South Africa is an attractive destination to invest in.  It has a sophisticated banking system, along with a legal system that is world class and courts that enforce the rule of law.  The Johannesburg stock exchange (JSE) is the largest stock exchange in Africa.  The JSE has embarked on a project to simplify the listings requirements, using plain language to record concise regulatory objectives, and making the requirements easier to understand and apply.

To establish a business presence in South Africa, one can either incorporate a South African entity or incorporate a foreign offshore entity as a branch or external company.  Both forms of business enterprise are regulated by the Companies Act, 2008, which came into force in May 2011. However, in the case of a branch, the ongoing compliance obligations are far less onerous. The Act recognises that an entity of that nature is governed primarily by the law of its original place of incorporation.

The branch route entails the filing of the foreign entity’s founding documents at the South African Companies and Intellectual Property Commission, together with a number of supporting documents. The powers of that branch entity are governed by its original incorporation documents, and its board of directors will be the board of directors offshore. No “new” entity will be created in South Africa and the foreign entity will be exposed to any debts or liabilities that are incurred in South Africa. It is for this reason that many foreign corporates prefer to set up a separate South African entity as opposed to a South African branch.

To establish a separate South African entity, one can either incorporate a private company from scratch, or purchase an existing shelf company that has already been incorporated. From a timing perspective, it is generally quicker to incorporate a private company from scratch which is tailored to your needs.

Currently both a South African subsidiary and a branch are taxed at 27% on taxable income. Dividends tax at the rate of 20% is payable on any dividends declared and paid by a South African subsidiary to a foreign shareholder, subject to a reduced rate in terms of the application of any double tax agreement, which usually reduces the rate to 5%. There is no branch remittance tax. The branch remittance benefit will need to be weighed up against the disadvantage that the foreign legal entity could be exposed to any debts or liabilities that are incurred by the branch in South Africa. The capital gains tax rate applicable to a South African subsidiary and a branch is 21.6%. Goods and services supplied by a registered vendor in South Africa may be subject to VAT at a rate of 15%. South Africa introduced a global minimum tax, adopting an Income Inclusion Rule and a Domestic Minimum Top-up Tax, with effect from years of assessment commencing on or after 1 January 2024.

South Africa has exchange control regulations which limit the free-flow of capital (including intellectual property) in and out of the country. For instance, non-residents who wish to invest in South Africa by means of loan funding need to obtain prior approval from the Financial Surveillance Department of the South African Reserve Bank, particularly with reference to intended repayment dates and interest rates. Share certificates which are issued to a non-resident shareholder need to be endorsed ‘non-resident’ for exchange control purposes.