There are number of important issues to consider for existing business, outside of South Africa, that wish to set up a South African Branch or commence local operations.
In the first instance decisions must be taken on the structure that should be used in order to do business.
Important factors that influence the decision making process are:
- Ownership structure;
- Legal structure;
- Set up requirements;
- Ongoing legal requirements (like audits);
- Foreign exchange.
The business can be set up in the following ways:
- Branch – External company;
- Foreign owned South African Company.
1. Branch of an Offshore Company – External Company
In the case of a South African branch being selected, the branch is registered within the jurisdiction of South Africa, although the shareholding and directors are situated in the country of origin.
The branch obtains a South African registration number.
The international company’s “Memorandum of Incorporation” is also registered in South Africa and the company would have to operate according to the rules laid out by this framework.
A South African resident must be appointed and registered with the corporate registration authority (CIPC). This person is responsible for the operations and compliance of the South African branch.
There is no need for any shareholder meetings since there are no shares issued by this entity. Furthermore, no director meetings are required as long as the entity (branch) does not have any registered directors locally (South Africa).
An auditor must be appointed for the branch. The scope of the audit is limited to the income statement of the South African operations, since there is no balance sheet required. The audit is mainly for income tax purposes. In addition, it can also be used by the international company’s auditors.
The branch will be taxed at a rate of 28% on net profit.
Profit can flow to the international company as soon as all taxes on the profit are paid. When it comes to obtaining local finance, there are certain restrictions on the company’s financing leverage. This limitation is currently 1 to 1, thus 50% financing structure.
2. Local Branch South African Company Owned by an International Company (Full Subsidiary)
This entity operates in the form of a South African private company. Shares are issued by this company and taken up by the international company.
A South African resident must be appointed and registered with the corporate registration authority (CIPPC).
Regular shareholder meetings must be held. However, these meetings need not necessarily be held in South Africa, and thus can also take place abroad.
An auditor must be appointed for the company. The scope of the audit is unlimited. The audit is mainly for income tax & shareholder purposes.
The net profit will be taxed at a rate of 28%. Once a dividend is declared (profit taken out of the company), there is a withholding tax of another 15%.
All registered loans from a foreign source (capital invested) can be repaid at any stage. Dividends can be paid and repatriated once all taxes are paid.
Some of the Issues to Consider
There are two issues which need to be considered when making the decision about which entity to use for operating purposes in South Africa. These issues are:
What are you going to do with the profit that the business operations will produce?
- Black Economic Empowerment
In South Africa the Black Economic Empowerment Policy (BEE) has become an important issue when doing business. More and more pressure is being put on corporate South Africa to embrace this policy.
Where can we help
We will be able to assist you in the following areas:
- Advice on the appropriate structure;
- We can be appointed in the interim as local representatives;
- We will be able to set up the branch or local private company;
- We can source an auditor;
- We can set up a postal address;
- We can set up an administration network.