South Africa – Branches
For existing businesses based outside of South Africa, there are a number of considerations when setting up a South African branch that should be scrutinised before commencing local operations.
Structure of the South Africa branch
Important factors:
- Ownership structure.
- Legal structure.
- Set-up requirements.
- Taxation.
- Ongoing legal requirements (like audits).
- Foreign exchange better: exchange control regulations.
Options:
- Branch – External company.
- Foreign-owned South African company.
1. Branch of an offshore company – External Company
Entity
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 Association’ is also registered in South Africa and the company would have to operate according to the rules laid out by this framework.
Responsible person
A South African resident must be appointed and registered with the corporate registration authority (CIPRO). This person is responsible for the operations and compliance of the South African branch.
Statutory requirements
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).
Auditor
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.
Income tax
The branch will be taxed at a rate of 34% on net profit.
Exchange control
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 South African company owned by an international company (Full Subsidiary)
Entity
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.
Responsible person
A South African resident must be appointed and registered with the corporate registration authority (CIPRO).
Statutory Requirements
Regular shareholder meetings must be held. However, these meetings need not necessarily be held in South Africa, and thus can also take place abroad.
Auditor
An auditor must be appointed for the company. The scope of the audit is unlimited. The audit is mainly for income tax and shareholder purposes.
Income tax
The net profit will be taxed at a rate of 29%. Once a dividend is declared (profit taken out of the company), there is a secondary tax of another 12%. This brings the total tax for a company to 37.5% (29% + (71%x12%).
Exchange control
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 deciding which entity to use for operating purposes in South Africa. These issues are:
1. Profit
What are you going to do with the profit that the business operations will produce?
2. 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.
- Set up a postal address.
- Set up an administration network.
