Company Formation in South Africa

  • Overview

    South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that is the 18th largest in the world; and modern infrastructure supporting a relatively efficient distribution of goods to major urban centres throughout the region. Growth was robust from 2004 to 2007 as South Africa reaped the benefits of macroeconomic stability and a global commodities boom but began to slow in the second half of 2007 due to an electricity crisis and the subsequent global financial crisis’ impact on commodity prices and demand.

    GDP fell nearly 2% in 2009 but recovered in 2010-11. Unemployment remains high and outdated infrastructure has constrained growth. State power supplier Eskom encountered problems with aging plants and meeting electricity demand necessitating “load-shedding” cuts in 2007 and 2008 to residents and businesses in the major cities. Daunting economic problems remain from the apartheid era – especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation.

    South Africa’s economic policy is fiscally conservative focusing on controlling inflation and attaining a budget surplus. The current government largely follows these prudent policies but must contend with the impact of the global crisis and is facing growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.

  • Advantages of incorporating business in South Africa

    South Africa is the highest-ranked African country and third-placed among the BRICS economies in the World Economic Forum’s (WEF’s) 2012 Global Competitiveness Index, ranking 52nd out of 144 countries surveyed while placing third overall for financial market development.

    South Africa is ranked 35th out of 183 countries for ease of doing business according to Doing Business 2012, a joint publication of the World Bank and the International Finance Corporation.

    Over the past decade, substantial increases in government social service spending have helped reduce poverty, but now the government has begun to place a greater emphasis on infrastructure, employment and economic growth.

    South Africa’s success in reforming its economic policies is probably best reflected by its GDP figures, which reflected an unprecedented 62 quarters of uninterrupted economic growth between 1993 and 2007, when GDP rose by 5.1%. With South Africa’s increased integration into the global market, there was no escaping the impact of the 2008-09 global economic crisis, and GDP contracted to 3.1%.

    The country is politically stable and has a well-capitalised banking system, abundant natural resources, well developed regulatory systems as well as research and development capabilities, and an established manufacturing base.

  • Tax Regime in South Africa

    The corporate tax rate is 28%. South Africa has a progressive income taxation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State than the poor. Individual income tax rates in South Africa range from 18% (for income below R160 000 p.a) to 40% (for amounts over R617 000), although the tax threshold of R63 556 (for persons below age 65) means that anyone earning less than this amount pays no income tax. Individuals earning less than R120 000 a year do not need to declare their income and do not need to submit an income tax return so long as their remuneration is from a single employer, their remuneration is for the full tax year and no allowance was paid, from which PAYE was not deducted in full with regards to travel allowance. Currently VAT is set at 14%.

  • Types of Entities

    Foreigners wishing to conduct business in Saudi Arabia may do so in one of the following ways:

    Sole Proprietor: The simplest of business entities, a sole proprietor trades under his/her own name, with no separation of assets and liabilities. For example, Joe Soap, an accountant, trades as Joe Soap Accountants. There being no separation between Joe Soap’s personal assets and liabilities and those of his business, Joe Soap Accountants, he benefits from all the profits and assets accumulated through his business. However, he is also held personally liable for any debts that the business incurs. In other words, his sole proprietorship does not enjoy limited liability.

    Unlike sole proprietorships, the following business entities are distinct juristic persons, with a separation being made between the assets and liabilities of the owners/shareholders, and those of the company. In other words, they do enjoy limited liability.

    Partnerships: A partnership has a minimum of two and a maximum of 20 partners, each of whom is expected to contribute money, skill or labour to the business. When forming a partnership, a “partnership agreement” is essential .This agreement deals with formation, profit sharing, salaries, banking arrangements, changes of partners, liquidation and partners’ responsibilities. Like a sole proprietorship, a partnership doesn’t have limited liability; every partner is liable for any debts.

    Private Company, or (Pty) Ltd: This business entity may be founded and managed by just one director (known as a One-Man Company), and must have at least one shareholder, but no more than 50. For example-Soap Accounting Services (Pty) Ltd.

    Personal Liability Companies (Inc.): These business entities in which both current and previous directors may be held jointly and severally liable for any debts and liabilities which occur during their time in office. This form of business enterprise is most often used for firms of professionals, such as doctors, lawyers and accountants. For example, Joe Soap’s accounting firm, Soap, Smit and Sithole, Inc.

    Public Companies (Ltd.) Business entities which issue shares, and are often listed on a stock exchange. Public companies are liable to shareholders and management is invested in a Board of Directors. For example, Joe Soap takes his company public, and sells shares on the Johannesburg Stock Exchange. He names this business enterprise Soap Enterprises Ltd.

    State Owned Companies (SOC)- are business entities which are either state-owned, like Metrorail, or owned by a municipality, like eThekwini Electricity.

  • Time Period

    It usually takes about 5 to 6 weeks to incorporate a company in South Africa.

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