TerraLex Cross-Border Guide to Cross-Border Guide to Business Investment in Africa

There are various investment methods and vehicles available in South Africa. These are: 1. Companies (private or public companies). Investors own shares and can advance loan capital to the entity. 2. Partnerships. Two parties can enter into an agreement in terms of which they jointly pursue investment opportunities without necessarily being co-shareholders. 3. Business trusts. An investor becomes a beneficiary without any shares being issued to such an investor. 4. Co-operatives. A form of a business where a group of people get together voluntarily to address their common needs. 5. Sole proprietorships. This is available to natural persons who wish to conduct business in their own names.

The most common legal vehicle used is South Africa is a private company with limited liability.

The principal laws in this regard are: 1. Protection of Investment Act 22 of 2015. This law is aimed at protecting foreign investors in South Africa. 2. Companies Act 71 of 2008 (Companies Act). This law provides for the incorporation, registration, organisation and management of companies, the capitalisation of profit companies and the registration of offices of foreign companies carrying on business within South Africa. 3. Broad-Based Black Economic Empowerment Act 53 of 2003. This is a legislative framework for the promotion of black economic empowerment in South Africa. 4. Constitution. The Constitution of South Africa.

Registration takes place online through the Companies and Intellectual Properties Commission (CIPC). The CIPC is the governing body for all companies and oversees company affairs. The process of registration is a swift process, and usually takes 5 days.

A company may be registered with or without a company name. When a company is registered without a name, its registration number automatically becomes the company name. Such a company may transact with a trading (business) name or may apply to add a reserved name at a later stage.

The company registration is fee R125 for both private company and non-profit companies registered without members. A private company must have at least one (1) director and a non-profit company must have a minimum of three (3) directors.

A successful company registration transaction automatically comes with a tax registration number.

A South African company must have a share capital, but there is no specific minimum share capital requirement outlined in the Companies Act. Best practice is to incorporate a company with at least 1 share.

South Africa is subject to exchange control regulations that regulate foreign inward investments and externalisation of funds and value from South Africa. To ensure that inward investments, profits, and interest can be externalised an investor requires the approval of the South African Reserve Bank for inward investments. This is largely just an administrative process and approval is generally granted subject to limits on interest rates that can be charged. The regime is set out in the Currency and Exchanges Act 1933 and the Exchange Control Regulations promulgated under this.

The exchange control system has been gradually liberalised over the past few years in South Africa and it is the stated intention of the National Treasury that the gradual liberalisation and deregulation of exchange control will continue.

Most of the exchange control policies and regulations are focussed on the exchange control transactions of South African residents i.e., the outward flow of funds from South Africa.

According to the Companies Act, a South African company must have at least one director. Directors are responsible for managing and controlling the company’s business and affairs, and they are accountable to the shareholders for the company’s performance.

There are no legal requirements in South Africa mandating that directors of a company must be local only. A South African company can have both local and foreign directors or solely foreign directors.

Yes. While foreign investment is not directly regulated in South Africa, various pieces of specific legislation are relevant to foreign investors such as the Protection of Investment Act, 2015 and the Broad-Based Black Economic Empowerment (“B-BBEE”) Act, 2003.

The Investment Act, which is aimed at the protection of investors (including foreign investors), provides that, inter alia, foreign investors and their investments must not be treated less favourably than South African investors in “like circumstances”, a concept that embraces taking into account all the terms of a foreign investment, including, inter alia, the (i) effect of the foreign investment on South Africa; (ii) the sector that the foreign investments are in; and (iii) effect on third persons and the local community.

The B-BBEE Act, together with the codes of good practice, set out the legal framework for broad based economic empowerment of black people (being people who are black Africans, coloured and Indian, and 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.

All companies (including external companies) and close corporations are required by law to file their annual returns with the CIPC on an annual basis, within a prescribed time period. The purpose for the filing of such annual returns is to confirm whether a company or close corporation is still in business/trading, or if it will be in business in the near future.

The annual return may be regarded as a type of annual “renewal” of the company or close corporation registration.

Therefore, if annual returns are not filed within the prescribed time period, the assumption is that the company or close corporation is inactive, and as such CIPC will start the deregistration process to remove the company or close corporation from its active records.

The legal effect of the deregistration process is that the juristic personality is withdrawn, and the company or close corporation ceases to exist.

The Labour Relations Act 1995 (LRA) is a key piece of legislation and aims to: - Encourage and facilitate collective bargaining and employee participation in joint decision making.

• Regulate the organisational rights of trade unions.
• Provide simple procedures for the settlement of employment disputes through statutory conciliation, mediation, and arbitration.

Foreign investors should be aware that a core principle contained in the LRA is that every employee has the right to freedom of association and, in particular, to form and join a trade union and to participate in a trade union and its lawful activities. The LRA affords employees protection against discrimination or victimisation for exercising these rights.

The South African labour law regime also contains the Basic Conditions of Employment Act 1997 (BCEA) lays down basic minimum standards of employment and provides a threshold to the basic rights of an employee, below which an employer may not contract. The BCEA governs, for example, the following:

• Working hours
• Leave
• Breaks
• Remuneration

An employer and an employee cannot agree to terms that are less favourable than those laid down in the BCEA, unless a bargaining council agreement applies to the sector or area in which the employer conducts business and sets out minimum terms and conditions for the employees in that sector or area that are less favourable to the employees than those set out in the BCEA.

The Employment Equity Act 1998 (EEA) was introduced to achieve equality in the workplace by promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination and the implementation of affirmative action measures to redress the disadvantages experienced by people from among designated groups as defined in the act.

There are two types of visas that are required for foreign businesses looking to invest and conduct business in South Africa issued by the Department of Home Affairs. First, a business visa can be applied for by individuals who wish to set up and run their own businesses in South Africa. The business visa is valid for a period of three years. The business can be a start-up, a purchased company, or a partnership.

Second, a financially independent permit must be obtained. This is a permit for permanent residency, and there is a higher waiting period as opposed to applicants wishing to obtain a business visa. This permit will last for so long as the holder of such a permit continues to meet the set criteria.

Foreigners can purchase property in South Africa if they comply with the legal requirements set out in the Immigration Act, the Foreign Investment Act, and other relevant legislation. In particular, non-resident buyers need to ensure that they obtain the necessary approvals from the South African Reserve Bank, which regulates foreign investment in the country. These are largely administrative and there are no restrictions on urban land or agricultural land ownership.

All property transactions must be registered with the Deeds Office to ensure that ownership of the property is legally recognized.

Companies and trusts are also permitted to own property in South Africa if they are registered in South Africa as an external company.

South Africa has entered bilateral investment treaties with China, Cuba, Finland, the Islamic Republic of Iran, Republic of Korea, Mauritius, Nigeria, Russia, Senegal, Sweden, and Zimbabwe. South Africa is also a participant and beneficiary of AGOA with the United States of America.

In 2010, South Africa joined Brazil, Russia, India, and China and became a member of the BRICS grouping, a political grouping of leading emerging economies.

South Africa offers various investment incentives from time to time, targeted at specific sectors or types of business activities, including tax allowances to support in the automotive sector and rebates for film and television production. The South African government favors investment in sectors that are labour intensive and with the potential for local supply chain development.

Foreign companies may be eligible for incentives in South Africa under several ad hoc initiatives as well as the Special Economic Zones (SEZs) Act of 2014, which promotes regional industrial development by providing incentives for foreign investors that elect to operate within the country’s SEZs.

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. Legal entities qualify as tax residents if they are incorporated, established, formed, or effectively managed in or from South Africa.

Non-resident business vehicles are only taxed on South African-sourced income. If the entity's country of residence has a double taxation treaty with South Africa, the vehicle is only taxed on its income in South Africa if it has a permanent establishment in South Africa, and only on income or profits that are attributable to that establishment's operations.

Resident companies and permanent establishments of foreign companies are subject to corporate income tax at the rate of 27%. Small business corporations are taxed on a sliding scale.

Other tax implications include capital gains tax and taxation on certain profits of controlled foreign companies.

The key piece of legislation is the Competition Act, which is responsible for the investigation, control and evaluation of restrictive practices, abuse of dominant position, and mergers. The Competition 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 Competition 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 South African competition authority, the Competition Commission, will take public interest considerations into account in making a determination on a merger (including, but not limited to, the effect that the merger will have on employment and/or the promotion of a greater spread of ownership amongst historically disadvantaged persons).

South Africa has a pre-implementation competition law regime which means approval must be sought from the South African competition authorities prior to implementation of the proposed transaction.

Yes. The Arbitration Act of 1965, which does not distinguish between domestic and international arbitration, governs arbitration in South Africa. South African courts have discretion to hear a dispute over a contract using the law of a foreign jurisdiction but will interpret the contract with the law of the country or jurisdiction provided for in the contract.

South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational commercial disputes. It applies commercial and bankruptcy laws with consistency and has an independent, objective court system for enforcing property and contractual rights.

Alternative Dispute Resolution is increasingly popular in this jurisdiction for many reasons, including the confidentiality which can be imposed on the evidence, case documents, and the judgment. South Africa’s Companies Act also provides a mechanism for Alternative Dispute Resolution.

Yes, the Protection of Investment Act of 2015 aims to protect investments in South Africa in accordance with, and subject to, the Constitution, while balancing the rights and obligations of investors. The act applies to all investments in South Africa that are made in accordance with the act.

South Africa is relatively open to foreign investment to drive economic growth, improve international competitiveness, and access foreign markets. The Department of Trade and Industry and Competition’s Trade and Investment: South Africa division assists foreign investors.

It actively promotes manufacturing in sectors where it believes South Africa has a competitive advantage and favors sectors that are labour intensive and with the potential for local supply chain development.

South Africa has few restrictions on foreign investment, with tax breaks and incentives for small enterprises, strategic industrial projects, and exporters. The Department of Trade and Industry and Competition offers a range of incentive schemes to encourage growth of competitive new enterprises and creation of sustainable industries.

Viable industries include agro-processing; textiles, clothing, and leather; green economy industries (including power generation and renewable energy) and oil and gas.

While South Africa is recognised as having the most advanced infrastructure in Africa, this has suffered from a lack of investment in recent times and mismanagement of the State-Owned Entities that operate rail, port, and electricity infrastructure as monopolies. The government has identified these entities as problematic and a hindrance to future growth and has put in plans to modernise and privatise these entities to make them drivers of economic growth again.

Corruption and transparency concerns are ongoing and general concerns for foreign investment. To mitigate this, South Africa has introduced new legislation to enhance transparency and accountability for large corporations, including through the adoption of the concept of “beneficial ownership” into law and by providing the public greater access to company information. South Africa also has a robust anti-corruption framework.