Structuring Investments into South Africa

South Africa has large market potential, well developed infrastructure and a competitive domestic economy. Almost all business sectors are open to foreign investors. Government approval is not required and there are few restrictions on how or how much foreign entities can invest.

The government has also put in place various measures to encourage foreign investments, including simple tax rules, investment incentives, a better regulatory policy on competition and protection of intellectual property.

No government approval is required for foreign investors to establish a new business or invest in South Africa apart from the approval required under the exchange control (ExCon) regulations. Companies have to appoint a South African resident as the company’s legal representative and foreign companies have to appoint an auditor.

A company should be registered within 21 days and must also register with the tax office. Foreign companies are required to register as external companies before immovable property can be registered in their names.

ExCon is administered by the South African Reserve Bank (SARB), which has delegated powers to authorised dealers – generally banks that are licensed to deal in foreign exchange. South Africa does not impose exchange controls on non-residents, but exercises exchange controls over residents – including outward investment – and transactions entered into between residents and non-residents. For ExCon purposes, a resident is a natural person or legal entity that has taken up residence, is domiciled or is registered in South Africa.

For foreign investors, local borrowing restrictions apply to entities in which 75% or more of the shares, voting or control, or rights to capital or income, are held by non-residents. These also apply to South African branches of foreign companies. Borrowing for investment in residential property and financial transactions is limited to 100% of shareholder’s funds.

Where unlisted shares, immovable property, a business or other major assets are transferred between a resident and a non-resident, the value of the assets transferred must be verified. Exchange control approval is further required for royalties and payments for services. The rate of interest payable on foreign loans must be approved by the SARB but interest is freely transferable from South Africa.

Foreign nationals that are temporarily resident in South Africa can conduct their affairs on a resident basis while resident in South Africa and may repatriate accumulated earnings or capital brought into South Africa. Specific ExCon rules, annual limits or concessions apply to institutional foreign investment, immigrants, South African resident individuals and South African resident corporations.

Applications to invest abroad by South African resident corporations will be considered on their merits and applications for investments under ZAR 1 billion per year may be adjudicated by authorised dealers. There are no limits on amounts that may be remitted abroad for investment. HQCs that are approved by the Financial Surveillance Department can invest offshore without restriction.

South Africa has a number of preferential market access agreements, including:

  • Southern African Customs Union (SACU)
  • Southern African Development Community (SADC) Free Trade Agreement (FTA)
  • European Union/South Africa Trade, Development and Co-operation Agreement (EU/SA TDCA)
  • SACU-European Free Trade Association (EFTA) FTA
  • SACU-Southern Common Market (Mercosur) Preferential Trade Agreement (PTA)

Interested in Structuring Investments into South Africa?

Europe Focus March 2019

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