Africa Corporate Services
“Africa is unstoppable. Africa is an essential part of global business and a major investment destination. Africa includes some of the world’s fastest growing economies. And Africa has more, much more, to offer. Every sector of the African economy is growing – from manufacturing to agriculture, from services to finance,” said UN Secretary-General António Guterres at the opening of the Global Africa Business Initiative (GABI) in New York in September 2022.
With companies across Africa expanding their client and supplier bases beyond the borders of individual countries and the continent, the need for robust business structuring and business expansion services are growing.
As the most industrialised country in southern Africa, South African businesses are seeing increased opportunities not only in the domestic market but across Africa and internationally. Sovereign’s South Africa office is well positioned to assist clients in their journey to expand their businesses overland and overseas.
Africa Continental Free Trade Area Agreement (AfCFTA)
The AfCFTA is the continent’s most ambitious integration initiative. It opened on 1 January 2021 and is now the world’s largest free trade area encompassing all but one African country (Eritrea). It should accelerate trade integration across the African continent which has long been limited by outdated border and transport infrastructure and a patchwork of differing regulations across dozens of markets.
Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55% in America and 7% in Oceania, according to the United Nations Conference on Trade and Development (UNCTAD). Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015/17. The share of exports from Africa to the rest of the world ranged from 80% to 90% in 2000 to 2017 – only Oceania had a higher export dependence on the rest of the world in that period.
In a 2020 report, the World Bank estimated that by 2035, real income gains from full implementation of AfCFTA could be 7%, or nearly USD450 billion. By 2035, the volume of total exports would increase by almost 29% relative to business as usual. Intra-continental exports would increase by more than 81%, while exports to non-African countries would rise by 19%.
The AfCFTA also presents significant opportunities for increased foreign direct investment (FDI) into the region in the future. By reducing tariff and non-tariff barriers to trade, investors in one AfCFTA member state should have access to an expanded market for goods and services across Africa.
Foreign Investment
The government of South Africa is generally open to foreign investment to drive economic growth, improve international competitiveness and access foreign markets.
Currently, there are few limitations on foreign private ownership and South Africa has established several incentive programmes to attract foreign investment. Under the Companies Act, which governs the registration and operation of companies in South Africa, foreign investors can establish domestic entities as well as registering foreign-owned entities.
Foreign companies may be eligible for incentives in South Africa under several ad hoc initiatives. The Special Economic Zones (SEZs) Act of 2014 also promotes regional industrial development by providing incentives for local and foreign investors that elect to operate within the country’s SEZs.
Strong legal and financial systems
South Africa has a strong legal system composed of civil law inherited from the Dutch, common law inherited from the British, and African customary law. Subject to various domestic legislative provisions, South Africa generally follows English law in criminal and civil procedure, company law, constitutional law and the law of evidence, but follows Roman-Dutch common law in respect of contract, tort and family law.
South Africa’s financial markets are regarded as some of the most sophisticated among emerging markets. A sound legal and regulatory framework governs financial institutions and transactions.
The fully independent South African Reserve Bank (SARB) regulates a wide range of commercial, retail and investment banking services according to international best practices, such as Basel III regulatory framework for banks.
South African banks are well capitalised and comply with international banking standards. There are around 20 registered banks in South Africa, while many foreign banks also operate branches in South Africa or have approved local representative offices.
Exchange Controls
South Africa operates an exchange control regime to control the movement of financial and real assets into and out of South Africa. Subsidiaries and branches of foreign companies in South Africa are also considered South African entities and subject to exchange control.
All exchange control-related matters must be addressed through an Authorised Dealer, which is a registered bank authorised to deal in foreign exchange or a dealer in foreign exchange with limited authority.
South African companies (excluding trusts and close corporations) can make outbound foreign direct investments into companies outside the Common Monetary Area (eSwatini, Lesotho, Namibia and South Africa) up to the value of R1 billion per company per calendar year through any Authorised Dealer.
To invest above this amount, the company must obtain at least 10% of the foreign target entity’s voting rights. The company’s Authorised Dealer is required to apply to the Financial Surveillance Department of the SARB for approval.
Non-residents can invest freely in South Africa, provided that the Authorised Dealer is provided with documentary evidence to show that transactions are concluded at arm’s length and at fair market-related prices and are financed in an approved manner. Any income earned on the investment may be transferred abroad.
Remittances to Non-Residents
South African companies can generally remit the following to non-residents:
- Repayment of capital investments;
- Dividends and branch profits (provided such transfers are made from trading profits and are financed without resorting to excessive local borrowing);
- Interest payments (provided the rate is reasonable); and
- Payment of royalties or similar fees for the use of know-how, patents, designs, trademarks, or similar property (subject to SARB prior approval).
No matter where you need to trade or invest, Sovereign can serve – through its global office network – as your local incorporation expert, structuring new entities in compliance with local laws, regulations and timelines.
Tax Planning South Africa
Prudent, compliant tax planning is critical for commercial success in an unpredictable and increasingly globalised economy. Tax planning is also essential for individuals to meet the challenges of owning, managing and preserving businesses and wealth in a complex regulatory environment.
Sovereign offers company formation and management across all major jurisdictions, together with the necessary support to assist companies of all sizes to establish and sustain operations successfully.
Sovereign also provides trustee services and succession planning to internationally mobile families and entrepreneurs.
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
