Thinking of setting up a business in South Africa? This article contains all you need to know about wages tax, employment regulations, and how to manage human resources.
Quick stats about South Africa
- The current corporate tax rate is 28%
- Tax on income is between 18 and 45% depending on how much you make
- Social security payments hover around 2%
- Value Added Tax is 15%
- Local time is two hours past GMT
- Local currency is the ZAR
- The World Bank rates this region as 84/190 on the ease of doing business scale
Choosing SA for your new business venture
Many new traders attempt to break the South African market before any others. Why? South Africa’s business infrastructure is one of the best in the entire region.
The financial sector in SA carries weight as far afield as in the US and Australia. When it comes to trading, finances, and infrastructure, South Africa scores better than 90% of the countries on the African continent.
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| Business difficulties and opportunities in South Africa |
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| This amazing network comes with a few problems. Certain areas of the market lack strength. As a note, for example, unemployment statistics are still quite high across all sectors. To combat this, local authorities are determined to attract new business to the area. That’s why thousands of entrepreneurs each year are turning their attention to what’s happening in South Africa. |
Understanding subsidiary entities
The most common business type that foreign nationals choose to setup in South Africa, is a subsidiary entity firm. It is popular because it can foreign nationals can own it without any repercussions. It is easy to start one of these and they come with good returns if you hit the right business idea.
To do this, you will need a Business Visa. Among other things, this means that 60% of all your employees must be nationals. You need to guarantee that you have enough revenue on you to provide jobs and boost the SA economy for at least 6 months. This totals R5 million in the local currency. Subsidiary companies take about 12 weeks end-to-end to start up.
You can operate as a Proprietary Ltd Co (or PTY Ltd) to become a public limited firm. If you want to operate as public trader, you can choose the public company structure. To do this, you must have three directors on your board.
If you want to establish an entity in SA, you won’t meet with minimum requirements of share capital. You will need to show that you have enough money to apply for the business visa, also called the entrepreneur visa, though. This amount totals greater than 5 million ZAR. Fortunately, you don’t need to set up a local bank account to start a subsidiary or a sole trader company here.
Choosing overseas holdings
Alternatively, you could buy out an overseas branch of an existing firm if you wanted to go down the corporate route. No matter which option you choose, you will need to pay 28% in corporate tax.
| Liability of parent company |
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| When you choose to buyout an existing overseas holding, your parent company is liable for any mistakes you make in South Africa. More reason, then, to get to grips with employment law before you set out. |
Sole traders in South Africa
You can operate as a sole trader in South Africa too. You will need a business visa to do this.
Trading practices in South Africa
As a general guide, trade takes place face to face. Digitisation is taking over, but South Africans trust a handshake more than an online interaction.
When you trade in other countries, putting things in writing makes it official. When you trade in South Africa, the handshake makes it official. Do not renege on a handshake. You will do damage to your reputation instantly.
Similarly, in other countries you need a business bank account to trade under your business’s name. In SA, there is no such rule. You don’t even need a South African bank account.
In fact, if you are trading in South Africa as a UK citizen with a Business Visa, you can take advantage of the double tax treaty to save even more money. This treaty means that you will only pay corporate tax in one of the two countries rather than both.
Employment regulations you should be aware of
There are things you ought to be aware of if you want to start a business in South Africa. It isn’t just as easy as launching your brand and starting to trade. You need to make sure you are following the law.
Let’s discuss what you need to know about hiring and firing people in South Africa.
The Basic Conditions of Employment Act
The south African government passed laws protecting the rights of employees all the way back in the mid-90s. The 1997 Basic Conditions of Employment Act governs the length of days worked, how many hours an employee can work in a week and ensures that every employee receives double time pay on a Sunday.
These employment regulations brought South African working conditions into line with more progressive states. Protecting the employees means protecting the longevity of the infrastructure. It is just good common sense that your business obey these laws or you risk fines and penalties.
Employee holidays in South Africa
Your employees will receive 15 days of holiday per year as a minimum and by law. This assumes your employee works Monday – Friday. If you have your employees working on a Saturday as well, then that holiday entitlement rises by three days per employee.
Social security payments in South Africa
Social security rates are 2% in South Africa. The government does not do much else for employees. This is good news as an employer.
Your workers will need to pay income tax as well. If you pay less than R216,200, the employee pays 18%. The second tax band for 26% is up to R337,800. The third is up to R467,500 with a 31% share.
If your employees salary is below R613,600, they will pay 39%. The next tier is 41% for up to R656,600. If you pay your employees the top rate over R656,601, they pay 45% income tax, and you are a particularly good employer.
The tax year resets on the last day of February, and you should file your taxes prior to October.
Grants and funds in South Africa
There are other grants and funds about which you should know. There is the Unemployment Insurance Fund (IUF). This fund sets aside a portion of the employee’s wage for the event that they lose their jobs.
There is a fund which helps people learn new skills. There is a social grant for older people and one that provides compensation for employees who receive injuries during their duties.
Pregnancy in South Africa
Employees can take up to 4 months off to deal with the birth of a child. During this time, you do not need to pay them.
If you want your employee to return to work after maternity, we suggest that you do pay them. Once the child is born, the employee can take an additional 10 days off to spend time with the new baby. This is on top of the 4 months and again, you do not need to pay them for this. This leave is available for the father or other guardian, too. It also counts for those who adopt a new family member.
Sickness pay in South Africa
Sick pay here in South Africa works out at 30 days of paid leave per every 3 years that the employee has spent in your service. During the first 6 months of their employment, an employee is only due one day of sick leave per 26 days that they have worked.
Overtime hours in South Africa
An employee must sign a legal document to say that they agree to working overtime for you. The overtime hours are limited to 3 per day and a total of ten hours per week. This increases the potential maximum length of a working week to 55 hours.
Firing employees in South Africa
You cannot terminate an employees contract on a whim here in South Africa. If that employee has worked with your organisation for longer than 1 year, you must give them four weeks’ notice of termination. This doesn’t apply when the employee has done something awful, of course. You must give them written notice of the reason for their termination, too.
How to pay your South African employees?
To be able to trade here, you must either be a South African yourself, or have a business visa that allows you to set up a business in this country. Once you have this, you can set about creating a company in the usual way.
The South African authorities process requests to set up a payroll system within 2 or 3 months. It takes a minimum of two months to register through SARS for PAYE tax payments, the Skills Development Fund, and the Unemployment Insurance Fund. You need a taxpayer number specific it your business too. Contacting the South African Revenue Service will help you do this.
Once you have your visa, choose a structure. You should then choose your name and record it if you are a limited company. You can inform the CIPC of your intention to start trading if you intend to produce creative property.
You can read more about what the South African Revenue Service expect from you – and how to register – on their site. They can also advise you on how much tax you will pay with up-to-date information.
How much does it cost to hire someone in South Africa?
By law, you will need just over 1% of your employee’s total salary to hire a new employee. There are limited benefits. This means adding benefits attracts the best workers.
Business visa additional information
If you move to South Africa to start a business, the local authorities are likely to welcome you. They will stipulate that 60% or more of your employees have to be from the country. This is because they welcome new businesses expressly because they want them to lower the high unemployment rating.
Business visas are the property of the Department of Home Affairs. There are many different types of visas. Be sure to apply for the business visa and not the worker’s visa.
To be eligible for your south African Business Visa, you will require the following things:
- A valid passport with at least one blank page for endorsements
- A yellow fever certificate if you wish to enter the country physically
- You must get a certificate from the South African Institute of Chartered Accountants to say that you have the amount of cash determined by ministers at that time
- You must agree to employ 60% South African nationals
- You agree to sign up to the SA Revenue Service, the Unemployment Insurance Fund, the special fund they have for work related injury or diseases, the Companies, and promise not to infringe on intellectual property if required, and the relevant professional body of your industry
- You must have a police clearance certificate from the country you have lived in since you were 18 years old
- You should have endorsements from the Industry Dept. to say that your business is feasible and that you will contribute to the Republic through your operations
Businesses that may have capital laws waived
If you go to South Africa to open a business in one of the following sectors, local authorities might waive your minimum revenue requirements:
- Automotive manufacture
- Agro processing metals
- Chemicals or bio tech
- Communications
- Textiles
- Tourism
If your business already exists before you apply for the visa, you face a separate set of rules. This applies to those who buy a business that already operates in South Africa.
You must produce financial statements from the previous years, and you must prove that your business can and will contribute to the betterment of the Republic’s economy. Simple, right?
You can find additional information on the business visa in South Africa courtesy of the government website.
Other visas and permits
If you want to work in South Africa, you will need a Critical Skills Visa if you have a critical skill. You can apply for the generic working visa if you plan to work while you are here. To do this, you will have to show the authorities that the job you are doing is not something that you could do living in South Africa.
The final type of visa or permit is the intra-company transfer visa. This allows you to send employees abroad where they are most needed. A work visa costs anywhere upwards of R1,520.
How to attract the best employees in South Africa?
As we mentioned during the pregnancy section, if you want to keep the best staff, you ought to pay them when you don’t need to. Showering your employees with perks is the best way to headhunt and attract the top members of staff here. It’s a competitive market. Unemployment is high, yes, but of those that do work, you must stand out to win them over.
To do this, your competitors will use underhand tactics. They will give out free memberships to clubs, fitness centres, and sports venues. They will provide disability and sickness benefits, pay December bonuses, and set up pensions for their employees.
If you really want to push the boat out, get yourself a deal with a medical insurance firm. People are far more likely to work for you when you pay for their kids new braces or their partner’s new hip.
Tips on making a good first impression in business
If you want to trade in South Africa without locals laughing you off your market stall, you need to know a few basics. You never get a second chance to make a first impression. If you mess up the following things, you risk the wrath of your consumer base. Try to avoid:
- Disrespecting your elders in any business setting
- Handshakes seal a deal
- Dress with humility, they don’t like Rolex watches or ten thousand dollar suits here
- Prices won’t be haggled
- Negotiations can take months
If you can abide by these unwritten rules of South African business, then you can trade here without issue. Let’s review some further FAQs about doing business in South Africa so you can get the best possible start.
FAQs about running an SME in South Africa
Check through the following frequently asked questions about trading in South Africa to see if we have the answers you have been searching for.
You can begin operating as a sole trader or as a subsidiary to a foreign company if you get a business visa for owning an SME in this country. You can own a Public Company here if you have three directors, at least one of which must live here. You can operate as a Pty Ltd too.
The south African working week is usually from Monday to Friday. Since there are employment laws in place, the common worker here cannot exceed 9 hour shifts in a day, or 45 hours in a week. Alternatively, employers may run a 6 day week. If you offer a 5 day week to your staff, you entitle them to 15 days of paid holiday per year. If you run a 6 day week, that allowance increases to 18 days per year.
South Africa itself doesn’t offer many benefits to the average worker. Instead, if you want to attract the best employees, you need to offer those benefits by yourself. A greater holiday allowance is one way to do this. Other suggestions include offering private health insurance and pension plans, extra paid parental leave, or paying a bonus once a year.
The thirteenth cheque is a colloquial South African term. It refers to the bonus usually given to staff members at the end of the year. Affectionately known as the 13th pay cheque, it contains an extra payment which reflects the employee’s worth to you. Those who perform best can and will chose their employers based upon how appreciated they are. Value them accordingly or face the consequences.
The standard holiday allowance issued by South African authorities is 15 days for employees working 5 days a week, or 18 days for those working 6 days a week. There are 12 days per year when the banks close and the country observes a holiday. If you wish to hire from the cream of the crop, you will need to offer far better holidays than this.
If your employee becomes pregnant, they can take four months off to tend to the birth. However, you do not need to pay them for this. Similarly, paternity leave is up to ten days of unpaid leave. If you wish to retain your employees when they return to work, you should offer better birth policies than this, the bare legal minimum. Remember, the best employees pick and choose new work based on what the benefits are.
Yes, you do. You must have a business bank account although it does not need to be in South Africa. If you have a business account in your home country which handles the finances, then you are free to use it. If you pay your taxes, your accounts can be elsewhere.
You can. According to the South African Labour Guide, you can ask your employee for proof of their incapacity. If your employee is off for longer than two consecutive working days and they refuse to provide you with a medical certificate, you do not have to pay them.