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Legal obstacles to doing business in South Africa

southafrica

So you're considering businesses for sale in South Africa?

What follows is a summary of the bureaucratic and legal hurdles an entrepreneur must jump to do business in Africa's wealthiest country.

To move to South Africa entrepreneurs must file for a business visa. The main factor in deciding whether to grant a visa, according to the Department of Home Affairs' immigration services, is the likelihood of the pending business creating jobs for South African residents, and the applicant's entrepreneurial skills and experience must be evident.

Entrepreneurs should have a minimum of SAR2.5m (£200,000 or $314,000) to invest in a business venture, which must be in the national interest of South Africa. 

Applying for a business permit is another important step, which requires a business plan outlining the feasibility of the company and confirmation that at least five indigenous South Africans, or permanent residents, will be employed in the business. 

Applicants must also register with the South African Revenue Service (SARS), which collects revenue and ensures compliance with the country's tax law.

Registration and documentation

Impending foreign businesses need to register their company's name and pay a SAR50 registration fee, which can be done online with the Registrar of Companies. Once the Companies and Intellectual Property Registration Office has approved the company name, which usually takes three to five days, the reservation is then valid for two months. 

Aside from filing the company's name, there are many other forms to file and documents to submit before the Registrar approves a company. Here is the tick-list for all business owners wanting to set up a new business in South Africa:

  • Form CM22 - notice of registered office and postal address 
  • Form CM29 - register of director and information pertaining to a company secretary
  • Form CM31 - consent to the appointment of the auditor; every South African company must appoint a South African auditor
  • Forms CM27 - consent to the appointment of the company secretary
  • Form CM46 - certificate to commence business and legally trade; this certificate costs SAR60
  • Form CM47 - statement by each company director indicating there is adequate capital in the company for the purpose of business
  • Letter from the CIPRO - confirming the business name has been approved and reserved
  • Signed set of the certificate of incorporation - Memorandum and Articles of Association together with the necessary signatories' pages; the minimum fee payable on a formation of a company is R415

It normally takes between five to seven days to file and receive all this paperwork, along with a SAR350 administrative fee.

Prospective business owners must also open a South African bank account. To do this the applicant must provide proof of identity for company directors and a copy of the original business documents. 

Tax and employment

Prospective business owners need to register with the local receiver of revenue (SARS) for income tax, VAT and employee withholding tax (PAYE and SITE). This registration usually takes around 12 days to complete.

Businesses with annual income of more than SAR1m need to register for VAT, by means of a VAT101 form. Once a company passes the legislation process, the relevant SARS office is notified and an income tax number is allocated to the company.

The business must also register as an employer using an EMP101e form, which caters for the necessary registration of all withholding taxes applicable to the taxpayer, including PAYE (Pay as You Earn) employee tax, SITE (Standard Income Tax on Employees) or UIF (Unemployment Insurance Fund).

If an employee earns less than SAR60,000 then SITE is payable and if the employee earns more than R100,000 PAYE is payable. Any employer who is liable to register with SARS for the payment of employees' tax is also required to register for purposes of paying unemployment insurance fund contributions. 

VAT applications

SARS also assess the feasibility of the business in regards to VAT applications. The company must appoint a public officer who is a South African resident. SARS performs an interview with the public officer and also carries out a physical inspection of the business premises before the VAT registration is processed.

Applicants must submit their VAT registration in person and carry proof of identity, bank particulars and documentation validating the business address.

Women in business

The Gender and Women Empowerment Unit established a scheme known as the South African Women Entrepreneur's Network (SAWEN). The SAWEN supports female entrepreneurs in overcoming obstacles and barriers to their business aspirations.

Gender discrimination still constrains the ambitions of female entrepreneurs, although female-owned enterprises do contribute an increasing share of South Africa's national revenue. 

 


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