South Africa - Establishing an Office South Africa - Establishing an Office
South Africa is ranked 82 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of South Africa remained unchanged at 82 in 2018 from 82 in 2017. Ease of Doing Business in South Africa averaged 54.36 from 2008 until 2018, reaching an all-time low of 82 in 2017 and a record high of 32 in 2008. (Note: A low ranking means that regulations create an impediment for businesses).
https://tradingeconomics.com/south-africa/ease-of-doing-business
The Companies Act of 2011 makes no distinction between locally-owned and foreign-owned companies. Companies may be either private or public. Foreign companies establishing subsidiaries in South Africa must register the subsidiary in accordance with the Act. Under the current law, all companies, whether public or private, are required to be audited. The Act allows private entities to be audited or, alternatively, they may be subject to an independent review of their financial statements. The Act introduced far-reaching changes to the South African corporate regime. A director may now be held liable for losses sustained for a breach of duty, although the new Act includes “prescribed officers” amongst the company’s employees who may be similarly responsible. The category of prescribed officers may expose persons in management positions who are not directors to new obligations and possible personal liability.
Foreign companies may establish a local branch office in South Africa by registering the branch as an "external company." Any nonresident or foreign company must register within 21 days of establishing an office in South Africa. Government approval is not required for registration and there is no requirement that a local entity hold percentage share of capital. The branch company must file annual financial statements within six months after the end of its fiscal year. Branch profits remitted to a foreign firm's headquarters are not subject to withholding tax. The legal liabilities of a branch are not limited to only its South African assets.
To make South Africa a more attractive location for multinational enterprises wishing to invest in Africa, (the dti) introduced a so-called headquarter company (HQC) regime. The rules create a more attractive fiscal and regulatory environment necessary for foreign holding companies seeking entry into Africa, and rules eliminate certain barriers that had previously discouraged foreign investors from using South Africa as a holding company location.
There are three forms of business enterprises in South Africa: a private company (Pty), public company (Ltd), and a legacy close corporation (CC). South Africa has an estimated 400,000 private companies, 4,000 public companies, and still 1.6 million close corporations. Each form has its own setup and reporting requirements as detailed below; the oversight authority is the Companies and International Property Commission (CIPC).
Private Companies: A locally registered private company, identified by the words "Proprietary Limited" (Pty) in its title, is a form commonly used to carry on operations as a subsidiary of a foreign company. Private companies may have up to 50 shareholders but cannot offer shares to the public or transfer them and are not required to have a minimum capital subscription. Private Directors need not lodge a written consent with the authorities and they need not be South African nationals or residents of South Africa. An entity must file the following information with CIPC to register a company: a certified copy of the Memorandum and Articles of Association; the registered address; the name and address of the company's local auditor; and a share capital duty receipt. Private companies are not subject to the statutory meeting and reports requirements of public companies and do not have to lodge their annual financial statements with the CIPC.
Public Companies: Public companies, designated by the word “Limited” or letters "Ltd" in the title, are formed to raise funds by offering shares to the public. Therefore, there is no limit on the number of shareholders in a public company. Public companies are required to file annual financial statements and reports with the CIPC. Public companies that issue a prospectus, must be submit proof to the CIPC that each director has paid full price for the shares, and the number of shares issued equals the stated minimum subscription. For public companies with share capital, CIPC requires the following:
- A director's statement that capital is adequate for business operation, of the directors and officers, and proof of payment of the annual duty.
- A public company may not commence operations prior to receipt of the CIPC’s certification.
Close Corporations: Close corporations, designated by the letter’s "CC" after their names, have been a form of business organization unique to South Africa. Historically, only natural citizens of South Africa could organize a CC and CCs are limited to a maximum of ten persons. Close corporations are subject to fewer registration and operating regulations than public or private companies. However, new legislation forbids the registration of new CCs, and the CIPC has established a process whereby these legacy companies are required to file annual tax returns. As many of these companies are thought to be dormant, this procedure is intended to give CIPC more up-to-date information on how many close corporations are still active.
For more information on company formation and registration, contact:
Companies and International Property Commission (CIPC)
Postal Address:
PO Box 429, Pretoria, 0001
Physical Address:
The DTI Campus, Block F, 77 Meintjies Street
Sunnyside, Pretoria
Tel: +27 (0)12-394-9500;
Fax: +27 (0)12-394-9501
Email Address: info@cipc.co.za
Website: www.cipc.co.za