time zone

GMT+2

official language

English

population

56 910 883

Rand (“ZAR”)

government structure

Executive: The president is both chief of state and head of government with a five year term. Cabinet appointed by the president.

Legislative: South Africa has a bicameral parliament.

Judicial: The apex courts are the Constitutional Court and the Supreme Court of Appeal. Both courts are courts of final appeal save that in the case of constitutional matters an appeal may be brought in the Constitutional Court against a ruling of the Supreme Court of Appeal.  The superior courts consist of the High Courts (provincial and local divisions) and other specialised courts such as Tax courts, the Competition Appeal Court, Labour Court and Labour Appeal Court, Land Claims Court, Electoral Court, Divorce Courts and Equality courts. The inferior courts consist of regional and district magistrates' courts.

Next presidential and parliamentary elections: May 2019.

economic data

The services, mining, and manufacturing sectors make a significant contribution to South Africa’s economy. Mining is an important sector, with South Africa being the world's largest producer of platinum and chromium, among other materials.

The services and tourism, agriculture, forestry and fishing sectors are other key sectors in South Africa.

World Economic Forum Global competitive index (2017-2018): 61/137

World Bank ease of doing business (2018): 82/190

Corruption perception index (2017): 71/176

international and regional organisations and customs unions

• Africa Free Trade Zone
• African Development Bank
• African Union
• BRICS
• Common Market for Eastern and Southern African (“COMESA”)
• Common Monetary Area
• European Union
• G-20
• International Monetary Fund
• Southern African Customs Union
• Southern African Development Community
• The European Free Trade Association
• Trade, Investment and Development Cooperation Agreement
• World Bank

bilateral investment treaties

South Africa has entered into bilateral investment treaties with Argentina, China, Cuba, Czech Republic, Denmark, Finland, France, Greece, Islamic Republic of Iran, Italy, Republic of Korea, Mauritius, Mozambique, Paraguay, the Federation Russian, Sweden and the United Kingdom.

Treaties have been signed with Algeria, Angola, Brunei Darussalam, Canada, Chile, Democratic Republic of the Congo, Congo (Brazzaville), Egypt, Equatorial Guinea, Ethiopia, Ghana, Israel, Libya, Madagascar, Qatar, Rwanda, Senegal, United Republic of Tanzania, Tunisia, Turkey, Uganda, Yemen, and Zimbabwe, but these have not entered into force.

investment-related agreements / institutions

• Multilateral Investment Guarantee Agency;
• Overseas Private Investment Corporation;
• Southern African Customs Union;
• Southern African Development Community Protocol on Trade; and
• World Trade Organization.

intellectual property (“IP”) treaties

A comprehensive list of IP-related treaties signed by South Africa is available at: http://www.wipo.int/wipolex/en/profile.jsp?code=ZA

See the trade marks section below for further detail.

applicable legal regime

South Africa is a constitutional democracy that applies a mixed legal system of Roman-Dutch civil law, English common law, and customary law.

dispute resolution

Commercial disputes are decided by the high courts.

Arbitration in South Africa is governed by the Arbitration Act, which allows the contracting parties to choose dispute resolution procedures by mutual agreement, which can either be outlined in a separate agreement or drafted as a clause of the main agreement.

South Africa is in the process of enacting the International Arbitration Bill which will introduce the UNCITRAL Model Law to international arbitration in South Africa. South African courts are reluctant to interfere with arbitrations and arbitral awards, which makes South Africa an attractive destination to seat arbitrations.

land acquisition, planning and use

There are currently no restrictions on foreigners acquiring the freehold title to land anywhere in South Africa. However, various pieces of legislation are being considered which may introduce restrictions on foreign land ownership rights.

merger control

The Act states that a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm.

The Act sets out examples of what constitutes control for the purposes of merger regulation.

In calculating merger thresholds, South Africa uses financial thresholds based on turnover and / or asset value in South Africa. The intermediate merger threshold where notification is mandatory applies to firms where the sum of the acquiring group’s turnover or assets (whichever is higher) and the target firm’s turnover or assets (whichever is higher) is ZAR600-million; and where the target firm’s turnover or assets (whichever is higher) is ZAR100-million. The large merger thresholds are set at ZAR6.6-billion for the sum of the acquiring group’s turnover or assets (whichever is higher), and the target firm’s turnover or assets (whichever is higher); and ZAR190-million for the target firm’s turnover or assets (whichever is higher).

Filing fees are ZAR150 000 for an intermediate merger and ZAR500 000 for a large merger.

The South African competition authority will take public interest considerations into account in making a determination on a merger.

South Africa is a pre-implementation regime, therefore approval must be sought from the South African competition authorities prior to implementation of the proposed transaction.

Any person who implements a merger in contravention of the Act commits an offence and an administrative penalty of an amount not exceeding 10% of the merging parties’ annual turnover in South Africa and its exports from South Africa during the firms’ preceding financial year is imposed.

The Competition Act prohibits horizontal and vertical agreements between firms, concerted practices by firms, or decisions by an association of firms which have the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect

Cartel conduct (such as price fixing, market division and collusive tendering) and minimum resale price maintenance are prohibited by the Act.

The Act prohibits abuses of dominance.

The South African authority operates a corporate leniency policy which offers immunity to a firm part of a cartel for its participation in a cartel if the firm is first to voluntarily disclose the existence of a cartel and co-operates with the authority in its investigations.

A firm that engages in a restrictive horizontal or vertical agreement or abuses its dominant position commits an offence and an administrative penalty of an amount not exceeding 10% of the firm’s annual turnover in South Africa and its exports from South Africa during the firm’s preceding financial year is imposed.

employment requirements

The employment of foreign nationals who do not have permanent residence is governed by the Immigration Act and regulations published pursuant thereto. The Refugees Act and Regulations also make provisions for asylum seekers and refugees to work. 

The most commonly utilised work visa categories in terms of the Immigration Act and Regulations are:

• critical skills work visa;
• general work visa;
• intra-company transfer visa; and
• corporate work visa.

The Immigration Act also provides various other mechanisms to allow work, such as working on a study visa, retired person’s visa or various sub-categories of visitor’s visas.

An employee may be seconded to work in South Africa.

It is not a requirement for an employee to be employed by a local South African entity when performing services in South Africa, subject to immigration requirements. It should also be noted that, in such circumstances, there may be an obligation to register as an external company in South Africa with the Companies and Intellectual Property Commission (“CIPC”) and to comply with certain reporting obligations imposed on external companies in terms of the Companies Act.

Fixed-term employment contracts are legally permissible in South Africa, but should be approached with circumspection. With effect from 1 January 2015, the Labour Relations Act (“LRA”) was amended significantly, including in respect of fixed term employment contracts. The amendments are aimed at providing additional protection to fixed-term contract employees, particularly those who earn remuneration below the earnings threshold determined from time to time. Generally speaking, fixed-term contracts that exceed three months should only be used if the employee’s work will be of a limited or definite duration, or if there is a justifiable reason for the fixing of the term of the contract. Furthermore, an employee employed in terms of a fixed term contract exceeding three months must be treated no less favourably than a permanent employee performing the same or similar work, unless different treatment can be justified. A failure to comply with the requirements set out in the LRA may result in fixed-term contract employees being deemed to be indefinite employees.

The LRA was, with effect from 1 January 2015, also amended significantly in respect of temporary employment services (i.e. labour broking). While labour broking is permitted, it should also be approached with circumspection, particularly in circumstances where labour broking employees (who earn remuneration below the threshold) will perform services to a client for longer than three months and will not perform “temporary services” (as defined). In these circumstances, and provided that certain requirements are met, the client will be deemed to be the employer of the labour broking employees and must treat the labour broking employees on the whole no less favourably than employees of the client who perform the same or similar work, unless different treatment can be justified.

There are no statutory pension/provident fund or medical aid schemes in South Africa.

An employer is not legally obliged to provide such benefits to employees, although it is common practice to do so.

Restraint of trade agreements are prima facie valid and are generally enforceable, provided that the enforcement would not be contrary to public interest and/or unreasonable.

A court will only enforce a restraint of trade if it can be shown that the employer has a proprietary interest worthy of protection (i.e. trade secrets or customer connections).

investment regime

Foreign investment is not regulated in South Africa, but various pieces of specific legislation may be relevant to foreign investors.

A key consideration for investors is the Broad-Based Black Economic Empowerment (“B-BBEE”) Act which, together with the codes of good practice, set out the legal framework for broad-based black economic empowerment of black people (being black Africans, coloured and Indians who are South African citizens) in four interrelated contexts:

• direct empowerment, which includes increasing the number of black people who manage, own and control enterprises and productive assets;
• human resources and skills development by achieving equitable representation in all occupational categories and at all levels of a workforce;
• indirect empowerment through the promotion of preferential procurement from empowered enterprises and investment in enterprises owned or managed by black people; and
• involvement in social development initiatives.

The codes of good practice issued by the Minister of Trade and Industry and transformation charters developed by various industries monitor compliance against a general “scorecard followed by all industries.

Compliance with the B-BBEE targets provided for in the codes is not strictly speaking mandatory; however, the B-BBEE Act and codes operate through the mechanism of direct and indirect incentives to comply.

registration / licensing requirements

No specific licensing requirements apply to foreign investors.

non-industry specific registrations/
licences

The following general non-industry specific registrations/licences may be required:

There is an electronic link between CIPC and SARS and when a company is incorporated, or a foreign company is registered as an external company with CIPC, SARS will automatically issue an income tax number to the company. 

A company must also register as an employer (if applicable) for employees’ tax purposes and for value added tax ("VAT"), if it is carrying on an enterprise and has a minimum turnover of ZAR1-million over a 12-month period.

Employers are required to register for and contribute a SDL. Registration is done at SARS at the same time as registering as an employer for employees’ tax purposes.

Employers and employees must register for and contribute to the UIF.  Registration is done at SARS at the same time as registering as an employer for employees’ tax purposes.

Non-resident employers can register directly with the UIF.

Industry-specific licences may also be required.

Various incentives are available to operations in special economic zones, including a reduced corporate income tax rate of 15%, being treated as a customs-controlled area with duty-free and VAT privileges and accelerated depreciation allowances on capital structures.

The South African government encourages public private partnerships at all three levels of government (national, regional and local) in order to reduce infrastructure backlogs in both urban and rural areas, and grants are available under the Support Programme for Industrial Innovation as a subsidy towards the cost of developing new products or processes.

The Department of Trade and Industry has a Manufacturing Competitive Enhancement Programme which provides incentives in the manufacturing sector along with grants of up to ZAR50-million. 

Investments in energy-efficient equipment for production of renewable energy and biofuels qualify for a 50:30:20% accelerated depreciation allowance. For electricity generated from photovoltaic solar power plants with a generating capacity not in excess of 1 MW, the allowance is enhanced to 100% of cost in the first year.

South Africa has also introduced a headquarter company regime to attract the establishment of intermediary foreign investment or finance companies, which qualifies for certain tax reliefs.

In terms of the shipping tax regime, qualifying companies are entitled to exemptions from income tax, capital gains tax, dividends tax and cross-border withholding tax on interest and have flexibility in terms of functional currency.

South Africa’s foreign exchange regulations, in terms of which all flows of capital in and out of the country are regulated, are administered by the Financial Surveillance Department of the South African Reserve Bank (“SARB”) and “authorised dealers” (commercial banks) appointed by the SARB.

Exchange control is not directly imposed on non-residents, however, exchange control is imposed on residents and transactions between residents and non-residents.

Where a foreign company registers with CIPC as an external company, due to either having employees in South Africa or conducting business in South Africa, the South African operations of the foreign company will be subject to exchange rules and regulations.

Investments in the equity of South African companies must be reported to an authorised dealer and share certificates evidencing such investment must be endorsed as “non-resident” to enable the remittance of any dividends or proceeds arising from the sale of the investment.

Pre-approval is required for loan capital (including the repayment terms and interest rate) introduced by non-residents as part of an investment in South Africa. The interest rate is generally not allowed to exceed 2% above the prevailing South African prime rate or its foreign currency equivalent.

When 75% or more of the voting shares, capital, assets or earnings of a local company or a local branch (an external company) are directly or indirectly vested in, or controlled by, a non-resident, a local loan may not be made or granted to the company without the prior approval of the SARB.

Pre-approval is required for royalty and technical service fee agreements, in terms of which such royalties or service fees may not exceed arm’s length rates charged under comparable agreements.

Management, administration or group service fees paid by South African companies to foreign associates and connected persons do not require pre-approval, but when such fees are to be remitted, documentary evidence (e.g. a written contract) confirming the amount involved must be provided to an authorised dealer.  Fees will typically only be remitted if they are based on the cost of providing the services and a benefit has, in fact, been derived from the services in South Africa.

South Africa is part of the South African Rand Common Monetary Area (“CMA”) together with Namibia, Lesotho and Swaziland. Investments and transfers of funds from South Africa to other CMA countries are not subject to exchange control regulations.

types of entities available for foreign investment

The main entities available for foreign investment are:

• co-operatives;
• external company (branch office);
• partnership;
• personal liability company (Incorporated);
• private limited liability company (Proprietary Limited);
• public company (Limited);
• sole trader; and
• trading trust.

minimum number of shareholders

A minimum of one shareholder is required for a private limited liability company.

In terms of the South African Companies Act, there is no requirement for shareholding by South African citizens or companies, however please refer to the B-BBEE requirements as referred to above.

minimum share capital

There are no minimum authorised capital requirements for companies incorporated in South Africa. In practice, a private limited liability company will generally be registered with an authorised share capital of at least 1 000 no par value shares.

directors

A company must have at least one director.

There is no general requirement to have a South African citizen/resident director, however, please refer to the B-BBEE requirements as referred to above and certain sectors may impose additional requirements.

A private company is not required to appoint a company secretary, but public and state-owned companies are obliged to appoint company secretaries.

If the company does appoint a company secretary, the person or firm must be resident in South Africa.

In terms of the Income Tax Act, a senior official of the company resident in South Africa is required to be appointed as the public officer of a company.

Public and state-owned companies are obliged to appoint auditors.

A private company is only required to appoint an auditor if it is stipulated in terms of its Memorandum of Incorporation or it exceeds the minimum “public interest score” calculated with reference to:

• the average number of employees of the company during the financial year;
• the amount of third party liability of the company at the financial year end;
• the company’s turnover; and
• the number of individuals at the end of the financial year known by the company to directly or indirectly have a beneficial interest in any of the company's issued securities.

If an auditor is appointed, it must be a person in accordance with the Auditing Profession Act.

A company must have a registered office and a postal address in South Africa to which all communications and notices may be addressed.

The company may not use the address of the lawyers or accountants / auditors as a registered address.

shelf companies

There are shelf companies available for purchase in South Africa.

tax system

South Africa has a residence-based tax system in terms of which residents are taxed on their world-wide income and non-residents on income from a source in South Africa.

corporate residence

A company is deemed a resident in South Africa if it is incorporated or established in South Africa, or if its place of effective management (the Organisation for Economic Co-operation and Development (“OECD”) interpretation of the term) is in South Africa, provided that it is not deemed to be exclusively resident in another country in terms of a relevant double tax agreement.

corporate tax rate

Resident companies and permanent establishments of foreign companies are subject to a standard corporate income tax rate of 28%.

Small business corporations are taxed on a sliding scale.

A formula is applied to taxable income from gold-mining operations which reduces or increases the normal tax rate in accordance with the relationship between taxable income derived from mining and gross mining revenue.

Special and complex rules apply in respect of the taxation of long-term insurance companies. Each company is split into separate funds, which are taxed separately, either at 0%, 28% or 30%.

CGT is levied at the applicable corporate tax rate on 80% (66.6% for periods immediately prior to 1 March 2016) of the aggregated net capital gains realised by a resident company during a tax year, resulting in an effective capital gains tax rate of 22.4%.

Non-residents will be taxed on the disposal of immovable property situated in South Africa, or any right or interest thereto. This includes the disposal of equity shares in any company (resident or non-resident) where more than 80% of the value of the equity shares being disposed of is attributable, directly or indirectly, to South African immovable property or rights to this (held otherwise than as trading stock) and more than 20% of the equity shares are held by that disposing person together with connected parties.

Certain profits of CFCs are included in the taxable income of resident shareholders which holds 10% or more of the voting rights / participation rights in that CFC, in proportion to the shareholding held in the CFC, and taxed at the corporate income tax rate.

A CFC is a foreign company and in which >50% of the participation rights / voting rights are held / exercisable by South African residents who are not headquarter companies.

A full exemption from imputation is available where the CFC is “highly taxed” (simplistically stated, taxed at a rate of ≥ 21%).

Alternatively, specific income streams will be exempt where such income is “active business income” (e.g. not rental, royalties, dividends, interest) and non-diversionary in nature (income received from South African connected parties should be tested under the diversionary rules).

withholding tax (“WHT”) rates

double tax agreements (“DTAs”)

South Africa has DTAs in force with: Algeria, Australia, Austria, Belarus, Belgium, Botswana, Brazil, Bulgaria, Cameroon , Canada, Chile, China, Congo (Dem. Rep.), Croatia, Cyprus, Czech Republic, Denmark, Egypt, Ethiopia,  Finland, France, Germany, Ghana, Greece, Grenada, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kenya, Korea (Rep.), Kuwait, Lesotho, Luxembourg, Malawi, Malaysia, Malta, Mauritius, Mexico, Mozambique, Namibia, the Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Slovak Republic, Spain, Swaziland, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Tunisia, Turkey, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Zambia, and Zimbabwe.

South Africa signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

Losses may be carried forward indefinitely and set off against income earned in the future, provided that the company trades in each year. If a company fails to carry on a trade in a specific year, the loss and the carry-forward thereof is forfeited permanently.

Capital losses are ring-fenced and may only be set off against capital gains and not against income earned on revenue account. Unutilised capital losses may be carried forward to the following year.

South Africa’s transfer pricing provisions apply to cross-border transactions between “connected persons”, where, simplistically stated, the one person is taxable in South Africa while the other person is taxable in another jurisdiction.

A connected person in relation to a company is:

• any other company that forms part of the same group of two or more companies in which one company directly or indirectly holds shares in at least one other company with the effect that more than 50% of the shares of each controlled group are directly held by the controlling group company, one or more controlled group companies or any combination thereof and the controlling group companies or any combination thereof and the controlling group company directly hold more than 50% of the shares in at least one controlled group;
• any other company with a minimum 20% holding in the equity share capital in the company;
• any person, excluding a company, who individually or jointly with a connected person directly or indirectly holds at least 20% of the company’s equity share capital or voting rights; or
• a company managed or controlled by connected persons of the company.

The taxable income or tax payable from any of the above transactions should be calculated as if the transaction had been entered into between independent persons dealing at arm’s length.

South Africa does not have specific thin capitalisation rules. Thin capitalisation is to be dealt with as part of the general arm’s length-based transfer pricing provisions.

The safe harbour debt / equity ratio of 3:1, provided for in the SARS Practice Note 2, which was used to measure excessive financial interest, is no longer applied.

The extent of the debt must be measured against the arm's length principle as a first test and only then should it be considered whether the interest rate charged is an arm's length price.

A portion of the interest paid to a connected person will be disallowed where the total financial assistance was excessive in relation to the fixed capital contributed by such a connected person.

The income tax rates applicable to resident individuals (1 March 2018 - 28 February 2019) are:

South Africa does not have a statutory social security system.

However, employers and employees must make monthly contributions to the Unemployment Insurance Fund (“UIF”) for each of their employees at a rate of 1% of the worker’s monthly remuneration (certain exclusions from remuneration are available).  The maximum insurable amount is ZAR178 464 per annum (or ZAR14 872 per month) – i.e. if workers earn more than these amounts, the 1% is applied to these ceiling amounts.

Employers may also make contributions to benefit funds (i.e. pension, provident, retirement, medical aid, etc.) in respect of their employees and directors.

A Skills Development Levy (SDL) is payable by employers at a rate of 1% of remuneration.

Employers paying annual remuneration of less than ZAR500 000 are exempt from paying a SDL. 

A transfer duty is imposed under the Transfer Duty Act on the acquisition of real property (i.e. land and buildings thereon) and certain interests in land.

Securities transfer tax is imposed on any transfer of either a listed or unlisted security of a South African incorporated company, or a Johannesburg Stock Exchange (“JSE”) listed security of a foreign incorporated company. The applicable rate is 0.25% on the taxable amount, which is generally the higher of the consideration given for the transfer of a security or the market value of the security.

VAT is levied on the value of:

• the supply of goods or services by a vendor in the course or furtherance of his/her enterprise;
• the importation of goods into South Africa by any person; and
• the supply of imported services by a non-resident to a resident acquiring the services otherwise than for taxable purposes.

A person must register as a vendor for VAT if it is carrying on an enterprise and has a minimum turnover of ZAR1-million over a 12-month period. Such registration requirements also extend to South African permanent establishments of foreign companies and partnerships.

Output VAT is to be accounted for in terms of a reverse-charge mechanism where a non-resident service provider renders services to a South African recipient to the extent that such services are acquired other than for purposes of making taxable supplies.

international conventions, treaties and arrangements

• Paris Union
• Trade-Related Aspects of Intellectual Property Rights
• World Intellectual Property Organization Convention
• World Trade Organization

classification

The International Classification of goods and services applies. A separate application is required for each class of goods and / or services.

categories of trade marks

Provision is made for:

• service marks;
• certification marks; and
• collective marks.

• filing requirements

• Simply signed Power of Attorney;
• electronic copy of the mark; and
• priority document (if applicable), with verified English translation.

procedure

Applications are examined as to formal requirements.  Thereafter, applications are examined as to inherent registrability and conflict with prior existing registrations / applications. Once accepted, applications are advertised.

oppositions

Opposition may be lodged within three months following the date of advertisement of the trade mark application.  Extension of the opposition period is possible at the discretion of the Registrar (first extension), and thereafter upon agreement between the parties.