Starting a business in South Africa can be a daunting task if you don’t know how to go about it. This is why it is absolutely necessary to understand all the requirements of setting up a business in the Rainbow Nation. If you have a dream of doing business in South Africa, we’ve done the legwork for you. This step by step guide provides everything you need to know to make your dream a reality.
But what makes this country so strategic for business in Africa? There are a couple of reasons why South Africa is one of the economic hubs in African. It has a diversified and developed economy, as well as advanced infrastructure, which makes it the second-biggest economy in the continent.
Besides, it is an upper-middle-income nation that evolves rapidly. Therefore, there are many investment opportunities. Its location at the southern tip of Africa makes it a convenient gateway to Sub-Saharan markets and the Indian Ocean. Without further chitchats, let’s dive deep into the procedures you should follow to set up a business in South Africa.
Steps to Starting a Business in South Africa
The process of setting up a business for both locals and foreigners is quite easy with several administrative procedures. Generally, a foreigner does not need any special permits other than a business and work permit. Also, foreign businesses can take up many forms, including partnerships, joint ventures, close corporations, public and private companies, and external companies or branches of foreign companies.
Foreign investors mostly set up private companies or branches while foreign individuals sometimes establish close corporations. However, the use of the latter is limited because authorities are very strict when applying exchange control regulations to such businesses.
Step #1: Reserve a Business NameTo secure a business or company name, you should apply for a reservation of your preferred name. You can also use a previously approved name or the registration number provided by the concerned agency as a name. The quickest way to complete this process is to apply online. The requirement is that you should have up to four names in mind and provide them in order of preference.
Once you apply, they will assign you the first available name. The cost of performing online name reservation is ZAR 50 (approx. $3.3). Paper application, on the other hand, cost ZAR 75 (4.95). This first step can take up to three days to complete. Of course, name reservation is optional if you plan to use your company registration number or previously approved name.
Step #2: Registration of CompanyTo do business in South Africa, you need to register your company with the Registrar of Companies. You do that through the Companies and Intellectual Property Commission (CIPC). Visit the website or register by mail or at the Commission’s branches in Cape Town, Johannesburg, or Pretoria.
The law requires companies to register with CIPC within 21 days of resumption. When using the online registration method, applicants are required to register as customers on the CIPC website. Consequently, you need to pay ZAR 125 (approx $8.25) as registration fees. Then, download the Notice of Incorporation and Memorandum of Incorporation (MOI) forms from the website and provide all the necessary information.
The MOI generally contains details regarding the incorporators, number of directors, and share capital. The information you need to fill under the Notice of Incorporation include:
- Company name and type
- Number of directors
- Incorporation date
- Name reservation number and assigned name
- Registered address (Head office)
- Names the Commission will check
- Financial year-end
- Number of directors
Preparing and drafting articles of incorporation that are legally valid require extra time and legal fees. After the submission of all the documents, company registration in South Africa takes 5 days on average. Once the registration of a company is complete, CIPC sends a confirmation email to the customer. The email contains a link through which you can retrieve the incorporation documents and disclosure certificate.
Step #3: Open a Bank AccountOpening a bank account in South Africa is quick and straightforward. You should open an account in your company’s name at any bank. That will make it easy to manage your company and separate personal finances from business revenue.
Conditions for opening a business bank account may differ from one bank to another. But generally, you will be required to provide proof of the identity of company representatives, address, and original copies of business registration. Applicants will need to provide the following:
1. Certificate of Incorporation or other company documents, if applicable
2. Any document showing business physical address and trade name such as:
- Water or electricity bill
- Rental or lease agreement
- Original company letterhead
3. Bank statement from a different financial institution
4. SARS tax return statement
5. Telkom account
Also, you might be asked to reveal your source of income and activities expected on your business account. Signatories are also required to provide information that proves their official role. The process of opening a bank account for doing business in South Africa can be completed within one day and there are no charges for this service.
Step #4: Registration for Income Tax, PAYE, & SDLRegistration for these taxes is done at the South African Revenue Service (SARS), which is electronically linked to CIPC. Upon registering at the CPIC, the details of your company are automatically shared with SARS. But you must visit the Revenue Service offices in person to register for the following taxes:
1. Income tax
The applicant is asked to produce
- Identity card
- Company registration certificate
- Bank statement
2. PAYE & SDL
Pay As You Earn (PAYE) is the tax an employer is compelled to deduct from employees’ remuneration. Businesses with one or more employees must register for it. The Skill Development Levy (SDL) is paid by employers who expect that their total salaries will exceed ZAR 500,000 (approx. 33,000) monthly. This levy is used by the government to fund training and employers are obligated to pay it monthly to SARS.
To register for PAYE and SDL, you must fill the EMP 101e form. Registration for these taxes can be done online or at SARS offices. This process can take an average of one day at no cost.
Step #5: VAT Registration
Businesses whose annual taxable turnover surpass ZAR 1,000,000 (approx $66,000) must pay VAT. You register for VAT by filling form VAT 101 from your nearest SARS branch. The form must be signed and submitted together with certain original and certified copies of business registration documents. VAT registration is done at zero charges and the process takes 7 days on average.
Step #6: Registration for UIFIf your employees will be working for over 24 hours per month, you must register them with Unemployment Insurance Fund (UIF). This fund provides short-term relief to workers after they lose jobs or are unable to work because of certain reasons. Employers who register for PAYE are also required to register for UIF. As an employer, you are liable for your employees’ registration at no cost.
Two forms, UI-19 for employee registration and UI-8 for company registration, must be filled and submitted to the UIF office in Pretoria. Alternatively, they can be taken to the nearest Labour Centre or sent by email. The process takes about five days, and once completed, a confirmation email is sent to the applicant.
Step #7: Registering workers with the Compensation FundTo do business in South Africa, the law requires employers to register their workers with the Compensation Fund. The aim is to cover employees against occupational injuries, diseases, and death. Registration can be done online by visiting the Department of Labour website. Alternatively, applicants can visit Labour offices to register their workers.
This step can take up to 30 days to complete because an assessment has to be done on the applicant’s business. The aim is to determine its exposure to danger or risk level. You will not pay any fee for this service. To save time, you can do this step simultaneously with UIF registration.
What to know when Starting a Business in South Africa
Can a foreign branch conduct business in South Africa?
Yes. A foreign company can be established in South Africa using its name. This is done by registering it as an external company with the Registrar of Companies. Also, it is not compulsory for an external company to have a local board of directors. However, it must appoint a South African resident who can accept any notice served to the company or other services. Besides, external companies should have local auditors and a registered office in the country.
The process of registering a foreign branch begins with appointing a representative followed by notarizing Memorandum of Incorporation. Next is to register it as an external company through the Companies and Intellectual Property Commission. This service costs ZAR 400 ($26.4) and it might take up to 25 days to complete. Once registered, the applicant should open a bank account and then apply for VAT and other taxes. Lastly, the external company should be registered with the Compensation Fund.
Is the business registration process in South Africa complex?
Not at all. You just need to follow the steps for registering a business. Otherwise, you might find it quite complicated if you don’t know how to go about it.
What are the types of companies in South Africa?
There are five different kinds of companies:
- Public company
- Sole proprietorship
- Proprietary limited liability company
How much does it cost to register a business in South Africa?
The cost of registration is determined by the type of business. But generally, the cost of business registration ranges between ZAR 125 ($8.25) and ZAR 475 ($31.35).
Setting up a business in South Africa is easy, provided you follow the steps correctly. However, you need to be patient because the process can take up to two months. The government encourages both local and foreign investors to set up businesses in the country. Also, the South African government has set up several organizations to facilitate investors in setting up businesses. Seize the opportunity to invest in one of the biggest economies in Africa.