Sovereign Trust (South Africa) Limited

 
 

About South Africa

Background: After the British seized the Cape of Good Hope area in 1806, many of the Dutch settlers (the Boers) trekked north to found their own republics. The discovery of diamonds (1867) and gold (1886) spurred wealth and immigration and intensified the subjugation of the native inhabitants. The Boers resisted British encroachments, but were defeated in the Boer War (1899-1902). The resulting Union of South Africa operated under a policy of apartheid - the separate development of the races. The 1990s brought an end to apartheid politically and ushered in black majority rule.

Location: Southern Africa, at the southern tip of the continent of Africa.

Economy - overview: South Africa is a middle-income, developing country with an abundant supply of resources, well-developed financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the 10 largest in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. However, growth has not been strong enough to cut into the 30% unemployment, and daunting economic problems remain from the apartheid era, especially the problems of poverty and lack of economic empowerment among the disadvantaged groups. Other problems are crime, corruption, and HIV/AIDS. At the start of 2000, President MBEKI vowed to promote economic growth and foreign investment by relaxing restrictive labour laws, stepping up the pace of privatization, and cutting unneeded governmental spending. His policies face strong opposition from organized labour.

Time

South Africa is two hours ahead of Greenwich Mean Time (GMT).

 

About Sovereign Trust (South Africa) Limited

Sovereign Trust (S.A.) Ltd is the South African member company of the Sovereign Group. We are able to supply the full range of offshore company and trust services which are available from all other Group offices and also specialise in the following additional areas of work:-

1. Incorporation of South African Companies
   We are able to incorporate South African companies speedily and efficiently and open bank accounts on behalf of the companies in South Africa.
   
   A dual system for the taxation of companies exists in South Africa, one part being on taxable income and the other on distributed profits. The tax is levied as follows:
   • At a rate of 29% of taxable income
   • A secondary tax (STC) of 12.5% on all profits distributed in the form of dividends
   A company can also be categorised as a small business corporation, if the taxable income is less than R 250 000, in which case the tax rate is 10% (and nil if under R 35 000).
   
   If the branch of a foreign company establishes a place of business or owns immovable property in SA, it is regarded as an "external company", and must be registered as such. The tax rate applicable in this instance is 40%. STC does not apply to external companies.
   
   Much interest has been shown in establishing holding companies in South Africa or intermediate companies for investment in other parts of Africa due to the fact that tax in South Africa is only due on South African source income. Thus income received by such holding company would not be taxable in South Africa. If dividends are paid out of this company, STC will still be applicable, however, this is calculated on the net of the dividend distributed less the dividend received. There is Capital Gains Tax, which came in on 1 October 2001, which for companies is 15%.
   
   We can also assist with the listing of South African companies on the Johannesburg Stock Exchange (JSE) - see more below.
2. Working in or Immigration to South Africa
   We can assist with obtaining relevant visas and work permits and permanent residence applications. The South African Home Affairs Department assesses each application on a case by case basis and as from the 1 July 1996 the legislation changed making all relevant permits more difficult to obtain. In fact from that date applicants must submit their applications through a representative embassy or consulate and must not enter the Republic of South Africa pending the outcome of their application. As registered agents to the Department of Home Affairs we are able to assist and advise on all aspects of the application procedures.
3. South African Property Purchase Scheme
   Substantial tax advantages may be gained by purchasing South African property through a company. In summary these are as follows:
   • the avoidance of estate duty in SA which is presently 20%;
   • an easier and less expensive sale as transferring shares avoids the lengthy procedures which are necessary to register a fresh title to the property. There is though now transfer duty 10% on such transactions.
   • asset protection and confidentiality may be secured if the shares of the company are placed in a suitable entity such as a trust by removing the value of the property out of one's estate; and
   • if the property is rented thereby creating a taxable income, a company would allow more flexibility in deducting expenses from such income.
4. Structuring Investments into South Africa
   Careful consideration must be taken when investing into South Africa. Estate duty and exchange control (hereafter referred to as excon) are two foremost issues. The restrictions that excon places on non-residents are essentially of a bureaucratic nature but nevertheless need to be catered for. For example entering into agreements for the payment of royalties, patents, trademarks, copyrights, design, know-how requires the approval of the Department of Trade & Industry and Reserve Bank. Also capital introduced into the country after 1st July 1997, may be repatriated at any time but proof thereof will have to be shown. The difficulty with excon is that rules are constantly changing and it is only local banks that receive formal notification of these.
   
   Investment may be by share capital only or share and loan capital. Where a portion of the investment is in loan capital, excon approval is required. The interest on a loan from the holding company is remittable provided that the rate of interest is market related and most importantly is exempt from tax when received by non-residents. Another rule that deserves particular mention is that certain local borrowing restrictions apply to South African companies which are more than 75% foreign owned. In the case of a wholly-owned subsidiary of a foreign company (and a branch of a foreign company), the maximum local borrowing allowed is an amount equal to 100% of owners' funds.
   
   One needs to be aware of the local issues so that proper structuring and appropriate agreements can be drawn up to ensure that local investments are still protected offshore.
5. Tax Planning for South Africans entering into the International Arena
   Whilst excon is still very much a concern, there is a slow but definite tendency to erode this concept and make it more possible for South Africans to invest abroad. Furthermore, South Africa has signed a numerous amount of double taxation treaties which open the gateway for several tax planning opportunities. For those intending to emigrate from South Africa, careful planning could avoid their estates being brought into the tax net of the new home country.
6. Listing on the Johannesburg Stock Exchange (JSE)
   We can assist clients in evaluating the viability of undertaking a listing and assisting with the listing procedures. We are particularly excited about the possibilities of listing on the venture capital board and development board which are viable ways for fast growing companies, without profit histories, to list.
   
   The advantages of listing one's company on the JSE inter alia are
   • the improved ability to raise funds for the business;
   • the ability to offer staff a participation in the company by means of a share incentive scheme;
   • the improved prospects of growth by acquisition using the issue of shares to undertake acquisitions;
   • existing shareholders can realise part of their investment;
   • prestige;
   • publicity.