlyappointeddirectorswillneed

topassaresolutiontoissuethefirstsharesin

thecompanytotheinvestor.Thenewcompany

informationwillthenbefiledandregistered

withtheCIPC.

Whetheraninvestorelectstoincorporatethe

limitedliabilitycompanyorpurchaseashelf

company,theinvestorwillneedtoprovidethe

sameinformationinordertostarttheprocess.

Time-frame

Thetime-frameapplicabletotheincorporation

ofalimitedliabilitycompanyisusuallyabout

15to20businessdays,dependingonthe

backlogfacedbytheCIPCanddepending

onthecomplexityofthelimitedliability

company’sMOI.

AcomplexMOImayrequireagreaterdegree

ofconsiderationfromtheCIPCwhichcanthen

takeupto80businessdaystoregisterthe

limitedliabilitycompany.

Ashelfcompanyisalreadyregistered.The

processtoregistertherelevantamendments

totheshelfcompanyinformationusuallytakes

between10to15businessdays.

Costs

Theestimatedcostsofincorporatingalimited

liabilitycompanyareZAR300(exclusiveof

ValueAddedTax(VAT)anddisbursements)

toreserveaname,andafurtherZAR2400

(exclusiveofVATanddisbursements)to

lodgeandregistertherelevantcompany

secretarialdocumentswith

theCIPC.

Thecostofpurchasingashelfcompanyand

amendingtherelevantcompanyinformation

isapproximatelyZAR4200(exclusiveof

VATanddisbursements).

Theseestimatesdonotincludelegalfees

whichmaybeincurredinthecompletion

ofdocumentationandgeneraloversight

oftheincorporationprocess.

RequirementsregardingSouth

Africannationals

ThereisnorequirementthataSouthAfrican

nationalbeaparticipant,managerordirector

ofalimitedliabilitycompany.TheCompanies

Actonlyrequiresthatacompany’srecordsof

30CONTENTS PAGE

directorsincludeeachdirector’snationality

andpassportnumber,ifheorsheisnot

SouthAfrican.

Section246oftheTaxAdministrationAct

28,2011(TAA)providesthateverycompany

carryingonabusinessorhavinganofficein

SouthAfricamustatalltimesberepresented

bya‘publicofficer’whoservesasthe

company’staxrepresentative.Thispublic

officermustbeaSouthAfricanresident.

Taxconsequences

AcompanythatistaxresidentinSouth

Africawillbesubjecttoincometaxonits

taxableincome.

Ontheunderstandingthattheinvestorwill

beashareholderinthecompany,the

shareholderwillpresumablyreceivedividends

andalsointerestifheorsheorithasgranted

ashareholderloantothecompany.

• Dividendswithholdingtax

Dividendsdeclaredbyataxresidentcompany

(orbyanon-residentcompanyifthesharein

respectofwhichthedividendispaidislisted

ontheJSE)aresubjecttodividendstaxat

arateof15%ontheamountofanydividend

declaredandpaid.

Thereareanumberofinstanceswherethe

paymentofdividendswillbeexemptfrom

dividendstax.Theseincludewherethe

beneficialownerorpersonentitledtothe

benefitofthedividendis inter alia aSouth

Africanresidentcompany;ataxexemptpublic

benefitorganisation;abenefitfund;apension,

providentorretirementannuityfund;pension

andprovidentpreservationfunds;oranon-

residentinrelationtodividendspaidbyanon-

residentcompany.

Inaddition,dividendspaidtoregulated

intermediaries(theseincludelong-terminsurers,

aportfolioofacollectiveinvestmentscheme

insecurities,brokersandacentralsecurities

depositoryparticipant)areexempt,andalso

wherethebeneficialownerformspartofthe

samegroupofcompaniesasthecompany

payingthedividend.

Dividendstaxcanbereducedintermsof

anapplicabledoubletaxagreement(DTA),

dependingonthetermsofsuchDTA.TheDTAs

whichSouthAfricahaswithothercountries

generallydonotprovideforthedividendstax

ratetobereducedtolessthan5%.

Exemptionsfrom,andreducedratesof

dividendstax,requireanexemptionorreduced

ratedeclarationtoqualifyforsuchaconcession.

• Interestwithholdingtax

Anewwithholdingtaxoninterestcameinto

effecton1March2015andprovidesfortax

tobewithheldatarateof15%inrespect

ofinterestreceivedbyoraccruedtoanon-

residentthatisnotacontrolledforeign

company(CFC).

Thereareanumberofexemptionsinthis

regard,includinginter alia:

• interestreceivedoraccruedinrespect

ofanyGovernmentdebtinstrument;

• interestreceivedoraccruedinrespectof

anylisteddebtinstrument(whichincludes

anyloan,advance,debt,bond,debenture,

bill,promissorynote,etc.);

• interestreceivedoraccruedinrespect

ofanydebtowedbyadomesticbank

ortheSARB;

• interestpaidorpayablebyaheadquarter

company,subjecttocertainspecified

criteria;and

• ifaforeignindividualwasphysically

presentinSouthAfricaformorethan

183daysinaggregateduringaparticular

year,oratanytimeduringthatyear

carriedonbusinessthroughapermanent

establishmentinSouthAfrica.

Guide – Doing Business in South Africa

31CONTENTS PAGE

BOWMANS

Thesectionsdealingwithwithholdingtax

oninterestalsocontainsspecificprovisions

designedtodenytheexemptiontoback-to-

backfinancingarrangementsdesignedto

circumventtheinterestwithholdingtax.

Theamountofinterestwithholdingtaxcould

alsobereducedintermsofanapplicableDTA.

Anexemptionorreducedratedeclarationis

requiredtoqualifyforexemptionsfrom,and

reducedratesof,interestwithholdingtax.

D.LIABILITYCOMPANIES,UNLIMITED

Aprofitcompanyisapersonalliabilitycompany

ifitmeetsthecriteriaforaprivatecompany

(seePartCabove)andthecompany’sMOI

statesthatitisapersonalliabilitycompany.

Inordertobeclassifiedasaprivatecompany

undertheCompaniesAct,thecompany’s

MOImustprohibititfromofferinganyofits

securitiestothepublic.Theremustalsobea

restrictiononthetransferabilityofitssecurities.

Thepresentandpastdirectorsofapersonal

liabilitycompanywillbejointlyandseverally

liable,togetherwiththecompany,forany

debtsandliabilitiesthatareorwerecontracted

duringtheirrespectiveperiodsofoffice.

Personalliabilitycompaniesareusedmainly

byprofessionalpractices–suchasfirmsof

architects,engineersandattorneys–whose

businessactivitiesareregulatedbyanauthority

thatdoesnotpermititsindividualmembersto

enjoytheprotectionoflimitedliability.

Theregistrationorincorporationof

personalliabilitycompanies

Apersonalliabilitycompanyisincorporatedin

termsofsection8(2)(c)oftheCompaniesAct

and,inadditiontostatingthatitisapersonal

liabilitycompany,itsMOImustmeetthe

requirementsfortheestablishmentofa

privatecompany.

Please refer to Section VII, Part C for

informationontheprocessofregistration

orincorporationofprivatecompanies.

Apersonalliabilitycompany’snamemustend

withtheexpression‘Incorporated’or‘Inc.’.

Theincorporationprocedure(andtime-period

concerned)isthesameasthatapplyingto

alimitedliabilitycompany (please refer to

Section VII, Part C).

Costs

Thesamecostsassociatedwiththe

incorporationofalimitedliabilitycompany

apply (please refer to Section VII, Part C above).

ThereisnorequirementthataSouthAfrican

nationalbeaparticipant,managerordirector

ofapersonalliabilitycompany.TheCompanies

Actonlyrequiresthatacompany’srecordsof

directorsincludeeachdirector’snationalityand

passportnumber,iftheyarenotSouthAfrican.

Allcompanies,includingpersonalliability

companies,musthaveapublicofficerwho

residesinSouthAfrica(please refer to Section

VII, Part C).

E.PARTNERSHIPS,GENERALORLIMITED

Partnershipsarearecognisedandpermitted

formofbusinessstructureunderSouth

Africanlaw.

InSouthAfrica,apartnershipisanassociation

oftwoormorepersonsformedbycontractto

carryonabusinessfortheacquisitionofgain.

BeinganunincorporatedentityinSouthAfrica,

apartnershipdoesnothavealegalpersonality

independentfromthepartnersthemselves.

Unlessthepartnershipagreementprovides

otherwise,partnersaretheco-ownersofthe

partnershipproperty,whichisownedjointlyin

undividedshares.Unlikemereco-ownership,

32CONTENTS PAGE

however,apartnershipmust,inaddition,

involvecommunityofprofitandlossandexist

forthepurposeofmakingaprofit.

ThereisnorequirementthataSouthAfrican

nationalbeapartner.

Costs

Thereisnofixedfeeattachedtotheformation

ofapartnership,asapartnershipiscreated

throughprivateagreementbetweenthe

partners.Thepartnerswilllikelyincur

legalcostsinrelationtothedraftingofthe

partnershipagreementandoversightofthe

legalprocess.

Eachpartnermustcontributeorundertaketo

contributesomethingtothepartnership.This

contributionneednotbemonetary,solongas

ithasappreciableorcommercialvalue,such

asacontributionofproperty,labour,skillor

expertise.Thecontributionmustbeexposed

totherisksofthebusinessbybeingplacedat

thedisposalofthepartnershipforitsusein

carryingonthebusiness.

Investor’spotentialliability

Asapartnershipdoesnothaveseparate

juristicpersonality,therightsandliabilitiesof

apartnershiparetherightsandliabilitiesof

thepartnersthemselves.Acreditorcannot,

whilethepartnershipstillexists,bringan

individualclaimagainstapartnerforpayment

ofthepartnershipdebts.Oncethepartnership

hasbeendissolved,however,eachindividual

partnercanbesuedbyacreditorforthe

fullamountofthepartnershipdebt(ieupon

dissolution,eachpartnerisjointlyandseverally

liableforthepartnershipdebts).

Partnersarealsovicariouslyliablefor

delictscommittedbyanotherpartner

whileactingintheordinarycourseofthe

partnershipbusinessorwhileactingonhis/

herco-partners’authority.

Investor’staxconsequences

Apartnershipisnota‘person’forincome

taxpurposes(iethepartnershipitselfis

nottaxed,butthepartnersaretaxedin

theirpersonalcapacities).

Section24HoftheITAfurthercontainsa

deemingprovisionintermsofwhich,“where

anytradeorbusinessiscarriedoninpartnership,

eachmemberofsuchpartnershipshall,

notwithstandingthefactthathemaybea

limitedpartner,bedeemedforpurposeofthis

Acttobecarryingonsuchtradeorbusiness”.

Thesectionfurtherdealswiththeaccrualof

incomewhichhasbeenreceivedoraccrued

‘incommon’bythepartners,andprovides

thatsuchincomeshall,notwithstandingthe

relevantpartnershipagreement,bedeemed

tohavebeenreceivedbyoraccruedtothe

partnersindividually.

Provisionisalsomadeforhowallowancesor

deductionsshouldbedealtwithinthecontext

oflimitedpartners.

However,intermsofsection51oftheVATAct,

whereanybodyofpersons,whethercorporateor

unincorporate(butexcludingacompany),carries

onanenterprise,suchbodyshallbedeemedto

carryontheenterpriseasapersonseparatefrom

themembersofsuchbody,andthebodywould

havetoregisterasavendorseparatelyfromany

registrationofanyofitsmembers.

F.PARTNERSHIPS,UNDISCLOSED

Therearetwotypesofundisclosedpartnerships

underSouthAfricanlaw:theanonymous

partnershipandthepartnership

en commandite.

Inbothofthesecases,itisagreedamongstthe

partnersthatsomeofthepartnerswillremain

undisclosedtotheoutsideworld,thattheywill

notactivelyparticipateinthemanagementof

Guide – Doing Business in South Africa

33CONTENTS PAGE

BOWMANS

thepartnershipbusinessandthattheywillonly

beliabletotheirco-partners(andnotto

thepartnership’screditors).

Thedifferencebetweenthetwotypesof

undisclosedpartnershipsisthatinthecaseof

apartnershipen commandite,anundisclosed

partnerisliableonlytotheextentofthecapital

heorshehasactuallycontributed,whereas

anundisclosedpartnertoananonymous

partnershipisliablefortheirfullpro rata share

ofpartnershiplossesorliabilities.

AswithallpartnershipsunderSouthAfrican

law,bothtypesofundisclosedpartnerships

ariseonthebasisofcontractualagreement

betweenthepartners.

Partnershipcontribution

Please refer to Section VII, Part D for

informationonthecostsattachedtoforminga

partnership.

Likeordinarypartners,undisclosedpartners

mustmakeacontributiontothepartnership–

monetaryorotherwise–andsuchundisclosed

partnersshareinthepartnership’sprofits.

ThereisnorequirementthataSouthAfrican

nationalbeapartner.

Investor’spotentialliability

Anonymouspartnersareliabletotheextent

oftheir pro ratashareofpartnershiplosses.

However,becauseanonymouspartnersare

notknowntothirdpartiesandarenotheldout

aspartnerstothepublic,theyarenotdirectly

liabletothirdpartiesforthepartnershipdebts.

Rather,theyareliableonlytotheirpartnersfor

theirproportionalshareofpartnershiplosses.

Althoughundisclosedpartnerstoapartnership

en commanditearealsoliableonlyto

theirpartners,theyaredistinguishedfrom

anonymouspartnersbythefactthattheyare

liableonlytotheextentofthespecificamount

ofcapitalcontributedtothepartnership.

G.SOLEPROPRIETORSHIPS

Thereisnothingprohibitinganinvestorfrom

carryingonbusinessasasoleproprietorunder

SouthAfricanlaw.

Establishmentofasoleproprietorship

IntermsofSouthAfricanlaw,asole

proprietorshipisnotaseparatelegalentity

andthereisnoneedtoregisterasole

proprietorship.Suchabusinesshasno

existenceseparatefromtheowner(whois

calledtheproprietor)andasaresultthereis

nolegalframeworkapplicabletothe

registrationorestablishmentofasole

proprietorship.Ifasoleproprietorwishesto

tradeunderabusinessname(asopposedto

hisorherpersonalname),thenamewillneed

toberegisteredwiththeCIPC.

Time-frame

Thereisnolegalframeworkapplicableto

soleproprietors.However,shouldthesole

proprietorwishtotradeunderabusiness

name,asopposedtoinhisorherpersonal

name,theregistrationprocessforthename

usuallytakestwotofourweeks,depending

onbacklogsexperiencedbytheCIPC.

Costs

Thereisnolegalframeworkapplicabletosole

proprietorsandthereforetherearenocosts

orfeesinvolved.

34CONTENTS PAGE

Investor’spotentialliability

Becauseasoleproprietorshipdoesnotenjoy

separatelegalpersonality,theinvestor(iethe

proprietor)willenterintoalltransactionsinhis/

herpersonalcapacity.Assuch,theinvestorwill

beheldpersonallyliableforanyliabilitiesthat

mayaccrueinrespectofthesoleproprietorship.

Taxconsequences

Asoleproprietorissubjecttonormaltaxinhis

personalcapacity. Please refer to Section XIII.

H.SUBSIDIARIES,BRANCHESAND

REPRESENTATIVEOFFICES

Theestablishmentofabranch,subsidiaryor

representativeoffice

IntermsofSouthAfricanlaw,aforeignentity

mayestablishacorporatepresenceinSouth

Africathroughalocalsubsidiarytakingtheform

ofaprivatelimitedliabilitycompany,orthrough

anexternalcompany(commonlyknownasa

‘branchoffice’).

Someofthekeydifferencesbetweenalocal

subsidiaryandanexternalcompanyinclude:

• Anexternalcompanyisregardedasmerely

beinganextensionoftheforeignentity,

andwouldaccordinglynothavealegal

existenceinSouthAfricaseparatetothatof

theforeignentity.Asaresult,anyliabilities

incurredbytheexternalcompanywouldbe

attributedtotheforeignentityandnotto

thelocalexternalcompany.

• Theregulationofexternalcompaniesisless

onerousundertheCompaniesActandthe

CompaniesRegulations,2011(Companies

Regulations),withonlycertainprovisionsof

theCompaniesActbeingapplicabletothe

regulationofexternalcompanies.

• Alocalsubsidiarywouldbeaseparate

legalentitytothatofitsparentcompany,

theforeignentity,anditwouldhavethe

capacity(barringanyrestrictionscontained

initsMOI)toenterintoitsowncontracts,

acceptrightsandincurobligationsand

transactitsownbusiness.Asaresult,

shouldthelocalsubsidiaryincurany

liabilities,whetherfinancially,legally

orotherwise,suchliabilitieswouldnot

beattributedtotheforeignentitybut

ratherremainring-fencedinthelocal

subsidiarycompany.

Time-frame

Please refer to Section VII, Part Cfor

informationontheregistration/incorporation

ofasubsidiary.

Intermsofsection23oftheCompaniesAct,

acompanythatisincorporatedinanother

jurisdictionoutsideSouthAfricamustregister

asanexternalcompanywiththeCIPCwithin

20businessdaysafteritfirstbeginstoconduct

businesswithinSouthAfrica.

TheCompaniesActprescribesthataforeign

companywillberegardedasconducting

businesswithinSouthAfricaifthatforeign

companyis:

• apartytooneormoreemployment

contractswithinSouthAfrica;or

• engaginginacourseofconduct,orhas

engagedinacourseorpatternofactivities

withinSouthAfricaoveraperiodofatleast

sixmonths,suchaswouldleadaperson

toreasonablyconcludethatthecompany

intendedtocontinuallyengageinbusiness

activitieswithinSouthAfrica.

Guide – Doing Business in South Africa

35CONTENTS PAGE

BOWMANS

Inordertoregisterasanexternalcompanythe

followingdocumentswillneedtobesubmitted

totheCIPC:

• aCoR20.1Form–thisnotifiestheCIPC

thatthecompanywishestoregisterasan

externalcompanyandsetsoutvarious

detailsrelatingtotheexternalcompany,

suchasitsregisteredaddressand

jurisdictionofincorporation;

• aCoR20.1AForm–thisnotifiesthe

CIPCofthedetailsoftheexternal

company’sdirectors;

• aCoR21.1Form–thisnotifiestheCIPC

oftheexternalcompany’srepresentative

authorisedtoaccepttheserviceofany

documentsonbehalfoftheexternal

company;and

• acertifiedcopyofthecompany’s

foundingdocumentsandacopyofthe

company’scertificateofincorporation

(oranyothercomparabledocument)

–ifthesedocumentsareinalanguage

otherthanEnglishatranslatedversion

ofthedocumentsmustaccompanythe

documentssubmittedto

theCIPC.

Theregistrationofanexternalcompanyusually

takes25businessdaystocompleteoncethe

relevantdocumentshavebeensubmittedto

theCIPC.

Costs

Please see Section VII, Part C forinformationon

thecostsandfeesofincorporatingasubsidiary.

Ifaninvestorwishestoregisteranexternal

company,theestimateddisbursementcostsare

ZAR1100(exclusiveofVATandanytranslation

ofconstitutionaldocumentswhichmaybe

required).Theseestimatesdonotincludelegal

fees,whichmaybeincurredinthecompletion

ofdocumentationandgeneraloversightofthe

registrationprocess.

Investors’potentialliability

Asubsidiarycompanyincorporatedin

accordancewiththelawsofSouthAfrica

undertheCompaniesActisaseparatelegal

entityinitsownright.Assuch,aninvestor

whoestablishesasubsidiaryintermsofthe

CompaniesActwillnotbeheldliableforthe

debtsandobligationsofitssubsidiarycompany

intheordinarycourse.

Ifaninvestorregistersanexternalcompanyin

termsofsection23oftheCompaniesAct,the

companyisregardedasanextensionofthe

foreignentity,andwouldaccordinglynothave

alegalexistenceinSouthAfricaindependent

oftheforeignentity.Asaresult,anyliabilities

incurredbytheexternalcompanywouldbe

attributedtotheforeignentityandnottothe

localexternalcompany.

Theissueregardingtheliabilityofagentsof

theinvestor(suchasthedirectorsofeitherthe

subsidiaryorexternalcompany)hasnotbeen

addressedinthisdocument.

ThereisnorequirementthataSouthAfrican

nationalbeaparticipant,managerordirector

ofasubsidiarycompany.However,companies,

includingbranchoffices,musthaveapublic

officerwhoresidesinSouthAfrica.

Please refer to Section VII, Part C.

Non-residenttaxconsequences

Anon-residentcompanyissubjectto

incometaxinasimilarmannertoaresident

company.Themaintaxdifferenceisthefact

thatdividendstaxisimposedinrespectof

dividendsdeclaredbyresidentcompanies.In

thecaseofnon-residentcompanies,dividends

taxisonlypayableinrespectofshareswhich

arelistedonaSouthAfricanstockexchange.

SouthAfricadoesnotimposeanytaxonthe

distributionofprofitsbyabranch.

36CONTENTS PAGE

I.TRUSTSANDOTHERFIDUCIARYENTITIES

TrustsarerecognisedunderSouthAfrican

lawandareregulatedbytheTrustProperty

ControlAct57,1988(TrustPropertyControl

Act).Intermsofsection1oftheTrust

PropertyControlAct,a‘trust’isdefinedasthe

arrangementthroughwhichtheownershipin

propertyofonepersonisbyvirtueofatrust

instrumentmadeoverorbequeathedtoa

anotherperson,thetrustee,tobeadministered

inaccordancewiththeprovisionsofthetrust

instrumentortothebeneficiariesdesignated

inthetrustinstrumentbutdoesnotinclude

thecasewherethepropertyofanotheristobe

administeredbyanypersonasexecutor,tutor

orcuratorintermsoftheprovisionsofthe

AdministrationofEstatesAct66,1965.

Legalconsequencesofatransferofassets

toatrustorfiduciary

Theusualconsequencesofthetransferof

assetstoathirdpartyapplytotrusts.Assuch,

onceassetshavebeentransferredintothe

trust,theassetsbecometheassetsofthetrust,

whicharetobeadministeredbythetrustee

subjecttothetermsofthetrustdeedinterms

ofwhichthetrustwascreated.

Investorasgrantor,trusteeorbeneficiary

Aninvestorcanbeagrantorintermsofatrust.

Aninvestor(naturalorjuristic)mayalsobea

beneficiaryintermsofatrustiftheinvestoris

adequatelyidentifiedinthetrustdeed.Vague

termssuchas‘mybrother’or‘mybusiness

partner’arenotsufficientinthisregard.

Acompanywhichhasnotyetbeenformed

maybeabeneficiaryunderatrust,but

therightsbestowedwillbecontingenton

thecompany’sformationandsubsequent

acceptanceoftheprospectivebenefit.

Afounder(iegrantor)ofatrustmay

simultaneouslybeafounderandabeneficiary

underthetrust.Atrusteemaybethesole

beneficiaryaslongasheorsheisnotalso

thesoletrustee,asheorshecannotadminister

thetrustpropertysolelyforhimorherself.The

factthatthetrusteesandthebeneficiariesofa

particulartrusthaveidenticalinterestsinsofar

asthetrustobjectisconcerneddoesnot

invalidatethetrust,nordoesthefactthatthe

trusteesandthebeneficiaryarewhollyowned

subsidiariesofthesameholdingcompany.

SECTION VIII – REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS

A.ALIENBUSINESSLAW

InSouthAfrica,thereisnoformalalienbusiness

law,butcertainindustriesdorestrictforeign

ownershipofcertainassets.Forexample,

theairlineindustryandtheIndependent

CommunicationsAuthorityofSouthAfrica

(ICASA)legislationrestrictforeignownership

tocertainpercentages.Also,publicinterest

considerationsundercompetitionlawsare

increasinglyusedtorestrictforeigninvestment

bypoliticalroleplayersincertainindustries.

B.ANTITRUSTLAWS

Therelevantcompetitionlegislationisthe

CompetitionAct89,1998(CompetitionAct).

TheCompetitionActregulatesbothmergers

andprohibitedpractices,namely:

• cartelactivity,suchaspricefixingand

bidrigging;

• verticallyrestrictivepractices,suchas

minimumresalepricemaintenance;and

• abusesofdominance,suchasexcessive

pricing,inducingsuppliersorcustomers

nottodealwithcompetitors,or

pricediscrimination.

Guide – Doing Business in South Africa

37CONTENTS PAGE

BOWMANS

ThemergerprovisionsoftheCompetition

Actstipulatethatwhenoneormorefirms

directlyorindirectlyacquireorestablishdirect

orindirectcontroloverthewholeorpartof

abusinessofanotherfirm(egthroughthe

purchaseorleaseofshares,orthrough

theamalgamationorothercombinationof

theentities),thattransactionwillconstitute

amerger.

Wherethereisamergerandthenotification

thresholds(seeFillingrequirements)aremet,

themergingpartiesmustnotifythemerger

tothecompetitionauthoritiesprior

toimplementation.

Anewlyformedentitywillnotberequired

tonotifythecompetitionauthoritiesofits

incorporationasthatdoesnotamounttoa

merger(iethereisnoacquisitionofcontrol

overthewholeorpartofabusinessof

anotherfirm).Putdifferently,greenfieldsentry

intoSouthAfricawillnottriggerthemerger

controlprovisionsoftheCompetitionAct.

Whereaninvestormakesaninvestmentin

theformof,forexample,purchasingsharesin

anestablishedfirm(iebrownfieldsentry),the

mergerprovisionswillapplyif:

• positivecontrol(egacquiringthemajority

ofthesharesortherighttoappointthe

majorityofthedirectors)ornegative

control(eghavingtheabilitytoveto

strategicdecisionssuchasthoserelating

tothebusinessplanorbudgetorthe

abilitytomateriallyinfluencethestrategic

directionofthefirmconcerned)is

acquiredoverthefirminquestion;and

• themergerfilingthresholdsaremet.

Inrespectofprohibitedpractices,anentity

consideringgreenfieldsentrywillneedtobe

mindfuloftheprovisionsoftheCompetition

Actinconductingitsbusiness.

Wherebrownfieldsentryispursued,the

newownerwillinheritthecompetitionlaw

liabilitiesofthebusinessbeingbought(unless

thesearespecificallyexcludedbycontractual

mechanisms).Thismeansthatanewowner

couldbeliableforpastcontraventionsofthe

business.Generally,themaximumfinewhich

maybeimposedbythecompetitionauthorities

isupto10%oftheturnoveroftheoffending

firmfortheprecedingfinancialyear–however,

noteveryprohibitedpracticeattractsafine

forafirst-timeoffence(egpricediscrimination

byadominantfirm).

Alsonotethatcartelactivitymayinfuture

bepunishablethroughholdingdirectorsor

managersofthefirmsinvolvedcriminallyliable

(althoughtherelevantprovisionshavebeen

promulgated,noeffectivedatehasyetbeen

set,norisitclearwhensuchdatewillbeset).

TheCompetitionActincludesaprescription

periodforprohibitedconductandthereby

limitstheinitiationofcomplaintsinrelation

tosuchconducttoamaximumofthree

yearsaftertheconducthasceased.

Filingrequirements

MergersinSouthAfricaareclassifiedas

small,intermediateorlarge.Thesizeofa

mergerisdeterminedwithreferencetothe

SouthAfricanturnoverandassetvaluesof

theentireacquiringgroupandthetargetfirm:

• Foran‘intermediatemerger’,theacquiring

groupandthetargetfirmmusthave

combinedSouthAfricanassetsorturnover

ofatleastZAR560millionandthetarget

firmmusthaveSouthAfricanassetsor

turnoverofatleastZAR80million(any

combinationofassetsorturnovercan

beusedtoarriveatthethresholds–

essentially,thelargerofturnoveror

assetsisusedinthecalculation).

• Fora“largemerger”thesevaluesare

ZAR6.6billionandZAR190million

respectively.

38CONTENTS PAGE

Intermediateandlargemergersarerequiredto

benotifiedto,andapprovedby,theSouth

Africancompetitionauthoritiesbeforetheymay

beimplemented.

Transactionsnotmeetingintermediatemerger

thresholdsareregardedas‘smallmergers’.Small

mergersmaybeimplementedwithoutprior

notificationandapproval.However:

• Partiestoasmallmergermayelect

tovoluntarilynotifythemergertothe

CompetitionCommission(Commission).

• Withinsixmonthsofimplementation,the

Commissioncancalluponpartiestoasmall

mergertonotifyitiftheCommissionisofthe

opinionthatthemergermightsubstantially

preventorlessencompetitionorthat

itcannotbejustifiedonpublicinterest

grounds.Inthesecircumstances,theparties

cannottakefurtherstepstoimplementthe

transactionuntilithasbeenapprovedbythe

competitionauthorities.

• Whendeterminingwhetheramergercan

orcannotbejustifiedonpublicinterest

grounds,theCommissionortheCompetition

Tribunal(Tribunal)mustconsidertheeffect

thatthemergerwillhaveon

•aparticularindustrialsectororregion;

•employment;

•theabilityofsmallbusinesses,orfirms

ownedbypreviouslydisadvantaged

persons,tobecomecompetitive;and

•theabilityofnationalindustriesto

competeininternationalmarkets.

• IntermsoftheCommission’s2009

GuidelineonSmallMergerNotification,the

Commissionwillrequirethenotificationofa

smallmergerif,atthetimeofenteringinto

thetransaction,anyofthefirmsinvolvedare:

•subjecttoaninvestigationbythe

Commissionforprohibitedconduct

(suchascartelconduct,resaleprice

maintenanceorabuseofdominance);or

•respondentstopendingproceedings

referredbytheCommissionto

theTribunal.

Notethatstatutoryfilingfeespayablefora

largemergerareZAR350000.Filingfees

payableforanintermediatemergerare

ZAR100000.Thereisnofilingfeespayablein

respectofsmallmergers.

Partiestoanotifiablemergerwhichwas

implementedwithoutapprovalmayfacean

administrativepenaltyofupto10%oftheir

turnoverfortheprecedingfinancialyear,or

theymaybeorderedtodivestanyshares/

interestsacquired(amongstothers).No

prescriptionperiodisapplicableinthese

circumstances(iecompetitionauthorities

arenotrequiredtopunishoffendingparties

withinagivenperiodaftertheirfailureto

seekapproval).

C.ENVIRONMENTALREGULATIONS

SouthAfricahasarangeofenvironmental

legislationatanational,provincialandlocal

authoritylevel,withanenvironmentalright

enshrinedintheConstitutionofSouth

Africa,1996.

Manyenvironmentalstatutesandlocal

authorityby-lawsrequireauthorisations,

licencesorpermitstobeobtainedbefore

particularactivitiescancommenceand,insome

respects,mayimposeadutyofcarethatneeds

tobeadheredtowithrespecttopollutionand

contamination.Theapplicationandrelevance

oftheenvironmentallawsandtheauthorisation

requirementsalwaysneedtobeassessedinthe

contextofthenatureofthespecificbusiness

anditslocation.

Generally,abreachofenvironmentallawsmay

leadtocriminaloradministrativesanctions,

withcertainstatutespotentiallyimposinga

Guide – Doing Business in South Africa

39CONTENTS PAGE

BOWMANS

strictliabilityregimeinthecontextofpollution

andcontamination.

Authorisations,licencesorpermitsarerequired

byanumberofenvironmentallaws,including:

• NationalEnvironmentalManagementAct

107,1998–requiresanenvironmental

authorisationbeforemanytypesof

construction,expansion,decommissioning

andotherlistedactivitiescancommence,

includingcertainactivitiesassociatedwith

transformationoflanduseandwithrespect

totheextractionandproductionofmineral

andpetroleumresources;

• NationalWaterAct36,1998–requires

alicenceoranotherformofentitlement

forcertainwateruses,includingabstractive

wateruses,variouswaste-relatedwater

activitiesthatmayimpactonwater

resourcesaswellasrelatingtophysical

impactsonorinproximityto

waterresources;

• NationalEnvironmentalManagement:

WasteAct59,2008–requireslicensingof

variouslistedwasteactivitiesorcompliance

withregulatednormsandstandards;

• NationalEnvironmentalManagement:

AirQualityAct39,2004–requiresthe

licensingofvariouslistedactivitieswhich

resultinatmosphericemissions;and

• Provincialandlocalauthority(municipal)

legislation–authorisations,licencesor

permitsoragreementswiththemunicipality

aretypicallyrequiredforactivitiessuchas

thestorageofflammablesubstances,the

dischargeofeffluentintomunicipalsewers

andundertakinglistedscheduledtrades.

Apartfromthedirectcompliancecosts,such

asrequiredinfrastructureormeasuresto

containorlimitpollutionorenvironmental

impacts,whenprescribedbylaworcontained

inauthorisations,licencesorpermits,thereare

typicallycostsassociatedwithobtainingthe

relevantenvironmentalauthorisations,licences

andpermitsaswellaswithcomplyingwithany

conditionsattachedtotheseauthorisations,

licencesandpermits.

Certainenvironmentallawsandauthorisations

mayrequireholderstofurnishthecompetent

authoritieswithreportsonenvironmental

impactsoftheactivitiesatspecifiedintervals,

necessitatingmonitoringequipmenttobe

installedatfacilities,andmayalsoinclude

requirementsforongoingauditsto

assessthestateofcompliancewiththe

relevantenvironmentallegislation

andauthorisationconditions.

D.GOVERNMENTAPPROVALS

Governmentapprovalintheformoflicences/

permitsisrequiredinrespectofcertain

businessesandeconomicactivityincluding:

• banking;

• distributionandsaleofalcohol;

• financialservices;

• fishing;

• healthcareservices;

• insurance;

• manufacturing;

• manufacturing,marketingandsalesof

conventionalarms;

• medicalschemes;

• mining;

• pharmaceuticals;

• privateeducationservices(including

pre-primary,primary,secondaryand

privatehighereducation);

• telecommunications;and

• transportservices.

Governmentapprovalsintheformoflicences,

permitsandauthorisationsmayberequired

fromdifferentGovernmentbodiesineachof

thethreelevelsofGovernment.Forexample,

inthetelecommunicationssector,amobile

40CONTENTS PAGE

networkoperatorwillrequireanelectronic

communicationsnetworkservicelicenceand

anelectroniccommunicationsservicelicence,

togetherwithapplicableradiofrequency

spectrumlicences.Theoperatorwillthen

requirevariousadditionalpermissionsinorder

tobuildbasestationsandnetwork.These

wouldincludeapprovalfromaprovincial

authorityfollowinganenvironmentalimpact

assessmentinordertobuildbasestations,

approvalfromtheCivilAviationAuthorityto

buildabasestationaboveacertainheight,

andapprovalfromthelocalmunicipalitywhere

thebasestationislocatedintermsofthe

nationalbuildinglegislation.

Applyingforlicencesandpermits

Theprocesstoapplyforlicences/permits

requiredtoundertakecertaintypes

ofregulatedactivity,dependsonthe

requirementsundertheapplicablelegislation.

Ingeneral,aninvestorlookingtoestablish

abusinessinaregulatedsectorwillhaveto

applytotheapplicableregulatororheadof

theapplicableGovernmentdepartment.

Examplesoftheseareasfollows:

• banking–theRegistrarofBanks;

• financialservices–theFinancial

ServicesBoard;

• healthcare–theDepartmentofHealth;

• mining–theMinisterofMineralResources;

• pharmaceuticals–theMedicines

ControlCouncilandSouthAfrican

PharmacyCouncil;

• telecommunications–theIndependent

CommunicationsAuthorityofSouth

Africa;and

• transportservices–provincialand

localGovernmentbodies.

Time-frame

Theprocesstoapplyforlicences/permits

requiredtoundertakecertaintypesof

regulatedactivitydependsontherequirements

undertheapplicablelegislation.

Wherenospecifictimeperiodisstipulated

intheapplicablelegislationwithinwhich

adecisionmustbegiven,therelevant

Governmentauthorityisinallinstances

requiredtomakeadecisionwithina

reasonableperiodoftimeintermsofthe

generalrequirementsofthePromotionof

AdministrativeJusticeAct3,2000(PAJA).

Costs

Thefeestoapplyforlicences/permitsrequired

toundertakecertaintypesofregulatedactivity

aregenerallystipulatedintheapplicable

legislationorinaninvitationtoapply,where

acompetitiveprocessmustbefollowed.In

certaincases,anauctionprocessmaybe

followedfortheawardingoflicences.

E.INSURANCE

Thereisnoobligationtocarryinsurancefor

theestablishmentofabusiness.Totheextent

thatthebusinesshasanyemployees,itwill

berequiredtohavecompulsory:

• unemploymentinsurancefundpayments

foremployees,and

• compensationforoccupationalinjuries

anddiseasesfortheemployees,which

mustberegisteredwithinsevendaysof

employingtheemployees.

Inaddition,inparticularinstancesitmay

bearequirementtoobtainthirdparty

liabilityinsurance.

Guide – Doing Business in South Africa

41CONTENTS PAGE

BOWMANS

SECTION IX – OPERATION OF THE BUSINESS

A.ADVERTISING

Entitiesmayelecttobecomemembersof

theAdvertisingStandardsAuthority(ASA),

avoluntarybodythatadjudicatescomplaints

basedontheCodeofAdvertisingPractice.

ThemembersoftheASAarerequiredto

adheretothisCode,assupplementedby

individualcodes,whicharedeterminedby

thevariousmemberorganisationsor

negotiatedwithGovernmentalinstitutions.

Inaddition,theCPAandtheElectronic

CommunicationsandTransactionsAct25,

2002imposerestrictionsonunwanteddirect

marketing,givingconsumerstherightto

opt-outofsuchmarketing.

B.ATTORNEYS

ThereisnolegalrequirementtohaveSouth

Africancounselbutappointinglocaladvisers

withanon-the-groundunderstandingofthe

businessenvironmentisbeneficialparticularly

whentransactinginregulatedindustries.

TheBowmanGilfillanAfricaGroupiswell

representedinwhatareconsideredtobe

thehubjurisdictionsinthekeyregionsofthe

Africancontinent.Thefirmhaseightoffices

(Antananarivo,CapeTown,DaresSalaam,

Durban,Gaborone,Johannesburg,Kampala

andNairobi)insixcountries(Botswana,Kenya,

Madagascar,SouthAfrica,TanzaniaandUganda).

ThefirmworkscloselywithleadingNigerianfirm,

UdoUdoma&Belo-Osagie,whichhasoffices

inLagos,AbujaandPortHarcourt,andhas

strongrelationshipswithotherleadinglawfirms

acrosstherestofAfrica,suchasCorpusLegal

PractitionersinZambiaandAB&DavidinGhana.

TheBowmanGilfillanAfricaGroup

providescoverageoffrancophoneOHADA

jurisdictionsacrossthecontinent(including

Benin,BurkinaFaso,Burundi,Cameroon,

CentralAfricanRepublic,Chad,Congo

Republic,Gabon,Guinea,IvoryCoast,Mali,

Niger,Rwanda,SenegalandTogo)fromits

officeinMadagascar.

Attorneys’fees

Attorneys’feesdiffersubstantiallythroughout

SouthAfricabasedon,inter alia,thelevelof

experienceoftheattorney.Generallyfeesare

chargedbyreferencetothetimespentona

matter.Whilechargeoutratesarematerial

considerations,theyarenottheonlyfactor

takenintoaccountindetermingfees,norare

theynecessarilyinflexible.

C.BOOKKEEPINGREQUIREMENTS

• Locallyincorporatedcompany:Alocally

incorporatedcompanywillberequired

tokeepbooksofaccountintermsofthe

CompaniesAct.

• Externalcompany:Anexternalcompany

isnotrequiredtokeeplocalbooksof

accountintermsoftheCompaniesAct

asthebranchofficeisanextensionof

theheadofficeandwillbeaccounted

foraccordingly.

• Soleproprietorshipandlimitedliability

partnership:Althoughneitherofthese

businessstructuresenjoyseparatelegal

personality,theyarestillliableforany

taxthatmayaccruetothebusiness

ventureinthecourseofitsbusiness.

Assuch,theyarerequiredtokeep

booksofaccount.

IntermsofCompaniesRegulations,public

companies,whetherlistedonthestock

42CONTENTS PAGE

exchangeornot,arerequiredtopreparetheir

accountsintermsoftheInternationalFinancial

ReportingStandards(IFRS).

Inthecaseofanyprofitcompanywitha

publicinterestscoreofatleast350points,

theaccountsaretobepreparedintermsof

IFRS.Acompany’spublicinterestscoreis

basedon,amongstotherthings,thenumber

ofitsemployees,itsthirdpartyliability

anditsturnover.

Ifaprofitcompanyhasapublicinterest

scoreoflessthan100pointsandinternally

compilesitsstatements,thenitsbooksof

accountsmustbepreparedaccordingto

theSouthAfricanStatementsofGenerally

AcceptedAccountingPractice.

Ifaprofitcompanyhasapublicinterestscore

oflessthan100points,butitdoesnotinternally

compileitsstatementsofaccount,thenthe

companyisfreetodeterminethefinancial

reportingstandardtobeadoptedforaslong

asnoexpressstandardhasbeenset.

D.BUSINESSETHICS/CODES

TheBroad-basedBlackEconomic

EmpowermentAct53,2003(BEEAct)is

theprincipallegislationthroughwhichbroad-

basedblackeconomicempowerment(B-BBEE)

ismeasuredinSouthAfrica.B-BBEEmustbe

takenintoaccountbyanypotentialinvestor

wishingtoconductbusinessinSouthAfrica.

Thisisespeciallytruewherethepotential

investorwishestodealwiththeSouth

AfricanGovernmentandorgansofStateinits

businessdealings.

Government’sB-BBEEpolicyseekstoredress

theinequalitiescreatedbyapartheidinSouth

Africaandtoincreaselevelsofparticipationin

economicactivitiesbyblackpeople.Forthis

purpose,theMinisterofTradeandIndustry(the

Minister),whoistaskedwithimplementing

theBEEAct,haspublishedvariousCodes

ofGoodPractice(Codes)undertheBEE

Actwhichmustbetakenintoaccountby

Governmententitieswhendealingwiththe

privatesectoregawardinglicences,granting

concessions,sellingstate-ownedassets,and

enteringintopublic-privatepartnerships.

TheCodesincludeaB-BBEEScorecard

stipulatingvariousmeasurementindicators

onwhichcompanies’B-BBEEperformanceis

measured(ieownership,managementcontrol,

skillsdevelopment,supplierandenterprise

developmentandcorporatesocialinvestment).

Theoverallnumberofpointsthataninvestor

achievesacrossallthesecategoriestranslates

intoaB-BBEElevel-egLevel1(100+points),

Level2(between95and100points),withLevel

1beingthehighestandLevel8beingthelowest.

Aninvestor’soverallB-BBEEscoreisthentaken

intoaccountbyGovernmententitieswhen

engagingwiththeprivatesector(egdeciding

whichsupplierstoprocuregoodsandservices

from).InvestorswithhighB-BBEEscores

relativetotheircompetitorsarepreferredin

anyGovernmentprocurementprocess.

OtherthanincertainStatelicensing,

permittingandauthorisationprocesses(eg

inthegamblingsector),thereisno‘hardlaw’

requiringthatanyprivateentityinSouthAfrica

mustmeetspecificB-BBEEtargets,implement

aB-BBEEpolicyorachievecertainlevelsof

ownershipbyblackpeople.However,while

therearenoabsoluterequirementsinrelationto

B-BBEE,anycompanywishingtodobusiness

intheSouthAfricanenvironmentmustconsider

anddevelopitsB-BBEEposition.Anentitythat

doesnothaveagoodB-BBEErating,ordoes

notstrivetoimproveitsB-BBEErating,may

behamperedintheconductofitsday-to-day

businesswithGovernment,organsofStateand

privatesectorcustomers.

Guide – Doing Business in South Africa

43CONTENTS PAGE

BOWMANS

Iftheinvestorisalistedpubliccompany,it

willberequiredtoshowitscompliancewith

theprovisionsofKingCodeIII(KingCode)in

itsannualreports.JSEListingRequirements

requirethatthecompanyadheretocertain

aspectsoftheKingCode.TheKingCode

appliesan‘applyorexplain’approach,which

meansthatacompanyisnotrequiredtoapply

theprovisionsoftheKingCode,butifitopts

notto,itwillberequiredtoexplainwhyithas

notappliedthem.

TheKingCodeisasetofguidelinesapplicable

tothecorporategovernanceofacompany.

AstheKingCodeisasetofguidelines,itdoes

notcarrytheforceoflawinSouthAfricaand

thereforenon-compliancewiththeKingCodeis

notanoffenceunderSouthAfricanlaw.

TheKingCodeaimstosethighstandardsfor

corporategovernanceinSouthAfricathrough

theguidelinesitsetsout.

TheKingCodedealswithninetopicsrelevantto

thecorporategovernanceofacompany,such

asethicsandcorporatecitizenship;boardsand

directorgovernance;compliance;and

ITgovernance.

E.CONSUMERPROTECTIONLAWS

TheConsumerProtectionAct68,2008(CPA)

generallyappliestotransactionsinvolvingthe

supplyofgoodsandservicesthatoccurin

SouthAfrica.Iftheinvestor’soperationsinvolve

thesupplyofgoodsorservices(including

education)toconsumersinSouthAfrica,the

CPAwillapply,unlesstheconsumerisajuristic

personwhoseassetvalueorannualturnover

exceedstheprescribedthresholdvalue.

KeyaspectsregulatedbytheCPAinclude:

• restrictionsonunwanteddirectmarketing;

• consumers’rightstocooling-offperiod

afterdirectmarketing;

• consumers’rightstocancelfixed-term

agreementsontwomonths’notice(on

paymentofareasonablecancellationfee);

• consumers’rightstofair,justand

reasonabletermsandconditions;and

• consumers’rightstofairvalue,good

qualityandsafety(includingstrictliability

forharmcausedbydefectiveproducts,

andanimpliedwarrantyofquality).

TheRegulationstotheCPAsetouttermsthat

aredeemedtobeunfair.Forexample:

• Itisunfair,unreasonableandunjustto

providethatthesupplieralonehasthe

righttodeterminewhethergoodsor

servicesconformtotheagreementorto

interprettheagreement.

• Itispresumedunfairforaconsumer

contracttomodifythenormalrules

regardingthedistributionofrisktothe

detrimentoftheconsumer.

• Itisunfair,unreasonableandunjustto

providethatthesuppliercanterminatean

evergreenagreementwithoutreasonable

noticeoratanypoint,whereasimilarright

isnotgiventotheconsumer.

Inaddition,certainprovisionsofthe

CPAapplyatdifferentstagesofthesupply

chain.Importantly,section61imposesstrict

liabilityforharmcausedbydefective,unsafe

orhazardousgoodsonmanufacturers,

producers,importers,distributorsand

retailers,jointlyandseverally.

F.CONSTRUCTION

Costsofconstruction

Constructioncoststypicallydependonthesize,

natureandcomplexityoftheproject.Other

factorswillplayamajorroleincalculating

thisamount.Theseinclude:thepurposeof

theproperty;materialsused;whethersuch

constructionisfinancedordonefromaclient’s

44CONTENTS PAGE

balancesheet;andspecificrequirementsofthe

company.Thisthereforemakestheexactcost

verydifficulttoestimate.

Permits

TheConstructionRegulations,2014

(ConstructionRegulations)requireaclientto

obtainapermitforallconstructionworks.A

clientisdefinedas“…anypersonforwhom

constructionworkisbeingperformed”.

IntermsoftheConstructionIndustry

DevelopmentBoardAct38,2000

(CIDBAct),allcontractorswhointendon

tenderingforGovernmentworkmustensure

thattheyareregisteredwiththeConstruction

IndustryDevelopmentBoard(CIDB)before

theymaytakepartinanyGovernment

procurementprocesses.

Further,eachmunicipalareawillhavespecific

municipalby-lawsprescribingtherequired

authorisation/permitsforconstructionworks.

Theauthorisations/permitsrequiredwilldepend

onthenatureandpurposeoftheconstruction.In

theconstructionofpowerstationsforinstance,

somemunicipalitiesmayrequirecertification

fromastructuralengineerfortheworks.

Constructionregulations

TheConstructionRegulationsrequireaclientto

applyinwritingtotherelevantprovincialdirector

oftheDepartmentofLabourforaconstruction

workpermitwherecertaincategoriesof

constructionworkaretobecarriedout.

Theapplicationmustbemadeatleast30days

beforetheclientintendstocarryouttheworks

inaprescribedformwhichrequires,amongst

otherthings:detailsoftheappointedagent,

principalcontractor,designer,construction

manager,constructionhealthandsafety

officer(ifany)andcontractors(ifany).

Registrationofacontractorandaproject

mustbelodgedattheCIDB.

Time-frame

Forcategoriesofconstructionworkswhich

requireaconstructionworkpermitissuedby

theprovincialdirector,theprovincialdirector

has30daysfromreceiptoftheapplicationto

issuetheclientwithawrittenconstructionwork

permitandassignasite-specificnumberfor

eachconstructionsite.

TheCIDBRegulationsprovidethatthe

assessmentcommitteemustdecideonthe

categoryofregistrationofthecontractorand

registerthatcontractoraccordinglywithin21

workingdaysfromreceiptofadulycompleted

applicationandtherelevantfees.

Inrelationtotheregistrationofprojectsatthe

CIDB,theCIDBBoardmustregistertheproject

concernedandsupplytheemployerwitha

receiptofregistrationwithin30workingdays

fromreceiptofthedulycompletedapplication.

Dependingonthenatureandcomplexityof

theconstructionworks,theimpactofthe

constructionworksontheenvironmentandthe

locationoftheconstructionworks,timeperiods

forobtainingthenecessarymunicipalpermits

andauthorisationswillvary.

Costs

Acontractorwishingtoregisteratthe

CIDBmustpayafeerangingfromZAR200

toZAR40000,dependingonthegrading

designationforwhichthecontractor

makesapplication.

InadditiontofeesprescribedbytheCIDB,

otherfeesassociatedwithobtaining

environmentalandmunicipalpermitsmustbe

considered.Thesewilldependonthenature

Guide – Doing Business in South Africa

45CONTENTS PAGE

BOWMANS

andcomplexityoftheconstructionworksand

thelocationofsuchconstructionworks.The

costsinrelationtomunicipalauthorisations/

permitsmaybecateredforinthecontractor’s

contractpriceshouldonebeappointedto

executetheconstructionworks.

F.CONTRACTS

Asageneralrule,aninvestorisfreetocontract

withthirdpartiesinSouthAfrica,regardlessof

thecountryofincorporationoftheinvestor.

Thiscanhoweverberestrictedinthe

constitutionaldocuments.

Itispossibleforthelawofanothercountry

togovernaparticularcontract.

G.PRICECONTROLS

Asageneralrule,therearenopricecontrols

underSouthAfricanlaw.However,inregulated

industries,suchasmineralsandpetroleum,the

pricesaresubjecttoadegreeofcontroland

regulationbytheapplicableregulatorybodies.

Althoughitdoesnotregulatepricingperse,

theCompetitionActprohibitsexcessiveor

discriminatorypricingofgoodsorservicesto

theextentthattheinvestorisadominantfirm

asdefinedinaparticularsector.

I.PRODUCTREGISTRATION

Ingeneral,productsneednotberegistered.

However,someproductsareregulatedand

mustberegisteredbeforebeingproduced,

imported,distributedorsoldinSouth

Africa.Forexample,medicinesaresubject

toregistrationrequirementsintermsof

theMedicinesandRelatedSubstancesAct

101,1965,andelectroniccommunications

equipmentissubjecttoapprovalbyICASA

intermsoftheElectronicCommunications

Act36,2005.

Time-frame

Theprocesstoregisteraregulatedproduct

dependsontherequirementsunderthe

applicablelegislation.Wherenospecifictime

periodwithinwhichadecisionmustbegiven

isstipulatedintheapplicablelegislation,

therelevantGovernmentauthorityisinall

instancesrequiredtomakeadecisionwithin

areasonableperiodoftimeintermsofthe

generalrequirementsofPAJA.

Costs

Thefeestoapplyforlicences/permitsrequired

toundertakecertaintypesofregulatedactivities

aregenerallystipulatedintheapplicable

legislationorinaninvitationtoapplyifa

competitiveprocessmustbefollowed.

J.REDUCTIONSORRETURNONCAPITAL

Capitalmayberepatriatedwhilethecorporation

isstillongoing,subject,incertaininstances,to

exchangecontrolapprovalbeinggrantedby

theSARB.

K.SALEOFGOODS

Asageneralruletherearenorestrictionson

manner,timeorplaceofsaleofgoodsunder

SouthAfricanlaw.However,shouldcertaingoods

besubjecttoregulation(suchasliquor,firearms,

petroleumorprescriptiondrugs),themanner,

timeandplaceofthesaleofsuchgoodsmay

berestricted.

I.TRADEASSOCIATIONS

Tradeassociationsareorganisationsfoundedand

fundedbybusinessesthatoperateinaspecific

industry.Theirmainfocusisoncollaboration

betweencompaniesandstandardisation.

46CONTENTS PAGE

Someexamplesoftradeassociationsare

asfollows:

• AluminiumFederation

• BusinessProcessEnablingSouthAfrica

• IndustryAssociationforResponsible

AlcoholUse

• MarineFinfishFarmersAssociationof

SouthAfrica

• PlasticFederationofSouthAfrica

• SouthAfricanAerospaceMaritime&Defence

IndustriesAssociation

• SADairyFoundation

• SouthAfricanIron&SteelInstitute

• SouthAfricanOrganicSectorOrganisation

• SouthAfricanPrint&Packaging

ExportCouncil

• SouthAfricanStainlessSteel

DevelopmentAssociation

• SouthAfricanSugarAssociation

• SouthAfricanWindEnergyAssociation

Costs

Thisdependsontheparticularassociation;in

someinstances,aninvestormaybeobligedto

paytheprescribedfee.

Mandatorytradepractices

TherearenomandatorytradepracticesinSouth

Africa,thoughtherearevarioussectorspecific

permits/licencesrequiredforengagingin

businessandcompliancewithlocallaw

ismandatory.

SECTION X – CESSATION OR TERMINATION OF BUSINESS

Theprocessandconsequencesoftermination

willdependonthelegalnatureofthebusiness

concerned.Thissectionfocusesontermination

ofprivatecompanies,trustsandpartnerships.

A.TERMINATION

Taxconsequences

Theterminationofabusinesscouldgiverise

tovarioustaxconsequencessuchas:

• taxableincomeortaxablecapitalgainson

thedisposalofassets,dependingonwhether

theassetswereheldascapitalassetsor

tradingstock;

• recoupmentsinrespectofallowanceassets;

• incometaxorcapitalgainstaxinrespectof

thereductionofdebt;and

• dividendstaxondistributions

toshareholders.

However,section47oftheITAprovidesfor

roll-overreliefonliquidation,winding-upor

deregistrationofacompanyinintra-group

circumstances.Thisroll-overreliefcouldreduce

thenegativetaximpactoftheterminationofthe

business.Thesectioncontainsdetailedcriteria

whichwouldhavetobeconsideredbasedon

thespecificcircumstances.

Costs

• Company:TheCIPCdoesnotprescribe

anyfeetoterminateacompanybymeans

ofderegistration.ThefilingfeeforForm

CoR40.1toinitiateasolventvoluntary

winding-upbytheshareholdersofthe

companyisZAR250andthefilingfeefor

FormCM26toinitiateaninsolventvoluntary

winding-upbytheshareholdersofthe

companyisZAR80.Inthecaseof

avoluntarywinding-up,theMasterofthe

HighCourtofSouthAfrica(theMaster)

chargesafeerangingfromZAR600to

ZAR25000,dependingonthesizeofthe

estateofthecompanyconcerned.The

liquidator’sfeeswillbepaidoutoftheestate

ofthecompany.Iftheestatehasnoassets,

Guide – Doing Business in South Africa

47CONTENTS PAGE

BOWMANS

theliquidatorwillcalluponthecreditorsto

contributetothewindingupcosts.

• Trust:Trustsaredissolved/terminated

bytheMasteratnocost.

• Partnership:Therearenocostsinvolved

intheterminationofapartnership.

Time-frame

• Company:Theprocessofderegistration

cantakebetweenfourandsixmonths.

Theprocessofavoluntarywindingup

cantakebetween18monthsandtwo

yearstocomplete.

• Trust:Thetrustdeedwillsetouta

processforitstermination.Thetrustwill

beterminatedatthecompletionofthat

processandthefilingoftherelevant

documentswiththeMaster.Oncethe

documentshavebeenfiledwiththeMaster

itcantakebetweenoneandtwomonthsto

dissolvethetrust.

• Partnership: Thepartnershipwillbe

terminatedinaccordancewiththetermsof

thepartnershipagreement.Therefore,there

isnosettimeorestimatedtimeperiodfor

theterminationofapartnershipagreement.

Formsofbusinessintermination

• Company:Duringtheprocessof

termination,thecompanymaintainsitslegal

personalityanditsassetsremainvestedin

it.Oncethecompanyhasbeendissolvedit

ceasestoexist.

• Trust:Duringtheprocessoftermination

thetrustwillretainitssui generisstatusand

trustassetsremainvestedinthetrustuntil

disposedof.Aftertermination(dissolution)

thetrustceasestoexist.

• Partnership:Thepartnershipceasestoexist

upontermination.

Governmentapprovalorintervention

• Company:Acompany’sexistencecanonly

beterminatedwithGovernment(regulatory

body)approval.Acompanymayonlybe

deregisteredby:

•theCIPConitsownaccord(where

acompanydoesnotcomplywithits

obligationstofileannualreturns);

•voluntarilybytheboardofdirectorsofa

company;or

•involuntarilybyapplicationbroughtbya

creditororshareholder(notethatthisis

afactualenquiry).

Theeffectivedateofderegistrationwillbe

thedateofremovalofthecompany’sname

fromtheregisterofcompaniesmaintained

bytheCIPC.

Avoluntarywinding-upofacompany

isinitiatedbyaspecialresolutionofthe

shareholders,whichresolutionhastobe

filedwiththeCIPCforregistration.

• Trust:Atrustcanonlybeterminatedwith

Government(regulatorybody)approval.

Oncethetrusthasbeenterminatedin

accordancewiththetrustdeed,theMaster

mustdissolvethetrustandcancelthe

lettersofauthorityissuedtothetrustees.

• Partnership:Thepartnershipmaybe

terminatedwithoutGovernmentapproval

orintervention.

Obligationsontermination

• Company:Duringtheliquidationprocess,

thecompany’screditorsareallowedto

proveclaimsatmeetingsofcreditors.

Thecreditorsarepaid pro rata inrelation

tothequantumoftheirclaimsagainst

thecompany,subjecttotheirrankingas

creditors.Creditorsincludeemployees

andanyotherindependentcreditorofa

48CONTENTS PAGE

company.Creditorscanbeclassifiedas

secured,preferent(employeesandthe

SARS)andconcurrent.

Intermsofsection38oftheInsolvency

Act24,1936(InsolvencyAct),allcontracts

ofemploymentareautomatically

suspendedwhenthecompanyisplaced

intotheliquidationprocess.Unlessthere

isanagreementbetweentheliquidator

andemployee(s)tocontinuewiththe

employmentcontractstheywillbe

automaticallyterminated45daysafter

theappointmentoftheliquidator.

• Trust:Trustsaresequestratedinterms

oftheInsolvencyActandthereforethe

sameprovisionsapplicabletoacompany

willapply.

• Partnership:Partnershipsarealso

sequestratedintermsoftheInsolvency

Actandthereforethesameprovisions

applicabletoacompanywillapply.

B.INSOLVENCY/BANKRUPTCY

Extentoftheinvestor’sliability

Section19(2)oftheCompaniesActprovides

thatapersonisnot,solelybyreasonofbeing

anincorporator,shareholderordirectorofa

company,liableforanyliabilitiesorobligations

ofthecompany,excepttotheextentthatthe

CompaniesActoracompany’sMOI

providesotherwise.

Oneoftheconsequencesoftheseparatelegal

personalityofacompany,andthefactthat

shareholdersenjoylimitedliability,isthatasa

generalrule,shareholders’estateswillnotbe

sequestratedintheeventthatacompany

isliquidated.However,intermsofsection

424oftheoldCompaniesAct71,1973(which

stillappliesinthiscontext),ashareholder

(investor)whowasknowinglyapartyto

conductingthebusinessinafraudulentor

recklessmannermayfacepersonalliability.

Sections83(2)and(3)oftheCompanies

Actmakeitclearthatthederegistrationofa

companydoesnotaffecttheliabilityofany

formerdirector,shareholderoranyother

personinrespectofconductwhichtookplace

beforethecompanywasremovedfromthe

register.Therefore,theclaimsofcreditorsand

employeesagainstsuchpersonswillremain

alive,evenoncethecompanyhas

beenderegistered.

Choicesregardingtherestructuringof

thebusiness

Theshareholder(investor)willhavethe

followingchoiceswithregardtorestructuring

thebusiness:

• Businessrescue:Generally,these

restructuringproceedingsareinitiatedby

theboardofdirectors.However,inaddition,

theshareholder(investor)couldapply

tocourt,asan‘affectedperson’,forthe

initiationofbusinessrescueproceedings.

Oncebusinessrescueproceedingsare

initiated,thebusinessrescuepractitioner

takescontroloftheentireprocess,with

theassistanceofdirectorsasandwhen

required.Businessrescuewillbeeffective

uponfilingoftheboardresolutionwith

theCIPC.

• Compromise:Thisprocessisalsoinitiated

bytheboardofthecompanyunlessthe

companyisinliquidation,inwhichcase,the

processwillbeinitiatedbytheliquidator.

Theshareholder(investor)wouldneed

toinstructtheboardofdirectorsofthe

companytopassaboardresolutionto

enterintoacompromisewiththecreditors

ofthecompany.Onceagreedtobya

prescribedmajorityofthecreditorsand

sanctionedbythecourtthecompromise

willbebindingonallcreditors(including

dissentingones),thosewhowereabsent

atthemeeting,andthosewhoabstained

fromvoting.Thereareminimumstatutory

requirementsthatmustbemetintermsof

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49CONTENTS PAGE

BOWMANS

suchacompromise.Thecompromisedoes

notaffectanysuretiesofthecompany.

• Schemeofarrangement:Theboardcan

makeanarrangementwiththeshareholders

(investors)ofthecompanybywayof:

•aconsolidationofsecuritiesof

differentclasses;

•adivisionofsecuritiesinto

differentclasses;

•anexpropriationofsecurities

fromtheholders;

•exchanginganyofitssecuritiesfor

othersecurities,areacquisitionbythe

companyofitssecurities;or

•acombinationofanyofthesemethods.

Thisrestructuringmechanismis,however,not

possiblewherethecompanyiswindingupits

affairorunderbusinessrescueproceedings.

SECTION XI – LABOUR LEGISLATION, RELATIONS AND SUPPLY

A.EMPLOYER/EMPLOYEERELATIONS

EmploymentinSouthAfricaisregulatedby

statute,commonlawandcontract.

Ingeneral,SouthAfricanemploymentlaw

appliestoallemployeesworkinginSouth

Africa.Althoughchoiceoflawclausesare

recognised,theseareonlyenforcedwherethe

chosenlawisalsothelawtowhichthecontract

ismostcloselyconnected.Inmostinstances,if

theemployeeperformstheworkinSouthAfrica

andispaidhere,SouthAfricanlaw

willapply.Incertaincircumstances,itmay

alsoapplytoSouthAfricanemployees

workingabroad.

Themainpiecesoflegislationregulatingthe

employmentrelationshipare:

• LabourRelationsAct66,1995(LRA).

Thisgrantsemployeesprotectionagainst

unfairdismissalandunfairlabourpractices.

Italsoregulatescollectivebargaining

andthetransferofundertakingsasa

goingconcern.

• BasicConditionsofEmployment

Act75,1997(BCEA).Thisregulatesmost

contractsofemploymentinrelationto,

amongotherthings:

•workinghours;

•leave;

•theprohibitionofchildand

forcedlabour;

•thepaymentofremuneration;and

•noticeandpaymentsontermination

ofemployment.

Partiescanagreedifferenttermstothose

setoutintheBCEAprovidedtheseare

notlessfavourabletotheemployeethan

whattheBCEAprovides.

• EmploymentEquityAct55,1998(EEA).

ThisActprohibitsunfairdiscrimination

inanyemploymentpolicyorpracticeon

groundssuchasage,gender,language,

raceandreligion.TheEEAalsoregulates

theimplementationofaffirmativeaction

measures(ie,measureswhichensurethat

employeesfromdesignatedgroups–

blackpeople,womenandpeoplewith

disabilities–haveequalemployment

opportunitiesandareequitably

representedintheworkplace).

• SkillsDevelopmentAct97,1998(Skills

DevelopmentAct).ThisActaimsto

developtheskillsoftheSouthAfrican

workforce.ItestablishesSectorEducation

andTrainingAuthorities(SETA)to

developandimplementskillsplansfor

eacheconomicsector.

50CONTENTS PAGE

• SkillsDevelopmentLeviesAct9,1999.

ThisActimposesacompulsorylevyon

mostemployersofanamountequalto

1%oftheemployer’stotalpayrollamount,

theproceedsofwhichareusedtofund

thevariousSETAs.Incertain

circumstances,employersmayclaim

rebatesfortheleviespaidtoaSETA.

• UnemploymentInsuranceAct63,2001.

ThisActestablishedtheUnemployment

InsuranceFund(UIF).TheUnemployment

InsuranceContributionsAct4,2002

(UnemploymentInsuranceContributions

Act)requiresemployersandtheir

employeestomakecontributionsto

theUIF.

• OccupationalHealthandSafetyAct85,

1993(OHSA).ThisActprovidesforthe

minimumrightsanddutiesofemployers

andemployeesinordertomaintaina

healthyandsafeworkingenvironment.

• CompensationforOccupational

InjuriesandDiseasesAct130,1993.

ThisActprovidesasystemof‘nofault

compensation’fordisablementor

deathcausedbyoccupationalinjuries

ordiseasessustainedorcontracted

byemployeesinthecourseoftheir

employment.Employeesareentitledto

compensationregardlessofwhetherthe

injuryorillnesswascausedbythefaultof

theemployeroranyperson.

Theemployerisrelievedofliabilityfor

damagesclaimsandinreturnisrequired

tomakeregularcontributionstothe

CompensationFund.

B.EMPLOYMENTREGULATIONS

ThehiringofSouthAfricannationals

Foreignersrequireworkpermitstoworkin

SouthAfrica.TheImmigrationAct13,2002

(ImmigrationAct)providesforvariouspermits,

themostcommonlyusedofwhicharegeneral

workpermitsandintra-companytransfer

permits.Generalworkpermitsaretypicallyonly

grantedifnosuitableSouthAfricanisavailable

toperformtheworkconcerned.

Minimumwage

Thereisnogenerallyapplicableminimumwage.

Collectiveagreements(whichareagreements

betweenanemployeroremployers’

organisationontheonehandandtradeunion

ontheotherhand)orSectoralDeterminations

(whicharedeterminationsissuedbythe

MinisterofLabourregulatingthetermsand

conditionsofemploymentforparticular

sectors)mayprescribeaminimumwagein

respectofspecifiedcategoriesofworkers.

Workinghours

Employeeswhoearnbelowtheearnings

thresholdprescribedintermsoftheBCEA

(ZAR205433.30perannumasat31May2015)

areentitledtotheprotectionoftheworking

hourprovisionsoftheBCEA.Theseemployees

maynotworkmorethan45ordinaryhoursper

weekandmorethan10hours’overtimeper

week.Employeesareentitledtoovertimepay

attherateof1.5timestheemployee’sordinary

rateofpay.Byagreement,employeesmaybe

giventimeoffinrespectofovertimeworked.

TheBCEAalsoprescribesapremiumrate

ofpayinrespectofworkonSundaysand

publicholidays.

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51CONTENTS PAGE

BOWMANS

Employeeswhoearninexcessofthe

prescribedthresholdamountarenotsubject

totheworkinghourprovisionsoftheBCEA

andmayberequiredtoworkanyreasonable

hoursthatarerequiredfortheefficient

performanceoftheirduties.

Employeeleave

TheBCEAentitlesallemployees(irrespective

oftheirlevelofremunerationandseniority)

toaminimumof21consecutivedays’annual

leaveinrespectofeachannualleavecycleof

12months’continuedemployment.Employees

whoworkafive-dayworkweekareaccordingly

entitledtoabout15workingdays’annualleave

inrespectofeachannualleavecycle.Itis

fairlycommonformoresenioremployees

tobegrantedleaveinadditiontothe

BCEAminimum.

Employees(whoworkafive-dayweek)are

entitledto30days’sickleaveinrespectofeach

three-yearsickleavecycle.

TheBCEAalsoprovidesforaminimumofthree

days’familyresponsibilityleaveperannum,

whichmaybetakenintheeventofthebirthor

illnessofanemployee’schild,orthedeathofa

closefamilymember.

Employeesareentitledtofourmonths’

maternityleave.Maternityleaveisunpaid,

butitisfairlycommonforemployerstopay

anemployee’snormalsalaryorpartthereof

duringaperiodofmaternityleaveinreturn

foranappropriatework-backundertaking.

Employeesareentitledtoclaimmaternity

benefitsfromtheUIFprovidedthattheyand

theiremployershavecontributedtotheUIF

andprovidedthattheemployerdoesnotpay

theemployee’sfullwageduringthematernity

leaveperiod.

C.HIRINGANDFIRINGREQUIREMENTS

Investorsarenotrequiredtoemploya

minimumnumberofpeople.

Foreignersmustbeinpossessionofvalid

workpermitsauthorisingthemtoworkfor

theemployerinSouthAfrica.SouthAfrican

nationalsarenotrequiredtoholdcertain

positionsinthecompany.

Rulesforhiringanddismissingemployees

Employersmaynotdiscriminateunfairly

againstapplicantsforemploymentonawide

rangeofprohibitedgroundssuchasage,

gender,HIVstatus,language,raceandreligion.

Anemployermay,however,differentiateon

thebasisoftheprohibitedgroundsifsuch

differentiationisrequiredforaffirmativeaction

purposesconsistentwiththeprovisionsof

Chapter3oftheEEA,orifitisrequiredforthe

inherentrequirementsofthejob.

Allemployees,irrespectiveoftheirlevelof

remunerationorseniority,havetherighttonot

beunfairlydismissed.Anydismissalmustbe

bothsubstantivelyandprocedurallyfair.There

arefourbroadgroundsfordismissal:

• misconductoftheemployee;

• incapacityoftheemployeerelated

topoorworkperformance;

• incapacityoftheemployeerelated

toillhealth;and

• theoperationalrequirementsof

theemployer.

Theproceduralfairnessrequirementsdepend

onthereasonforthedismissal.Inessence,the

proceduralfairnessrequirementsdemandthat

theemployeeisgivenanopportunitytobe

heardbeforethedecisionistakentoterminate

her/hisservices.

52CONTENTS PAGE

Ondismissal,anemployeeisentitledto:

• accruedholidaypay;

• paymentin lieuofnotice,unlessthe

employeeissummarilydismissedoris

requiredtoworkthenoticeperiod;

• severancepayofaminimumofone

week’ssalaryforeverycompletedyearof

servicewiththeemployer,butonlyifthe

dismissalisasaresultoftheemployer’s

operationalrequirements;

• anyotheramounttowhichtheemployee

iscontractuallyentitledsuchasapro rata

guaranteedbonus.

Noticeperiodsarenormallyregulatedin

theemploymentcontract.However,the

BCEAprovidesforthefollowingminimum

noticeperiods:

• oneweek,iftheemployeehasbeen

employedforlessthansixmonths;

• twoweeks,iftheemployeehasbeen

employedformorethansixmonthsbut

lessthanoneyear;and

• fourweeks,iftheemployeehasbeen

employedformorethanoneyear.

Itisfairlycommonfortheemploymentcontracts

ofmoresenioremployeestocontainlongernotice

periods,forexampletwotosixmonths.

Remediesforunfairdismissal

Anemployeewhoisdismissedcanbringa

claimforunfairdismissal.Theprimaryremedy

inrespectofadismissalthatissubstantively

unfairisretrospectivereinstatement.

Alternatively,theemployeemaybere-

employedinotherreasonablysuitableworkor

beawardedcompensation.Compensationis

generallylimitedto12months’remuneration.

Incertaincircumstances,suchaswherethe

reasonforthedismissalisthattheemployer

unfairlydiscriminatedagainsttheemployee,

compensationofupto24months’remuneration

maybeordered.

Theinvestordoesnothaveacontinuing

obligationtowardsdismissedemployees,

unlesssuchcontinuingobligationsariseout

oftheemploymentcontract.Althoughfairly

uncommon,someemployersmakepost-

retirementmedicalaidbenefitsavailableto

theiremployees.

D.LABOURAVAILABILITY

Whetheradequateskilledorunskilledlabouris

availablefortheanticipatedbusinessdepends

onthenatureoftheanticipatedbusiness.

E.LABOURPERMITS

Foreignersarerequiredtobeinpossessionof

validworkpermitsissuedbytheDepartmentof

HomeAffairs.Apartfromthis,labourpermits

arenotrequired.

Workpermitsareobtainedonapplicationfrom

theDepartmentofHomeAffairssubjectto

meetingalltheprescribedrequirements.

Theprocesstakes30to60days.Costsvary.

Adviceinthisregardshouldbeobtainedfroma

registeredimmigrationpractitioner.

F.SAFETYSTANDARDS

SafetystandardsareprescribedbytheOHSA

andtheregulationsissuedintermsthereof.

Incertaincircumstances,theMineHealthand

SafetyAct29,1996applies.

G.UNIONS

UnionsarerecognisedinSouthAfricaandare

activeinallsectorsoftheeconomy.Thepolitical

affiliationoftheunionwilldependontheunion

concerned.Thereisnoobligationonthepart

oftheemployertoorganiseunions.Depending

onthebusinessconcerned,theremaybe

mandatorycollectivebargainingarrangements.

Thiswillneedtobedeterminedonacase-by-

casebasis.

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53CONTENTS PAGE

BOWMANS

SECTION XII - TAX ON CORPORATIONS

A.DEDUCTIONSANDALLOWANCES

Deductionsareallowedeitherintermsof

theso-called‘generaldeductionsformula’

containedinsection11(a)oftheITAreadwith

section23(g)thereof,orintermsofspecific

sectionsdealingwithparticulardeductions.

Thegeneraldeductionsformulaprovides

forataxpayertoclaimasadeduction

againstincome:

• expenditureorlosses;

• actuallyincurredduringtheyear

ofassessment;

• intheproductionofincome;

• totheextentthatsuchmoneyswere

laidoutorexpendedforthepurposes

oftrade;and

• providedsuchexpenditureandlosses

arenotofacapitalnature.

Overtheyears,asubstantialbodyofcaselaw

regardingtheinterpretationofthegeneral

deductionsformulahasdeveloped.

Inadditiontotheso-calledgeneraldeductions

formula,provisionismadeforanumberof

specificdeductionsorallowancesintheITA,

forexample:

• Depreciationallowanceswithrespectto

capitalassetsaregenerallydeterminedby

SARSdependingonthetypeofasset

beingdepreciated.

• Thereisaspecialdepreciationallowance

forneworusedplantandmachinery

broughtintouseforthefirsttimeby

ataxpayer,andusedinaprocessof

manufacture.Thewrite-offperiodiseither

fourorfiveyearsdependingonthenature

oftheasset.

• 100%ofthecostofmanufacturingplant

andmachineryownedbyoracquired

andbroughtintousebyasmallbusiness

corporation(SBC)forthefirsttimeafter

1April2001maybedeductedifitisused

directlyintheprocessofmanufactureand

forthepurposeoftheSBC’strade.Other

qualifyingassetsacquiredbyaSBC

after1April2005enjoyathree-year

write-offperiod.

• Therearespecialallowancesrelatingto,

amongotherareas,mining,gaspipelines,

electricitytransmissionlinesandrailway

lines,renewableenergyandtoinvestors

inqualifyingventurecapitalcompanies.

• Taxpayersinvestinginareaswhichare

regardedasurbandevelopmentzones

areentitledtospecialdepreciation

allowancesfortheconstructionor

refurbishmentofbuildings.

• Taxpayerscandeductanumberof

buildingallowances,including

manufacturingbuildings,commercial

buildingsandresidentialbusinessunits,all

witha20-yearwrite-offperiod.

• Taxpayerscandeduct150%oftheir

researchanddevelopmentexpenditure,

iftheexpensesweredirectlyincurredin

scientificandtechnologicalresearchand

developmentactivitiesinSouthAfrica.

Taxpayersmayalsodepreciatethecost

ofbuildings,machineryorplant,utensils

andarticlesusedforthepurposeof

suchresearchanddevelopmentover

threeyears.

Majorexpensesexcludedfromdeductibility

Anexpensewillnotbedeductibleif:

• itwasnotincurredintheproduction

ofincome;

• itwasnotincurredforthepurposesof

trade;or

• itisofacapitalnature.

54CONTENTS PAGE

Provisionisfurthermadefordeductionstobe

non-deductibleunderspecificcircumstances,

forexample:

• Undercertaincircumstancespayments

ofroyaltiesorpremiumsfortheuseof

intellectualpropertymaynotbetax

deductibletotheSouthAfricaresidentif

thepaymentwasmadetoanon-resident.

Inparticular,iftheintellectualpropertyhad

beendevelopedorpreviouslyownedbythe

SouthAfricanresident,nodeductionwillbe

granted.

• Interestexpensepayabletoanon-resident

lendermaypotentiallybenon-deductiblein

termsofthethincapitalisationrules.Regard

shouldalsobehadtosection23Mofthe

ITAwhichlimitstheamountofinterestthat

canbedeductedwherethecreditorisina

controllingrelationshipwiththedebtorand

theamountofinterestsoincurredisnot

subjecttotaxinthehandsofthepersonto

whichtheinterestaccrues.

• Otherdeductionsspecificallynotallowed

inthedeterminationoftaxableincome

include,amongothers,privateand

domesticexpenses,provisions,insured

losses,restraintoftradepayments(except

inspecificcircumstances).

B.CALCULATIONOFTAXES

Thetaxablebase

Thetaxablebaseisdeterminedbycalculating

thetaxableincomeofaperson,which

consistsof:

Grossincome(seebelow)

Lessexemptincome

=Income

Lessallpermissibledeductionsorallowances

Plusallamountstobeincludedordeemedto

beincludedinthetaxableincomeofaperson

intermsoftheITA,suchastaxablecapitalgains

=Taxableincome.

‘GrossIncome’includes,inthecaseof

aresident:

• thetotalamount;

• incashorotherwise;

• receivedbyoraccruedtoorinfavour

ofsuchresident;

• duringtheyearorperiodofassessment;

• excludingreceiptsandaccrualsofacapital

nature;and

• includingcertainspecifiedamounts,

irrespectiveofwhethertheyareofacapital

orrevenuenature.

Foranon-resident,‘GrossIncome’issimilarto

thatapplicabletoaresident,butsubjectthereto

thatitonlyincludesamountsfromaSouth

Africansource.

‘Income’iscalculatedbydeductingfromgross

incomeany‘exemptincome’asdefined.Gross

incomewhichisexemptunderthetermsofa

DTAisnot‘exemptincome’asdefined.

‘Taxableincome’meanstheaggregateof:

• incomelessallpermissibledeductionsor

allowances;plus

• allamountstobeincludedordeemedto

beincludedinthetaxableincomeofa

personintermsoftheITA,suchastaxable

capitalgains.

C.CAPITALGAINSTAX

Apercentageofataxpayer’snetcapitalgain

fortheyearofassessmentisincludedinthe

taxpayer’staxableincomefortheyear,which

constitutesthetaxpayer’staxablecapitalgain.

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55CONTENTS PAGE

BOWMANS

Theinclusionratefornaturalpersonsorspecial

trustsis33.3%,whiletheinclusionratefor

companiesandnormaltrustsis66.67%.

Taxablecapitalgainsofindividualsand

companiesarethussubjecttothefollowing

effectiverates:

• 18.67%forcompaniesandclose

corporations;

• 13.33%(maximumrate)forindividualsand

specialtrusts;and

• 27.33%fornormaltrusts.

D.FILINGANDPAYMENTREQUIREMENTS

Taxreturnsforcompaniesmustnormallybe

submittedwithin12monthsafterthe

company’syear-end.

Companiesmustsubmittheirtaxreturnsonline,

viatheSARSe-filingsystem.Inthecaseof

residentcompanies,returnsmustbefiledbythe

taxpayereveniftheyreflectanilamountdue.

Provisionaltaxpayersmust,inadditionto

theirannualincometaxreturns,alsofile

provisionaltaxreturnsonabi-annualbasis.

Allcompanies,andcertainindividuals,

constituteprovisionaltaxpayers.

Provisionaltaxisnotaseparatetax,butisa

systeminwhichcertaintaxpayersarerequired

tomakeadvancetaxpaymentsinrespectof

normaltaxpayablefortheyear.Itformspart

ofthenormalincometaxpayablebythese

taxpayersandrequiresthemtomakeadvance

paymentsoftheirtaxduringtheyearof

assessment,inaccordancewithestimates

oftheirliability.

Thefirstprovisionaltaxpaymentmustbe

madesixmonthsafterthebeginningofayear

ofassessmentandthesecondattheendof

thatyearofassessment.Underestimationof

taxableincomeinthesecondprovisionaltax

returnmayresultintheimpositionofa20%

understatementpenaltyontheshortfall.

Aprovisionaltaxpayermaymakeavoluntary

thirdprovisionaltaxpayment,knownasa

“top-uppayment”withinsevenmonthsafter

theyear-endifthatyear-endisFebruary,or

withinsixmonthsofanotherapprovedyear-

end.Anyfurtherincometaxwillbepayable

uponassessment.

E.MISCELLANEOUSTAXESDUE

Securitiestransfertax

SecuritiesTransferTax(STT)isleviedonevery

transferofasecurityandwasintroducedwith

effectfrom1July2008toreplacestampduty

anduncertificatedsecuritiestaxonthetransfer

oflistedandunlistedsecuritiesrespectively.

STTispayableonthetransferorredemptionof

anysecurityatarateof0.25%onthegreater

ofthemarketvalueorconsiderationpayable.

Thereisnobusinesslicencetax.

Thereisnoapprenticeshiptax,butemployers

areobligedtopayalevy,knownasaSkills

DevelopmentLevy(SDL),whichaimstofund

educationandtrainingasenvisagedintheSkills

DevelopmentAct.

Thecollectionandpaymentofleviesare

administeredbytheCommissioner.Every

employerwhopaysorisliabletopay

remunerationtoemployees,isrequiredtopay

thelevy,subjecttocertainexemptions.

F.REGISTRATIONDUTIES

Theestimatedcostsofincorporatingalimited

liabilitycompanyareZAR300(exclusiveof

VATanddisbursements)toreserveaname

andafurtherZAR2400(exclusiveofVAT

anddisbursements)tolodgeandregisterthe

56CONTENTS PAGE

relevantcompanysecretarialdocumentswith

theCIPC.

Registrationdutiesdueuponatransferof

corporateassets

Thereisnogeneralregistrationdutydueupon

thetransferofcorporateassets,butthereis

transferdutyonthetransferofimmovable

propertyatratesofupto11%ofthevalueof

theproperty.

Otherregistrationduties

• Employees’Tax:Paragraph15ofthe

FourthScheduletotheITAprovidesthat

everyemployerwhopaysremunerationto

anemployeewhoisliablefornormaltaxis

obligedtoregisterforemployees’tax.The

applicationformthatneedstobefilled

istheEMP101e.Anemployerisrequired

toregisterforemployees’taxwithin21

businessdaysofbecominganemployer

unlessnoneoftheemployeesareliable

fortax.

• UnemploymentInsuranceFund

Contributions:Section10ofthe

UnemploymentInsuranceContributions

Act4,2002(UnemploymentInsurance

ContributionsAct)requiresevery

employerwhopaysorisliableto

payremunerationtoregisterforUIF

contributionsandtocontributetothe

UIFonamonthlybasis.Inthisregard,

employeesarerequiredtocontribute1%

oftheirsalarytotheUIF(uptoanannual

remunerationlimit),andtheiremployers

arerequiredtomatchthisamount.The

annualremunerationlimitiscurrently

ZAR178464perannum(ZAR14872

permonth).Thusthemaximumamount

thatanemployeeiscurrentlyrequiredto

contributetotheUIFisZAR148.72per

month.Theemployerisrequiredtomatch

thisamount.Theemployerisrequiredto

deducttheemployee’scontributionfrom

theemployee’ssalaryandtopayoverboth

theemployerandemployee’scontribution.

TheapplicationforUIFregistrationismade

inthesameEMP101eformreferredtoabove.

Incircumstanceswhereanemployeris

notobligedtoregisterfortaxintermsof

theITAtheapplicationtoregisterforUIF

contributionsmustbemadedirectlytothe

UnemploymentInsuranceCommissioner.

• COIDA:Section80oftheCOIDAprovides

thatanemployercarryingonabusiness

inSouthAfricaisrequiredtoregister

withtheCompensationCommissioner

withinsevendaysofthedateonwhichit

employeditsfirstemployee.Applicationfor

registrationismadeintheW.As.2Eform.

TheCompensationFundsendsanoticeof

assessmentsettingoutwhatamountthe

employerisrequiredtopay.

G.SALESTAXOROTHERTURNOVERTAX

ValuedAddedTax(VAT)

SouthAfricaappliesaVATsystemintermsof

whichVATisleviedonthesupplyofallgoods

andservicesbyaregisteredVATvendorateach

stagewithintheproductionanddistribution

chain.Vendorscollectoutputtaxfromtheir

customersandareabletoclaimcreditsfor

inputtaxpaidbythem,withtheeffectthatthe

taxburdenisonthefinalconsumer.VATisalso

payableontheimportationofgoodsandcertain

servicestoSouthAfrica.

IntermsoftheVATAct,VATispayableonthe

supplyofgoodsand/orrenderingofservicesby

aregisteredVATvendor,orongoodsandcertain

servicesimportedintoSouthAfrica.

Anypersonwhocarriesonanyenterprise

inSouthAfrica,andhastaxablesuppliesthat

exceedsZAR1millionperannumisobliged

toregisterasVATvendor.Therearecertain

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57CONTENTS PAGE

BOWMANS

exemptionsfromVAT,andcertaintransactions

aresubjecttoVATat0%(referredtoas

‘zero-rating’).

InputandoutputVAT

TheVATpayablebyavendoriscalculatedasthe

differencebetweenso-called‘outputVAT’and

‘inputVAT’:

• ‘InputVAT’istheVATpayablebyavendor

ontheimportationofgoodsorservicesbya

vendororonthesupplyofgoodsorservices

byanotherVATvendor;

• ‘OutputVAT’istheVATpayableonthe

supplybyavendorofgoodsorservices

suppliedbyhimorherinthecourseor

furtheranceofanyenterprisecarriedon

byhimorher.

TheVATActcontainsdetailedrulesregarding

thecalculationofVATpayableand,more

specifically,regardingtherequirementsforthe

deductionofinputVAT.Inparticular,adeduction

ofinputVATongoodsand/orservicesmayonly

beclaimedtotheextentthatsuchgoodsand/

orserviceswereacquiredbythevendorinthe

courseofmakingtaxablesupplies.Ataxable

supplyisdefinedasanysupplyofgoodsor

servicesbyavendorinthecourseorfurtherance

ofhisorherenterprise,whichischargeablewith

VAT,includingVATchargeableattherateof0%.

Itdoesnotincludeexemptsupplies.

ThismeansthatavendormayclaiminputVATon

goodsand/orservicesacquiredforthepurpose

ofmakingzero-ratedsupplies,butnotformaking

exemptsupplies.

Taxrates

VATisleviedatarateof14%,thoughsome

suppliesareexemptedfromVAT,andothers

(suchastheexportofgoodsfromSouthAfrica)

arezero-rated,whichmeansthattheyareliable

forVATbutatarateof0%.

Filingandpaymentrequirements

Therelevantreportingperiodforregistered

VATvendorsisreferredtoasaVATperiod.

TheVATperiodisdeterminedbasedonthe

activitiesandturnoverofthevendorandvaries

betweenoneand12months.

• Avendorwillhaveaone-monthVAT

periodifthetotalvalueofitstaxable

suppliesexceedZAR30million;

• mostsmallerbusinesseswillhavea

two-monthVATperiod;

• certaintypesofbusinesssuchasfarming

enterprisescanhaveasix-monthVAT

period;and

• inveryspecificcircumstances,certain

vendorsmayhavea12-monthVATperiod.

RegisteredVATvendorsarerequiredtosubmit

VATreturnsandpayVATwithin25daysafter

theendofaVATperiod.

Avendormust,asageneralrule,account

forVATpayableonaninvoicebasis,subject

theretothataspecifiedgroupofvendors(such

aspublicauthoritiesormunicipalities)may,on

applicationtotheCommissioner,accountfor

VATonapaymentbasis.

H.SOCIALSECURITYANDWELFARESYSTEM

CONTRIBUTIONS

SouthAfricadoesnotcurrentlyhavea

socialsecuritysystem,butitdoesoperate

acompulsorysystemofunemployment

insurance.(Please refer to Section XII, Part F.)

Inaddition,employersarerequiredtopay

levieswhichareintendedtocontributetoskills

development,referredtoasSDL. (Please refer

to Section XII, Part E.)

58CONTENTS PAGE

Retirementorpensioncontributions

Currently,neitheremployersnoremployees

arelegallyobligedtocontributetoretirement

and/orpensionfunds.Inthoseinstances

whereemployersand/oremployeescontribute

toretirementand/orpensionfunds,these

contributionsmayqualifyfordeductions,subject

tothelimitationsofthespecificprovisions.

Unemploymentinsurancecontributions

Employersandemployeesareeachrequired

tomakeacontributiontotheUIFtoprovide

anincometoemployeesinanumberofinstances

suchasunemploymentorabsencefromwork

duetoillnessorwhiletheemployeeison

unpaidmaternityleave.Somebenefitsmay

alsobeprovidedtothedependantsofa

deceasedcontributor.

Contributorsmayqualifyforthefollowing

typesorbenefits:

• unemploymentbenefits;

• illnessbenefits;

• maternitybenefits;

• adoptionbenefits;and

• dependents’benefits.

Everyemployerwhopaysremunerationtoan

employeeisrequiredtocontributetotheUIF.

Contributionsaremadebyboththeemployer

andtheemployee.Theemployerisrequired

towithholdtheemployeecontributionfrom

theremunerationpayabletotheemployee

andtopayoversuchcontributiontogether

withtheemployercontribution,toSARSorto

theUnemploymentInsuranceCommissioner

(whicheverapplicable)onamonthlybasis.

Filingandpaymentrequirements

Returnsreflectingtheemployees’tax,UIF

contributionsandSDL,mustbesubmittedona

monthlybasis,bynolaterthantheseventhday

ofthemonthfollowingthemonthduringwhich

remunerationaccruedtoanemployee.

Anannualreturn,theEMP501reconciliation,

mustbefiledwithinaspecifiedperiodof

timeaftertheendofFebruaryeachyear.

Forexample,thedeadlineforsubmissionof

payrollrecordsforthe2015year,was

29May2015.

I.TAXONPROFITS

Nationalincometaxratesonprofit

Thetaxableincomeofacompany(resident

ornon-resident)issubjecttoincometaxata

rateof28%.

J.TAXTREATIES

AccordingtotheSARSwebsite,asof

1August2015:

• SouthAfricahad73comprehensive

DTAsinforce;

• ithassignedbutnotratifiedtreaties

withCameroon,HongKong,Lesotho

(renegotiated),Qatar;

• ithassignedbutnotratifiedaprotocol

withCyprus;

• nineDTAshavebeenratifiedbySouth

Africabutnotyetbytheothercountry,

namelyBotswana,Chile,Gabon,Germany,

Kenya,Mauritius,Norway,Sudan,Turkey

(protocol);and

• thefollowingcomprehensiveDTAshave

beenorareintheprocessofbeing

negotiatedorfinalizedbuthavenot

yetbeensigned:

•Africa:Malawi,Morocco,Mozambique,

Namibia,Senegal,Swaziland,

Zambia,Zimbabwe;

•Restoftheworld:Austria,Belgium,

Brazil,Cuba,Germany,Indonesia,Isleof

Man,Kuwait,Luxembourg,Netherlands,

Singapore,Switzerland,Syria,Thailand,

UnitedArabEmirates,Vietnam.

Therearenospecifictreaty-shoppingrules,

butitispossiblethatSARSmayseektoapply

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59CONTENTS PAGE

BOWMANS

itsgeneralanti-avoidancerulestodenytreaty

benefitsinatreaty-shoppingsituation.

K.TERRITORIALITYRULES

SouthAfricaappliesaresidence-basedincome

taxsystem,intermsofwhichSouthAfrican

residentsaretaxedontheirworldwideincome

andnon-residentsaresubjecttoincometaxon

incomefromaSouthAfricansource.

Non-residentsaresubjecttoCGToncapital

gainsarisingfromthedisposalofimmovable

propertysituatedinSouthAfricaoranyinterest

orrightinimmovablepropertysituatedinSouth

Africa,aswellasinrespectofthedisposal

bythenon-residentofanyassetwhichis

attributabletoapermanentestablishmentof

thatnon-residentinSouthAfrica.

Taxonworldwideincome

Theworldwideincomeofresidentcompanies

mustbeincludedintheirgrossincome,

irrespectiveofwhereintheworldthatincome

isearned.Residentcompaniesareentitledto

foreigntaxcreditsfortaxespaidorpayable

offshore,subjecttoseveralrestrictions.ADTA

mayprovidealternativereliefwhichmaybe

widerinitsscope.

TheSouthAfricanCFCrulesmayincludean

amountequaltoaproportionateamountofthe

netincomeofaCFCintheincomeofresident

shareholders.Severalexemptionsareavailable,

essentiallyinrespectofasubstantialbusiness

presenceoftheCFCoffshore.

Non-residentcompaniesaretaxedonincome

derivedfromSouthAfricansourcesaswellas

oncapitalgainsinrespectofSouthAfrican

immovablepropertyorrightsinimmovable

propertyandassetswhichareattributableto

thepermanentestablishmentofthatcompany,

unlessaDTAexistswhichprovidesotherwise.

L.TREATMENTOFTAXLOSSES

Assessedtaxlossesofataxpayermaybe

carriedforwardtothesucceedingtaxyear

andmayincreaseanexistingassessedlossor

besetoffagainsttaxableincome.Lossesmay

becarriedforwardindefinitely,providedthe

companycontinuestotrade.

Ataxpayermaynotsetoffanassessedloss

incurredincarryingonatradeoutsideSouth

Africaagainstanyamountderivedfrom

carryingontradeinSouthAfrica.Itisthus

importanttodistinguishwhetherapersonhas

merelyexpandedhisorherlocaltradeabroad

orwhetheraseparatetradeisbeingcarried

onoutsideSouthAfrica.

Compromisesorconcessionsreachedwith

creditorshavetheeffectofreducingthe

assessedlossincertaincircumstances.A

specificanti-taxavoidanceprovisionintheITA

alsocountersthetradinginassessedlosses.

TheITAalsoprovidesfortheringfencingof

assessedlossesfromsecondarytrades,withthe

consequencethatlossesfromthesesecondary

tradesmaynotbesetoffagainstanyincomethat

ataxpayergenerates,otherthantheincomefrom

suchsecondarytrades.Theseactivitiesinclude:

• anysportpractisedbythatpersonor

anyrelative;

• anydealingincollectiblesbythatperson

oranyrelative;

• animalshowingbythatpersonor

anyrelative;

• farmingoranimalbreeding,unlessthat

personcarriesonfarming,animalbreeding

oractivitiesofasimilarnatureona

full-timebasis;

• anyformofperformingorcreativearts

practisedbythatpersonoranyrelative;or

• anyformofgamblingorbettingpractisedby

thatpersonoranyrelative.

60CONTENTS PAGE

Therearealsolimitationsontheuseoflosses

createdbytransactionstakingplacebetween

connectedpersons.

M.WEALTHTAX

Thereisnospecific‘wealthtax’,butthetransfer

ofwealthistaxedbywayofestateduty. Please

refer to in Section XIII, Part E.

N.WITHHOLDINGTAXES

Therateofwithholdingtaxondividendsis

15%,thoughthismaybereducedintermsof

theprovisionsofanapplicableDTA.

Therateofwithholdingtaxonroyaltiesis15%,

thoughthismaybereducedintermsofthe

provisionsofanapplicableDTA.

Therateofwithholdingtaxoninterestisalso

15%,thoughthismaybereducedintermsof

theprovisionsofanapplicableDTA.

SECTION XIII – TAX ON INDIVIDUALS

A.ALLOWANCES

Thetaxableincomeofanindividualis

determinedinasimilarmannertothemanner

inwhichthetaxableincomeofacompany

isdetermined.

However,thedetailedapplicationoftherules

willdependonwhethertheindividualis

conductinganenterprise(soleproprietorship)

orderivesincomefromemploymentorfrom

passiveinvestments.Forexample,anindividual

whoconductsanenterprisewillbeentitled

tosimilartypesofallowancesavailabletoa

companyconductinganenterprise,unless

expresslyexcluded.

Individualsaresubjecttolimitationsinrespect

ofthetypesofexpenditurewhichmaybe

claimedinrespectofremuneration.

B.CALCULATIONOFTAXES

Thetaxablebase

Thetaxablebaseofanindividualisdetermined

inasimilarmannertothatsetoutin Section

XII, Part B.

C.CAPITALGAINSTAX

CapitalGainsTaxapplies.Pleasereferto

Section XII, Part C.

D.FILINGANDPAYMENTREQUIREMENTS

Ayearofassessmentforindividualsendson

thelastdayofFebruaryeachyear.For

example,the2015yearofassessmentranfrom

1March2014to28February2015.

Everyyear,SARSannouncesits‘TaxSeason’

duringwhichindividualsmustsubmittheir

annualincometaxreturns.Thetaxseasonfor

2015openedon1July2015andthedeadline

forfilingwilldepend inter alia onwhetherthe

taxpayerisaprovisionaltaxpayerand/oron

whetherthetaxpayersubmitshis/herreturn

viae-filing.

Generally,individualsdonothavetofile

incometaxreturnsifthey:

• earnonly‘normal’remunerationbelow

acertainthreshold(ZAR350000for

the2015taxyear),ifemployees’taxwas

withheldfromsuchremuneration;or

• receiveincomeotherthanremuneration

(eginvestmentincome),below

certainthresholds.

Ifanindividualisobligedtoregisterasa

provisionaltaxpayer,heorshehastopay

provisionaltaxandfileprovisionaltaxreturns

inasimilarmannerassetoutin Section XII,

Part D.

Guide – Doing Business in South Africa

61CONTENTS PAGE

BOWMANS

Anindividualwillsimilarlybeobligedtopayany

furtherincometaxuponassessment.

E.INHERITANCEANDGIFTTAX

Estatedutyisataxonthetransferofwealth,

leviableondeath.Thedutyisleviedattherate

of20%ontheworldwideestatesofdeceased

personsinrespectofallpropertyownedby

residentsandonSouthAfricanpropertyowned

bynon-residents.

Donationstaxisimposedinrespectofthe

gratuitousdisposalofanypropertybyaSouth

Africanresident.Donationstaxisasageneral

rulepayablebythedonor,notbytherecipient,

thoughthedonorandrecipientwillbejointly

andseverallyliabletopaydonationstaxifthe

donorfailstopaydonationstaxwithinthe

stipulatedtimeperiod.

Inotherwords,themerepresenceofan

individualinSouthAfricaisnotsufficientto

subjecthimorhertoinheritanceorgifttax.

Assetssubjecttotax

Estatedutyisleviedontheworldwideestates

ofdeceasedpersonsinrespectofallproperty

ownedbyresidentsandSouthAfricanproperty

ownedbynon-residents.Itisleviedonthe

‘dutiableamountoftheestate’exceeding

ZAR3.5million.

Donationstaxisimposedinrespectofthe

gratuitousdisposalofanypropertybya

SouthAfricanresident.IfSARSisofthe

opinionthatpropertyhasbeendisposedof

foraconsiderationwhichisnotadequate,the

propertywillbedeemedtohavebeendisposed

ofunderadonation(albeitthattheactual

considerationisdeductedincalculatingthe

donationstax).

Taxrates

• Estateduty:20%onthedutiableamount

oftheestate.

• Donationstax:20%onthevalueofany

propertydonated.

Allowances

• Estateduty: AbasicdeductionofZAR

3.5millionisallowedfromthevalueofthe

netestatebeforecalculatingestateduty.

Furtherdeductionsareallowedinrespect

of,forexample,liabilities,bequeststo

publicbenefitorganisationsandproperty

accruingtosurvivingspouses.TheDavis

TaxCommitteehasinthelastyearbeen

consideringSouthAfrica’staxsystem,

andhasreleasedseveralinterimreports

withrecommendationsinrespectoftax

reformtotheMinisterofFinance.Areport

releasedduringAugust2015contained

anumberofproposalsregardingestate

dutyreforms,includingdoingawaywith

thedeductionsinrespectofproperty

accruingtosurvivingspouses.However,

thereportatthisstagecontainsonly

recommendationsandnolegislative

amendmentshavebeenproposedinthis

regardyet.

• Donationstax:Certaindonationsare

exemptfromdonationstax,including

certaindonationsbetweenspousesand

donationstopublicbenefitorganisations

orothercharitableorganisations.Anatural

personisentitledtoanexemptionon

donationsthataremadeduringtheyearof

assessmentofuptoZAR100000.Non-

naturalpersonsareexemptfromdonations

taxinrespectofcasualgiftsuptoa

thresholdofZAR10000.Non-residentsdo

notpaydonationstax,eveniftheydonate

SouthAfricanassets.Publiccompanies

whichareresidentsofSouthAfricaarealso

exemptfrompayingdonationstax.

62CONTENTS PAGE

Paymentandfilingrequirements

Theexecutorofanestatemustsubmitareturn

totheCommissioner,subsequenttowhichthe

Commissionershallissueanoticeofassessment

reflectingthedutypayable.

Donationstaxmustbepaidbytheendofthe

monthfollowingthemonthduringwhichthe

donationtakeseffect,andthepaymentofthe

taxmustbeaccompaniedbyareturn.

F.REALESTATE/HABITATIONTAX

Thereisnorealestateorhabitationtaxbut

allpropertyowners(whetherindividuals,

companies)are,however,obligedtopay

municipalrates.

G.SALESTAX

VATappliestoindividualsinasimilarmanner

asitdoestoanyotherperson;ieanindividual

conductinganenterprisemayalso(berequired

to)registerasaVATvendor,andcustomers

whoareindividualsalsopayVATinrespectof

suppliesmadetothembyaVATvendor,orin

respectofgoodsorcertainservicesimported

intoSouthAfrica.

H.STOCKOPTION,PROFITSHARINGAND

SAVINGSPLANS

Taxationofstockoptionplans

Section8CoftheITAdealswiththetaxationof

equityinstruments(whichcouldincludeshares,

optionsorcontractualrightsderivingtheirvalue

fromsharesoroptions)acquiredbyvirtueof

theperson’semployment.

Theserulesareaimedatensuringthatgains

derivedinrespectofequityinstrumentswhich

aresubjecttorestrictions,aretaxedasordinary

incomeandnotascapitalgains.Theremayalso

beanemployees’taxwithholdingobligationin

respectofsuchgains.PleaserefertoSection

XIII, Part N.

Taxationofprofitsharingplans

Iftheprofitsharingplansincludeequity

instruments,thepotentialapplicationof

section8CoftheITAmustbeconsidered.If

aprofitsharingplandoesnotinvolveequity

instruments,butitisprovidedaspartofthe

remunerationpackageofanemployeeor

directorofaprivatecompany,itwillbe

subjecttoemployees’tax.Please refer to

Section XIII, Part N.

Taxationofsavingsplans

Savingsplansforindividualswillgenerallybe

taxedasnormalpassiveincome(eginterest

earnedbyindividualswillbesubjecttonormal

incometax,subjecttotheexemptionprovided

inrespectoflocalinterestincomewhichis

currentlyZAR23800forindividuals).

However,anewtax-freesavingsaccounthas

beenintroducedwitheffectfrom1March2015

inordertoencouragesavingbyindividuals.

Noincometax,CGTordividendwithholdings

taxwillbechargedinrespectoftax-free

savingsaccounts.However,thetax-free

savingsaccountprovidesonlylimitedplanning

opportunities,asthemaximumannual

investmentisZAR30000,whilethemaximum

lifetimelimitisZAR500000.

I.TAXATIONOFBENEFITSINKIND

TheSeventhScheduletotheITAdealswith

thetaxationoftaxablefringebenefits.The

SeventhSchedule inter alia stipulatestowhich

extentbenefitsprovidedtoemployeeswillbe

taxable.Italsodealswithhowsuchbenefits

shouldbevalued.Totheextentthatabenefit

constitutesataxablefringebenefit,itwillbe

includedintheemployee’sremunerationand

willbesubjecttoincometaxatnormalincome

taxrates.Theemployerwillalsobeobliged

towithholdemployees’taxinrespectofsuch

taxablefringebenefit.

Guide – Doing Business in South Africa

63CONTENTS PAGE

BOWMANS

Allowancesprovidedtoemployeesinorder

toenablesuchemployeestoincurbusiness

expendituresuchashavingtousetheirown

vehiclesforbusinesspurposes,ortopayfor

mealsandincidentalcostswhileonbusiness

tripsawayfromhome,aresubjecttodifferent

taxrules.Thefullamountoftheseallowances

willnotbesubjecttoemployees’taxatthe

timewhentheyarepaid,butthefinalincome

taxliabilityinrespectthereofwillbedetermined

onassessment.

J.TAXESONDIVIDENDS

Dividendspaidbyresidentcompaniesgenerally

qualifyforanexemption,butdividendsmay

incertaincircumstancesbeexcludedfrom

theexemption.Forexample,ifadividendis

receivedbyoraccruedtoapersoninrespect

ofservicesrenderedortoberendered,orin

respectoforbyvirtueofemploymentorthe

holdingofanyoffice.

K.TAXONINCOME

Nationaltaxratesonincomeforresidents

Individualspaytaxatprogressivetaxrates

dependingontheirtaxableincome.

Ayearofassessmentforindividualsends

onthelastdayofFebruaryeachyear.Forthe

2015taxyear,endingon28February2015,the

maximumincometaxratewas40%of

thetaxableincomewhereincomeexceeded

ZAR673101perannum.

Forthe2016taxyear,themaximummarginal

incometaxratewasincreasedto41%.

Incometaxfornon-residents

Thesameprogressiveincometaxratesthat

applytoresidents,alsoapplytonon-residents.

L.TERRITORIALITYRULES

SouthAfricaappliesaresidence-basedincome

taxsystem,intermsofwhichSouthAfrican

residentsaretaxedontheirworldwideincome

andnon-residentsaresubjecttoincometax

onincomefromaSouthAfricansource.

Non-residentsaresubjecttoCGToncapital

gainsarisingfromthedisposalofimmovable

propertysituatedinSouthAfricaheldby

thatnon-residentoranyinterestorrightin

immovablepropertysituatedinSouthAfrica,

aswellasinrespectofthedisposalbythe

non-residentofanyassetwhichisattributable

toapermanentestablishmentofthatnon-

residentinSouthAfrica.

Taxasworldwideincome

Forresidents,theanswerisinprincipleyes,

whilefornon-residentsitisno.

Theworldwideincomeofresidentindividuals

mustbeincludedintheirgrossincome,

irrespectiveofwhereintheworldthatincome

isearned.Residentindividualsareentitledto

foreigntaxcreditsfortaxespaidorpayable

offshore,subjecttoseveralrestrictions.ADTA

mayprovidealternativereliefwhichmaybe

widerinitsscope.

Non-residentindividualsaretaxedon

incomederivedfromSouthAfricansources

aswellasoncapitalgainsinrespectofSouth

Africanimmovablepropertyorrightsin

immovableproperty,unlessaDTAexists

whichprovidesotherwise.

M.WEALTHTAX

Wealthtaxisnotapplicable.Pleasereferto

theinformationonestatedutyanddonations

taxinSection XIII, Part E.

64CONTENTS PAGE

N.WITHHOLDINGTAX

Residentemployersmustwithholdemployees’

tax(alsoreferredtoasPayAsYouEarnor

PAYE)fromremunerationpayable

toemployees.

Employees’taxisnotaseparateformof

incometax,butanadvancepaymentofnormal

taxpayablebyemployees.Itisnotafinaltax,

butisacollectionmechanismintermsofwhich

theemployerisrequiredtodeductemployees’

taxatsourceandtopaytheamountso

deducteddirectlytoSARS.

Residentsvsnon-residents

Thereis,inprinciple,nodifferenceinthewayin

whichresidentornon-residentemployeesare

treatedfromaPAYEperspective,subjecttothe

provisionsofanapplicableDTA.

However,theobligationtowithholdemployees’

taxonlyappliestoresidentemployers,ortoa

non-residentemployerwitharepresentative

employerinSouthAfrica.

SECTION XIV – GENERAL TAX CONSIDERATIONS

Whenestablishinganynewcompanyor

restructuringanyexistentstructure,boththe

specificaswellasgeneralanti-taxavoidance

provisionsshouldbetakenintoaccountnot

onlytoattempttoachievethedesiredtax

consequences,butalsotoensurethatthere

arenounintendedtaxconsequenceswhich

mayimpactnegativelyonthecommercial

considerations.

Advancetaxrulings

TheTAAprovidesforasystemofadvance

rulings.Thestatedpurposeofthissystemis

“topromoteclarity,consistencyandcertainty

regardingtheinterpretationandapplication

ofataxActbycreatingaframeworkforthe

issuanceof‘advancerulings’”.

Thesystemprovidesfordifferenttypesof

rulings,namely:

• bindingprivaterulings;

• bindingclassrulings;

• bindinggeneralrulings;and

• non-bindingprivateopinions.

Advancerulingsmayonlybeappliedforin

respectofproposedtransactions(ienotin

respectoftransactionswhichhavealready

beenconcludedorimplemented).SARSmay

rejectapplicationsforadvancerulingsinthe

circumstancessetoutinsection80oftheTAA.

Ifanadvancerulingappliestoapersonas

providedforinsection83oftheTAA,then

SARSmustinterpretorapplytheapplicable

taxActinaccordingwithsuchbindingruling.

However,itdoesnotbindthetaxpayer.A

taxpayermaythuschoosenottoapplythe

findingsofthebindingruling,butthisholds

someriskasSARSwillmostlikelystillapply

itsviewassetoutintheadvanceruling.

Anon-bindingprivateopiniondoesnot

haveabindingeffectuponeitherSARSor

thetaxpayerandmaynotbecitedinany

proceedings,otherthanproceedingswhich

involvethepersontowhomtheopinion

wasissued.

Guide – Doing Business in South Africa

65CONTENTS PAGE

BOWMANS

Generalanti-taxavoidancesystem

TheITAcontainsanumberofanti-tax

avoidanceprovisions,somespecificand

othersgeneral.

Specificanti-taxavoidanceprovisionsaimto

counterveryspecificarrangementsdescribed

intheprovisionswhichmayavoidtax,while

thegeneralanti-avoidancerules(GAAR)in

PartIIAoftheITAallowSARStoattackany

“impermissibletaxavoidancearrangement”.

Animpermissibletaxavoidancearrangement

isanarrangementwhichresultsinthe

avoidance,postponeorreductionofanytax

liability,ifitssoleormainpurposewasto

obtainataxbenefit,andifthearrangement

doesnotsatisfythe“normality”criteriaasset

outinPartIIA.

PartBofChapter4oftheITAcontains

detailedrulesregardingreportable

arrangements,intermswhereofcertain

arrangementsmustbereportedtothe

Commissionerwithin45businessdaysfrom

thedatethatsucharrangementqualifiesas

areportablearrangementorthedatefrom

whichthepersonbecomesaparticipantto

sucharrangement.Therelevantsections

asreadwiththerelevantministerial

noticeslistanumberofspecifictypesof

arrangementswhicharereportable,and

alsolistcharacteristicswhichwillresultinan

arrangementbeingreportable.

SARScouldalsoapplythecommonlaw

doctrineof'substanceoverform'toattack

simulated/artificialtransactions.

TheITAcontainstransferpricingruleswhich

correspondtotherulesapplicableinmost

industrialisedcountries.SARShasissueda

practicenoteontheapplicationofthetransfer

pricingruleswhichisbasedontheOECD

TransferPricingGuidelinesforMulti-national

EnterprisesandTaxAdministrations.

SECTION XV – IMMIGRATION REQUIREMENTS

A.IMMIGRATIONCONTROLS

Therearenoimmigrationquotas.

Certainmedicalcertificatesandvaccinations

arerequiredincertaininstances.Further

informationisavailableontheDepartmentof

HomeAffairswebsite:www.dha.gov.za.

Entrypermits

Entrypermitsarerequired.Theymustbe

appliedforbeforeenteringthecountry.Visas

arenotissuedatSouthAfricanportsofentry.

Airlineofficialsareobligedtoinsistonvisas

beforeallowingpassengerstoboard.

Immigrationofficialsareobligedtoputpeople

arrivingwithoutvisasontoflightsbacktotheir

homecountries.

Exitpermitsarenotrequired.

B.IMMIGRATIONREQUIREMENTS/

FORMALITIES

Residentpermits

Residencepermitsarerequired.Permanent

residencepermitsaredividedintotwo

maincategories:

• Directresidence:Thisisissuedto

foreignerswhohavebeenonaworkpermit

forfiveyearsandwhohavereceiveda

permanentofferofemployment.Ingeneral,

ifaforeignermeetsalltherequirements,

theirspouseandchildrenunder21will

likewisequalifyforpermanentresidence.

66CONTENTS PAGE

• Residenceonothergrounds:Thisincludes

foreignerswho:

•havebeenmadeajobofferwithin

certainconditions;

•possessexceptionalskillsor

qualifications;

•intendtosetupbusinessesin

SouthAfrica;

•intendtoretireinSouthAfrica;

•arefinanciallyindependent;

•qualifyasrefugees;and

•arerelativesofaSouthAfricancitizen.

Allimmigrationapplicantsolderthan21years

ofagemustsubmittoapersonalinterview.

Newregulationspassedintermsofthe

ImmigrationActstatethatonecannotchange

fromavisitor’svisatoanothertypeofvisa.

Theseapplicationsforchangeofconditions

mustbemadeatamissionabroad(iean

embassyorconsulate)wheretheapplicantis

anordinaryresidentorholdscitizenship.

Apersonwishingtoimmigratepermanently

toSouthAfricashouldbeof“goodandsound

character”andnotfollowanoccupationin

whichtherearealreadysufficientpeople

availabletomeetthecountry’sneeds.

Documentationisrequiredinrelationtothe

specificpermitappliedfor.Alistofthevarious

permitsaswellasthedocumentationrequired

isavailableontheDepartmentofHomeAffairs

website:www.dha.gov.za.

Time-frame

Thisdependsonthecategoryofthe

application.Pleaseseetheindicativetimeline

setoutunderSection XV, Part C.

C.VISAS

Visasarerequiredbyforeignerswhowish

totravelto,orstayin,thecountry.Residents

ofcertaincountriesareexempt.Alistofthe

countrieswhoseresidentsdonotrequire

visasisavailableontheDepartmentofHome

Affairswebsiteat:

www.home-affairs.gov.za/index.php/

immigration-services/exempt-countries.

Thedurationofthevalidityofthevisais

dependentonthetypeofvisaissued.An

exhaustivelistofavailablevisasaswellasthe

informationpertainingtothemisavailableat:

www.vfsglobal.com/dha/southafrica/andon

theDepartmentofHomeAffairswebsite

atwww.dha.gov.za.

Avisaapplicationshouldbemadeatthe

nearestSouthAfricanembassy,mission

orconsulateintheapplicant’scountryof

residence,whichwilldeterminetheoutcome

oftheapplication.

Requireddocuments

• Visitors’visas:

•Dulycompletedonlineform.

•Validpassportwhichexpiresinno

lessthan30daysaftertheexpiry

oftheintendeddateofdeparture

fromSouthAfrica,andwhichhasat

leastoneunusedpageforentry/

departureendorsements.

•Proofofpaymentoftheapplicablefee.

•Ayellow-fevervaccinationcertificate

(ifrequired).

•Statementand/ordocumentation

confirmingthepurposeandduration

ofthevisit.

•Twocolourpassportphotographs.

•Areturnoronwardticketiftravelling

byair.

Guide – Doing Business in South Africa

67CONTENTS PAGE

BOWMANS

•Proofoffinancialmeanstopayfor

livingexpenseswhileinSouthAfrica

intheformofbankstatements,salary

advances,undertakingsbythehost(s)

inSouthAfrica,bursaries,medicalcover

orcashavailable(includingcreditcards

andtravellers’cheques).

ItisworthnotingthattheDepartmentofHome

Affairshasrecentlyenactednewregulations

forthoseenteringorleavingthecountry

withminorchildren.Thefollowingadditional

documentsmustbeprovidedinrespectof

minorchildren:

• proofofguardianshiporcustodyor

consentfromtheguardianinthecaseof

anunaccompaniedminor;and

• theminor’sunabridgedbirthcertificate.

Theseadditionalrequirementsare,however,

thesubjectofparliamentarydebateandmay

berevised.

• Businessvisas:

•Dulycompletedonlineform.

•Validpassportwhichexpiresinnoless

than30daysafterexpiryoftheintended

dateofdeparturefromSouthAfrica,and

whichhasatleastoneunusedpagefor

entry/departureendorsements.

•Proofofpaymentoftheapplicablefee.

•Ayellow-fevervaccinationcertificate

(ifrequired).

•Medicalandradiologyreports.

•Apoliceclearancecertificatefromeach

countrywhereofresidencesincetheage

of18years,includingSouthAfrica.

•Arepatriationdeposit,equivalenttothe

valueofareturntickettothecountryof

origin/permanentresidence;which

isrefundableafterthefinaldeparture

orafterthepersonhasacquireda

permanentresidencepermit.

•Acertificateissuedbyachartered

accountantregisteredwiththeSouth

AfricanInstituteofCharteredAccountants

oraprofessionalaccountantregistered

withtheSouthAfricanInstituteof

ProfessionalAccountantstothe

effectthattheinvestorhasatleast

ZAR5millionwhichoriginatedfrom

abroadandisavailabletobeinvested

aspartofthebusiness.

•Undertakingthatatleast60%of

thetotalstaffcomplementtobeemployed

intheoperationsofthebusinessshall

beSouthAfricancitizensorpermanent

residentsemployedpermanentlyin

variouspositions.

•Anundertakingtoregister(wherelegally

required)withSARS,UIF,Compensation

FundforOccupationalInjuriesand

Diseases,CIPCandtherelevant

professionalbody,boardorcouncil.

•Aletterofrecommendationfromthe

DTIregardingthefeasibilityofthe

businessandthecontributiontothe

nationalinterestofSouthAfrica.

Thedocumentationrequiredforbothvisitors

andbusinessvisasissubjecttochange–the

mostrecentinformationisavailableonthe

DepartmentofHomeAffairswebsiteat

www.dha.gov.za.

Time-frame

Thisdependsonthecategoryofvisaapplication.

HowevertheDepartmentofHomeAffairs

advisesofaminimumprocessingtimeofeight

to10weeksforTemporaryResidencePermit

applicationsandeighttotenmonthsfor

PermanentResidencePermitapplications.

68CONTENTS PAGE

Costs

Atablesettingoutthefeesapplicableto

certainvisaapplicationsissetoutbelow:

These figures are updated annually.

SECTION XVI – EXPATRIATE EMPLOYEES

A.COSTOFLIVINGANDIMMIGRATION

Thecostoflivingcomparedtoothercountries

issignificantlylessthanintheUS,theUK

orEurope.

B.DRIVERS’LICENCES

TheprovisionsoftheNationalRoadTraffic

Act93,1996permitapersontodriveinSouth

Africawithhis/herforeigndrivinglicence,

providedthelicencemeetsthe

followingrequirements:

Category Application

Fee(inZAR)

BusinessVisa 1520

CorporateVisa–EmployerorCorporateEntity

1520

CriticalSkillsVisa 1520

GeneralWorkVisa 1520

IntraCompanyTransferVisa

1520

VisitorVisa 1520

• thelicencehasbeenissuedinanofficial

languageofSouthAfrica,oracertificateof

authenticityorvalidityissuedinanofficial

languageofSouthAfricabyacompetent

authority,oratranslationofthatlicencein

anofficialSouthAfricanlanguage,is

attachedtothelicence;and

• thelicencecontainsorhasattachedtoit

aphotographandthesignatureofthe

licenceholder.

Onemayconvertone'sforeigndrivinglicence

intoaSouthAfricanlicence(providedthe

requirementsabovearemet)byapplyingata

drivinglicencetestingcentreorapplyfora

SouthAfricanlicencebytakinglearner’sand

driver’sexaminations.

Costs

Thecostofapplicationisdeterminedbythe

wtypeofdriver’slicence:

Heavymotorvehicle:

• Application:ZAR200

• Cardissue:ZAR140

Lightmotorvehicle:

• Application:ZAR135

• Cardissue:ZAR140

Inordertoobtainalearner’slicencetheapplicant

mustpassawrittenexamination.Toobtaina

driver’slicenceapracticalexaminationmustbe

passed.Bothlearner’sanddriver’sexaminations

areconductedatdrivinglicencetestingcentres.

Guide – Doing Business in South Africa

69CONTENTS PAGE

BOWMANS

C.EDUCATION

Typesofschools

Therearetwotypesofschools:independent

(private)andGovernment/State(public).

ThequalityofStateschoolingavailablevaries

considerably.Undertheapartheidregime,

schoolsweresegregatedwiththeschoolsfor

whitechildrenreceivingthemostfundingand

resources.Thishaslargelybeenremediedsince

theappointmentofourANC-ledgovernment.

Costs

AllStateschoolsarepubliclyfundedbutmay

topupfundswithfees,asagreedwithparents

ortheboard.Privateschoolschargefees,which

theydetermine.

Enrolmentrequirements

Thefollowingdocumentsarerequiredforthe

child’senrolment:

• Completedapplicationformfrom

theschool.

• Officialbirthcertificate.

• Immunisationcard.

• Ifthechildismovingfromoneschoolto

another,hisorherlatestschoolreportand

atransfercard.

IfthechildisnotaSouthAfricancitizen,the

followingdocumentsarealsorequired:

• Studypermit.

• Temporaryorpermanentresidencepermit

orproofofapplicationforpermissionto

stayinSouthAfrica.

Taxbenefits

Thepaymentofschoolfeesbytheemployer

constitutesataxablefringebenefitforthe

employeeandnodeductioncanbeclaimed

byanemployeeinrespectofschoolfees.

D.HOUSING

Housingisavailableforrentorpurchasein

SouthAfrica.Varioustypesofhousingare

available–investorswouldbewelladvisedto

contactestateagentsoperatinginthecitiesor

areastheyintendtoliveintodiscusssuitable

housingoptions.

Taxreliefinrespectofhousing

Asubsidyinrespectofaloanisexpressly

includedasataxablefringebenefit.However,

theemployercanprovideanexpatriatewith

residentialaccommodation,iftheexpatriateis

awayfromhisorherusualplaceofresidence

outsideSouthAfricaforaperiodnotexceeding

twoyearsfromthedateofhisorherarrival

inSouthAfrica.Thevalueoftheresidential

accommodationwillbetaxabletotheextent

thatitexceedsZAR25000permonth.

E.IMPORTINGPERSONALPOSSESSIONS

Personalbelongingsmaybeimported

normallyasaccompaniedbaggageinwhich

casetheymustbedeclaredthroughthe

travellersectionandnoformalcustoms

registrationwillberequired.

Personalbelongingsmayalsobeshippedas

cargobyaninternationalmovingcompany.If

thepersonalgoodsareimportedascargo,the

individualmustberegisteredwithcustomsand

mustensurethataformalcustomsclearance

documentissubmittedforthepersonalgoods.

70CONTENTS PAGE

Importduties

ThegoodsoreffectsmaybeimportedintoSouth

Africawithoutthepaymentofcustomsdutyand

VATintermsofrebateitem407.06ofSchedule

No.4totheCustomsandExciseAct,provided

thattheownerhasbeenoutofSouthAfricafor

aperiodofsixmonthsorlonger.

Clearingthroughcustoms

Thefollowingwillberequiredfortheimportation

ofpersonaleffectsandhouseholdgoods:

• Inventoryofthegoods.

• P1.160Declarationinrespectof

unaccompaniedmanifestedhousehold

effects.DA304Item407.06Scheduling

No.4totheCustomsandExciseAct.

• SAD500CustomsDeclarationsForm.

F.MEDICALCARE

Medicalcareisprovidedfreeofchargeorata

subsidisedcostatspecificGovernmenthospitals

andclinics.

SouthAfricansarenotrequiredtopayany

separatefeeorcontributiontowardtheprovision

ofGovernmentmedicalcare.However,for

variousreasons,includingunder-resourcingat

Governmenthospitalsandclinics,manySouth

Africansoptforprivatemedicalcareinstead.

Thelawprovidesforandregulatestheseprivate

medicalschemesandprivatehospitals.

AllmedicalschemesinSouthAfricawhichare

deemedtobeconductingthe“businessofa

medicalscheme”,asdefinedintheMedical

SchemesAct131,1998(MSA),areobligedto

registerundertheMSAandareaccordingly

regulatedbytheMSA.TheCouncilforMedical

Schemes(CMS)isastatutorybodyestablished

intermsoftheMSAtoprovideregulatory

supervisionofprivatehealthfinancing

throughmedicalschemes.

Therearecurrently97medicalschemes

registeredinSouthAfricawitharound

8679473beneficiaries.Medicalschemes

providemedicalinsurancetoanindividual

ifsuchindividualbecomesamemberofthe

schemeandmakesthenecessarycontributions

tothescheme.Therearenostatutory

obligationsonemployerstocontributetoa

medicalschemeonbehalfoftheiremployees.

Itis,however,commonthatemployees

employedinboththeprivateandpublicsector

inSouthAfricawillberequired,intermsoftheir

conditionsofemployment,tobecomemembers

ofamedicalscheme.

Otherthanthemedicalcareprovidedat

Governmenthospitalsandclinicsthereisnot

currentlyacomprehensivenationalhealthcare

systemavailablewhichindividualsarerequired

tocontributetoandthroughwhichtheycan

accesstheirhealthcare.TheGovernmentis

intheprocessofdraftingawhitepaperon

NationalHealthInsurance.Howeveritisunclear

whenthispolicydocumentwillbereleased.

G.MOVINGCOSTS

Thecostswillvarydependingonthecountry

fromwhichtheinvestorisrelocating.

Taxallowances

Provisionismadefortheemployertopaythe

relocationexpensesoftheemployeeona

Guide – Doing Business in South Africa

71CONTENTS PAGE

BOWMANS

tax-freebasis.Thecostsincludedinthe

relocationbenefitare,those:

• oftransportingtheemployees,the

membersofhisorherhouseholdand

hisorherpersonalgoodsandpossessions

fromhisorherpreviousplaceofresidence

tothenewplaceofresidence;

• ofhiringresidentialaccommodationina

hotelorelsewhereforaperiodofup183

days,ifsuchresidentialaccommodationwas

occupiedtemporarilypendingtheobtaining

ofpermanentresidentaccommodation;and

• asmaybeallowedbytheCommissionerin

respectofsettlinginpermanentresidential

accommodationathisorhernewplace

ofresidence.TheCommissionergenerally

allowsatax-freesettling-inallowanceofan

amountequaltouptoonemonth’ssalary.

H.TAXLIABILITY

IntermsoftheSouthAfricanresidencebasis

oftaxation,non-residentsaresubjecttoincome

taxonincomefromaSouthAfricansource.

Theconceptof‘source’isnotdefinedintheITA,

butsection9oftheITAdealswithanumber

oftypesofincomeandstipulateswhensuch

amountswillbereceivedbyoraccruedtoa

personfromaSouthAfricansource.

Shouldsection9notdealwithaspecifictypeof

income,regardmustbehadtotheconceptof

sourceasdevelopedincaselaw.

Section9doesnotdealwithsourceinthe

contextofservicesrendered.However,

inaccordancewithcaselawguidelines,

compensationforservicesrenderedisfrom

aSouthAfricansourcetotheextentthatthe

servicesarerenderedinSouthAfrica.

Anexpatriatewillthusinprincipletopayincome

taxonremunerationreceivedforservices

renderedinSouthAfrica,exceptto

theextentthatreliefisprovidedbyaDTA

(ifapplicable).

Allowancesavailabletoexpatriates

Therearenospecificincomeallowances

availabletoexpatriates,otherthanthebenefits

referredtoinSection XVI Parts D and G.

Intermsofsection23(m)oftheITA,

employees(whichwillincludebothresident

andnon-residentemployees)maynotclaim

expenditurerelatingtoanyemploymentofor

officeheldbythatperson,asadeduction

otherthanthetypesofexpenditureas

providedforinthatsection.Theseexpenses

arequitelimitedandinclude:

• contributionstoapensionfund,

providentfundorrequirementannuity

fund(subjecttothelimitationsasset

outintherelevantsections);

• anyremunerationreceivedbythe

taxpayerwhichhastoberefundedby

thetaxpayer;and

• homeofficeexpensestotheextentthat

itispermissibleintermsofsection23(b)

oftheITA.

Contributionstoamedicalschemealsoqualify

for‘taxcredits’,butthecreditamountsare

verysmallandthusprovideverylimitedrelief.

UIFcontributionsarenotpayablewithrespect

toexpatriateemployeeswhoareobligedto

returntotheirhomecountriesattheendof

theircontracts.

Taxtreaties

Mostofthesetreatiescontainaclausedealing

withthetaxationofincomefromemployment,

whichstipulatesthatremunerationderivedby

anexpatriate(whoistaxresidentintheother

72CONTENTS PAGE

contractingState)willbetaxableonlyinthe

expatriate’shomecountryif:

• theexpatriateispresentinSouthAfricafor

aperiodorperiodsnotexceeding183days

inany12-monthperiodcommencingor

endinginthefiscalyearconcerned[Note:

Some older DTAs refer not to a 12-month

period commencing or ending in the fiscal

year concerned, but provide that the relief

will not apply if the expatriate is present

in South Africa for a period or periods not

exceeding in the aggregate 183 days in the

calendar year concerned.];

• theremunerationispaidbyoronbehalf

ofanon-residentemployer;and

• theremunerationisnotbornebya

permanentestablishmentwhichthe

employerhasinSouthAfrica.

I.WORKCONTRACTS

Employeesshouldhaveanemployment

contract.Iftheemployeeisaforeigner,heror

hisworkpermitislikelytobevalidonlyfora

specifiedperiod.Itisthereforefairlycommon

forforeignerstobeengagedonlyforlimited

periodsoftime.

J.WORKPERMITS

Aninvestormusthaveaworkpermittowork

inthecountry.Anapplicationforaworkvisa

shouldbemadeatthenearestSouthAfrican

embassy,missionorconsulateinthatperson’s

countryofresidence.Thatembassy,mission

orconsulatewilldeterminetheoutcomeof

theapplication.

IfapersonhasenteredSouthAfricaona

touristvisaheorshewillnotbeabletoapply

foraworkvisainsideSouthAfricaasthisisin

contraventionoftheImmigrationAct.

Documentsrequired

• Dulycompletedonlineform.

• Validpassportwhichexpiresinnoless

than30daysafterexpiryoftheintended

dateofdeparturefromSouthAfrica,

andwhichhasatleastoneunusedpage

forentry/departureendorsements.

• Proofofpaymentoftheapplicablefee.

• Ayellow-fevervaccinationcertificate

(ifrequired).

• medicalandradiologyreports;

• Apoliceclearancecertificatefromeach

countrywherethepersonhasresided

sincetheageof18years,including

SouthAfrica.

• Arepatriationdepositequivalenttothe

valueofareturntickettothecountryof

origin/permanentresidence,whichis

refundableafterfinaldepartureoronthe

issuingofapermanentresidencepermit;

• Proofoffinancialmeanstopayforliving

expenseswhileinSouthAfricainthe

formofbankstatements,salaryadvances,

undertakingsbythehost(s)inSouth

Africa,bursaries,medicalcoverorcash

available(includingcreditcardsand

travellers’cheques).

• AnundertakingtonotifytheDepartment

whensuchforeignerisnolongeremployed

orisemployedinadifferentcapacity

orrole.

• AcertificatefromtheDepartmentof

Labourconfirmingthat:

•theapplicanthasqualificationsor

provenskillsandexperienceinlinewith

thejoboffer;

Guide – Doing Business in South Africa

73CONTENTS PAGE

BOWMANS

•despiteadiligentsearch,theprospective

employerhasbeenunabletofinda

suitablecitizenorpermanentresident

withqualificationsorskillsand

experienceequivalenttothoseof

theapplicant;

•thesalaryandbenefitsoftheapplicant

arenotinferiortotheaveragesalary

andbenefitsofcitizensorpermanent

residentsoccupyingsimilarpositionsin

SouthAfrica;

•thecontractofemploymentstipulating

theconditionsofemploymentand

signedbyboththeemployerandthe

applicantisinlinewiththelabour

standardsinSouthAfricaandismade

conditionaluponthegeneralworkvisa

beingapproved;and

•fullparticularsoftheemployer,including,

whereapplicable,proofofregistrationof

thebusinesswithCIPC.

• Confirmation,inwriting,fromthe

professionalbody,councilorboard

recognisedbySAQA,oranyrelevant

Governmentdepartmentconfirmingthe

skillsorqualificationsoftheapplicantand

appropriatepost-qualificationexperience.

Tableoffees

Thefeesapplicabletocertainpermitsfollow

ontheright.Thefeeispayableindifferent

currenciesindifferentcountries.

Time-frame

ApplicationstotheSouthAfricanrepresentative

abroadtakeanaverageof15to45workingdays

fromthedateofsubmission.

ApplicationstotheDepartmentofHomeAffairs

inSouthAfricatakeanaverageof30to90

workingdaysfromthedateofsubmission.

Category Application

Fee(inZAR)

26(a)Worker 1520

26(b)Spouse 0

26(c)Dependant(<21) 0

26(d)Dependant(>21) 1520

27(a)Worker 1520

27(b)ExtraordinarySkills 1520

27(c)Business 1520

27(d)Refugee 0

27(e)Retired 1520

27(f)FinanciallyIndependent

1520

Generalworkpermitsarevalidforthedurationof

thecontractofemployment.Ageneralwork

permitwilllapseiftheholderfailstosubmit

satisfactoryprooftotheDirector-Generalthathe

orsheisstillemployedalongwithproofofthe

termsandconditionsofthejobandthejob

description.Suchproofmustbesubmittedwithin

sixmonthsoftheworkpermitbeingissuedand

everyyearthereafter.

74CONTENTS PAGE

Guide – Doing Business in South Africa

75CONTENTS PAGE

CONTENTS PAGE

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