Investing in South Africa – South Africa is considered the most advanced, diversified and productive economy in Africa. With one of the most business-friendly environments on the continent, South Africa is a logical and attractive option for international companies looking to enter the African market. The country has over 60 million inhabitants and covers 1.22 million square kilometres.
What is the current economic situation in South Africa?
South Africa’s real economic growth is expected to reach 2.1 % (percent) in 2022, assuming that the country’s economy returns to pre-pandemic production levels. Over the next three years, GDP growth is expected to average about 1,9 % (per cent).
On the production side of the economy, eight out of ten sectors recorded positive growth in the first quarter of 2022, with the manufacturing sector growing the most. The strong increase in manufacturing output was mainly driven by a rise in the production of petroleum and chemicals, food and beverages, and metals and machinery.
What are the requirements to distribute products and services in South Africa?
The basic requirements are a registered address, a bank account and a tax number. Depending on the industry, you may need to register with certain South African regulatory authorities to obtain a trading licence (for example, medical devices require registration).
How does the import procedure work and what are the associated costs?
To import goods into South Africa, importers must first register with the South African Revenue Service (SARS). You only need to apply for an import permit if you intend to import controlled goods, used goods, waste or scrap. The next step is to decide how you want to transport your goods to South Africa. Once the mode of transport has been decided, a number of documents are required depending on the type of product to be imported and the mode of transport chosen.
The EU-SADC Economic Partnership Agreement, which came into force in 2004, resulted in the tariff rate of much of the goods produced in the EU being reduced to as low as 0%.
There are some complex procedures that need to be followed and importers are advised to use customs agencies as specialists to handle these formalities for them. Otherwise, there is a risk of goods getting stuck in customs due to incorrect documentation or procedures.
What are the routes by which goods reach South African end-users?
There are four main modes of transport: sea, air, road and rail. In South Africa, road transport accounts for the majority (80 %) of goods, followed by shipping and rail.
To what extent is a permanent establishment necessary to start business activities in South Africa?
There are alternative methods of expanding your business into Africa without establishing a company in South Africa. For example, a foreign company can use distributors or sell its products through e-commerce platforms and ship them to Africa after receiving an order. The other option is to enter into an agreement with an independent local agency whereby the latter acts as the employer of a sales representative in South Africa who carries out the market development activities in South Africa on behalf of the foreign company. In this case, the foreign company is charged a service fee and a commission for the services rendered.
Company incorporation in South Africa is basically governed by the following two Acts:
The Companies Act states that foreign companies that conduct business activities in South Africa for a period of more than 6 months must form a company in South Africa.
The Income Tax Act states that if permanent business activities are commenced in South Africa, incorporation must also take place. For example, if a company has an official company address or office premises in South Africa, this is considered a permanent establishment and therefore the commencement of permanent business activities.
Which South African industries have the greatest potential for foreign investors?
The fastest growing industries in South Africa include the pharmaceutical and healthcare sectors, the renewable energy sector, the mining sector, and agriculture and agro-processing.
To what extent is local production or final assembly in South Africa worthwhile?
When investing in South Africa, local production or final assembly in South Africa is advantageous as it removes trade barriers when trading within the African continent. Products manufactured/assembled in South Africa have the advantage of complying with the African Continental Free Trade Area (AfCFTA) rules of origin. Only goods originating from a country that is part of the free trade agreement qualify for duty-free and trade barrier-free movement between other member countries. Products manufactured or assembled in South Africa can move freely between other member countries.
Production or final assembly in South Africa also helps with local sales. Especially in government tenders, local production or final assembly is advantageous as South African products and products processed in South Africa are preferred.
Can you start a business in South Africa as an outsider?
Yes, there are no restrictions for foreign investors who want to set up a company in South Africa when investing in South Africa. The incorporation falls under the Companies Act of 2008. Foreigners can also be appointed as directors of a South African company or be shareholders in the company. The address of a director or shareholder does not have to be a South African address.
What is the minimum share capital requirement?
There are no minimum capital requirements for foreign investment in South Africa. However, we recommend that companies are incorporated with R1000.00, which is equivalent to 100 shares. A company limited by shares must have at least one shareholder, who may be a director. The number of shareholders who can be appointed is limited.
What types of companies are there in South Africa?
Foreign companies that are liable to tax in South Africa generally have two options: setting up a dependent branch office or a subsidiary (Private Limited Company). These options differ significantly from a legal and tax perspective and have certain compliance implications. The decision as to which legal form to establish in South Africa largely depends on:
- whether the foreign company is seeking to establish substantially the same company in more than one jurisdiction or whether the foreign company is seeking to establish a company with separate legal identity; and
- what the company’s tax considerations are
Forming a subsidiary with share capital and limited liability of the shareholders is the most popular choice of our international clients. Mainly because the South African company has a separate legal identity from the foreign company. From a liability perspective, a subsidiary offers the flexibility that the shareholding in the South African company can be adjusted to allow for participation by a BBBEE partner. Such a shareholding enables the company to operate competitively in South Africa.
Is a visa required to start a local business?
Foreigners do not need a visa for starting a business and investing in South Africa. However, when travelling to South Africa for business purposes, you will need to apply for a visa. There are three different visas you can apply for: a work visa, a critical skills visa or a intra-company transfer visa. – The type of visa application depends on how long you are staying in South Africa for business purposes.
To what extent can one rely on local contacts and experts for market entry?
Using the services of local experts such as InterGest South Africa can be of great benefit to a foreign company. Experts have extensive knowledge of local laws and regulations that companies must comply with. They can also help you find local contacts and business partners. While the language of business is English, South African business culture is different from that of other countries. An expert to guide you on the right path can save you a lot of time, money and effort.
What about access to other markets in Southern Africa?
For more than a decade, international companies have chosen South Africa as their preferred entry point into Africa. Investing in South Africa – thanks to the country’s strong financial institutions, South Africa is a leading destination for foreign direct investment on the continent and attracts investors looking to establish their headquarters in Africa. This is because South Africa is logistically located to facilitate trade with the rest of Africa.
In addition to being a member of the AfCFTA, South Africa is also a member of the South African Customs Union (SACU) and as such, products imported or manufactured in South Africa can be freely traded within the Union, which also includes the countries of Namibia, Botswana, Eswatini and Lesotho.
