How To Start A Business in South Africa
Starting a business: A step-by-step guide
Published on Thursday, November 07, 2013 3:31:00 PM
This guide to starting your own business will explain every step in the process as we take you through each phase thoroughly without weighing you down with too much technical and legal jargon – here is all the information you’ll need to succeed in starting your business.
Develop a business plan
Having a business plan is essential for every entrepreneur. This document will guide you as you build your business.
Finance your business
Finding a source of financing for your new business could make the difference between success and failure during the early stages of your company's growth. Although most entrepreneurs recognize this, many new business owners aren't sure how to go about finding the financing they need.
Name and register your business
Your company's name is very important from a marketing and advertising point of view - it draws customers to your business and should be simple and memorable. From a legal point of view, every business in South Africa must be named and registered before it can trade.
Make your business legally compliant
A lot of unsuspecting business owners have landed up in court because of legal compliance issues - not because they were irresponsible but because they were not aware of their legal duties in the first place.
Put together your initial marketing plan
Every successful business has an effective marketing strategy that creates interest in the product and services on offer and is able to convert interested potential buyers into regular customers.
Starting your own business
South Africa needs entrepreneurs. But how do you go about starting a business?
The Small Enterprise Development Agency (Seda) provides business development and support services for small enterprises.
Seda will give you all the information you need to start a business, including how to write a business plan, and once you have a business, to grow it.
The Department of Labour has useful tips for self-employment.
Funding for various types of businesses is available through the Industrial Development Corporation or the Department of Trade and Industry's Government Investment Incentives.
Registering a business
The South Africa Government Services website has information on registering a business in all official languages.
The basics on setting up a new business in South Africa
A common type of question we receive is on how to start a business.Company structures and management systems can become quite complicated but its also possible to keep things relatively simple. It is the common and simple setup structures that we will focus on at the moment.
The main sections we deal with that should give you a start towards starting your own business are as follows:
Before you start - the various things you may need to consider before starting your business.
Types of business structures - the common types of company structures in South Africa and what they mean.
Business plan - planning the details of how your business will run and trying to predict whether it really will be successful.
Getting started - the first steps on starting your business.
Common problems - the issues faced by most aspirant entrepreneurs that create barriers to starting their businesses.
Starting a business as a foreigner in South Africa can be an arduous task without enlisting professional help. There are a number of ‘hoops’ that must be circumvented and the process can be time consuming and a distraction from the all important task of establishing your business.
At Intergate Immigration we have assisted hundreds of entrepreneurs with their ambition to create a business in South Africa and are able to boast of an unrivalled track record of success, all based on what we believe to be the most comprehensive service available.
Below we detail the important aspects of starting a business as a foreigner in South Africa but if you prefer to talk to a human being to discuss your needs, feel free to call us on any of the above phone numbers or request a call back here.
Where to begin with starting a business as a foreigner in South Africa
Importantly and before you commit time and money, you should have an assessment of your circumstances and requirements carried out. Assessments, as with ourselves, should be free of charge and carry no obligation.
Very often, and understandably, people source information on the obvious, in this case the business visa. There is however a real alternative that should be considered, if for no other reason to ensure you have made an informed decision.
Below we look at the two routes for starting a business as a foreigner in South Africa and discuss the merits and pitfalls of each.
The different visa’s for starting a business as a foreigner in South Africa
In order to be able to set up, invest into and work within a business in South Africa as an immigrant there are two types of visa you can apply for:
- Business visa – Traditionally, for anyone starting a business as a foreigner in South Africa this category has been the most recommended.
- Independent Financial Permit – A very underused permit category that allows for the holder to commence a business, but also offers a host of other benefits over the business visa route.
Who can apply?
Business visa are for those individuals seeking to invest in a business, or an existing start up, and who will be working within the business.
The Independent Financial skills permit is a permit that is not restricted to a certain economic activity. As such it allows the holder total freedom to invest into a business, whether they will be working in it or not. There is also no obligation to invest, or start a business. In short the holder of the Independent permit is free to make their own decision as to whether they run a business, work or even retire.
Must there be local ownership?
No a business can be owned and run with 100% foreign ownership. However for those with a local partner this is also fine. This applies to both the business visa and independent financially independent.
Can I buy into or outright an existing business?
Yes, which ever permit or visa category you select you can do either or indeed set up one from scratch.
Is there a minimum shareholding a foreigner must own?
As a business visa holder you will need to typically own in excess of 25% of the business. A Financially Independent permit holder has no restrictions.
Is there a minimum amount of investment required?
For business visa holders you need to invest ZAR 5 million into the business unless you qualify for a waiver. You can read more about the minimum investment amount here.
There is no requirement for the holder of the Financially Independent permit to invest any set amount into as business, they are free to invest as little or as much as they desire. Note however, to successfully apply for a Financially Independent permit, you need to prove a net worth of the equivalent of ZAR12,000,000 (12 million) but these funds do not need to be brought into South Africa.
Can my partner or children work in the business?
Partners of the business visa holder can work in the business but not for remuneration. Children would not be able to work in the business unless a work visa was granted in their own right. If you have children still in education years a study visa would be required.
Partners of Independent Financial permit holders will need to secure residency in their own right which would involve a spousal or life partner visa application. Dependent children would require a study visa.
Must I employ South Africans?
There is a requirement that employees are at least 60% South Africans (citizens or permanent residency holders). These must be employed on a permanent basis in the business if you hold a business visa. There are no such requirements for the Independent Financial permit holder.
Can I apply for permanent residency?
Starting a business as a foreigner in South Africa, via the business visa route, would first mean obtaining temporary residency. Once in receipt of this, permanent residency can be applied for.
Independent Financial permit applicants may only apply for permanent residency. This of course has its attractions but the disadvantage can be that permanent residency takes longer for the Department to process.
What sort of company must I set up?
Typically a Pty Ltd would be the appropriate company structure and you can read more about the various business structures here.
I am in a permanent relationship / married to a South African – do I need a business visa?
Neither a business visa, not an Independent Financial Permit are required if you have a South African partner. Starting a business as a foreigner in South Africa with a South African partner requires you to have either a spousal visa or life partner visa which you can then endorse to set up and run a business.
If I am not working in the business, just investing, do I need a business visa?
Business visa’s are designed for the holder to work in the business. Foreign investors do not require a business visa. Any foreigner may own a business with no restriction. However should they intend to work within the business or come to live in South Africa a visa would be required.
How do I prove my business concept and my credentials?
When making a business visa application, part of the application’s supporting evidence is the submission of a comprehensive business plan. The business plan purpose is twofold – one, and in the traditional sense, to prove the business will be successful, and two, to highlight some of the home affairs requirements.
There is no requirement for a Financial Independent application to submit a business plan.
Would my business need to be audited?
There are requirements for businesses with a certain turnover to be audited and also others like estate agents are required from a regulatory prospective. There is also an argument for it being good practise for all businesses to be audited and you can read more on auditing here.
The decision, subject to these rules, is up to the business holder.
Can I set up an NGO in South Africa as a foreigner?
Yes, non profits are able to set be up and more information can be read here.
How long does the application process take?
There are two aspects to the application process:
- The compilation of the visa or permit application.The compilation of the business visa application is more time consuming as this stage involves not only the Home Affairs requirements but also supporting documentation such as the company registration paperwork and the memorandum of incorporation. In addition other departments such as the Department of Trade and Industry are involved. Compilation can therefore take 4 – 12 weeks.
- The Financially Independent application does not involve such third parties and can therefore be achieved much quicker.The second stage is the submission to the Department of Home Affairs and the Departments timing can vary from 4 weeks to 12 weeks usually for a business visa.
Here there can be a potential drawback for applicants for the Financially Independent as these have historically taken approx 9 months.
Is there any other important distinctions?
You can see here for a summary breakdown of the business visa versus the Independent Financial Permit. But in summary, whilst the independent financial permit is a lot more flexible and carries little obligations with it either initially or on an ongoing basis there are 2 considerations that must be taken into account:
- The timing of your move. Permanent residency applications (Independent Financial Permits) take longer to process. If you plan in ample time this can be mitigated.
- The Department of Home Affairs levies an additional charge for successful applicants of the Independent Financial permit of ZAR 120,000. This is almost akin to a success fee as it is only payable if your application is approved.
How can Intergate Immigration help me?
When it comes to starting a business as a foreigner in South Africa there is no company better placed to assist than Intergate Immigration. Our service does not just focus on the correct visa or permit but offers a fusion of skills; company formations, tax, business plans, insurances and many others.
Our in-house team means you don’t have to worry, we take care of all aspects of the process, leaving you to concentrate on the important parts of your immigration, the settling in and your business.
Why not try us for yourself – call us on any of the above numbers, request a call back or email your enquiry to us. You can expect a prompt response and to be treated as a client before you are one.
|No.||Procedure||Time to Complete||Associated Costs|
| ||1||Register at the Companies and Intellectual Property Commission (CIPC)
An entrepreneur has 4 different ways to register a company with the Companies and Intellectual Property Commission (CIPC). The most common form of registration, which is counted by the Starting a Business indicator, is through the CIPC website (www.cipc.co.za). Registration can also be done at the self-service terminals located in Pretoria, Johannesburg and Cape Town; at some bank branches (FNB so far); and by email.
To register the company online, the entrepreneur needs to register as a customer on the CIPC website (www.cipc.co.za). Once registered, the applicant has to fund the new virtual account with at least 175 ZAR. This amount will cover the registration cost (125 ZAR) plus the name reservation cost (50 ZAR). The account can be funded via wire transfer.
During the registration process the following information must be provided:
1. Details about the owners/directors:
• Country of origin
• ID/Passport number
• Appointment date
• Date of Birth
• Phone, email
• Physical address and postal code
2. Details about the company:
• Financial year end
• Authorized shares
• Email address, website, Physical address and postal code
3. Company name reservation:
The next step is the “company name reservation”. At this point, the applicant can either apply for a company name as part of the process, use a name that was previously approved, or register the company using the registration number given by the CIPC as company name. If the applicant chooses the first option, he/she will need to enter at least 1 and up to 4 proposed company names, in order of preference. The first available will be selected. This process can take from 3 to 5 days.
Once the steps mentioned above are completed, an email will be sent to the applicant requesting additional documentation to be emailed to CIPC:
• Certified ID copies of all indicated initial directors and incorporators.
• Certified ID copy of applicant if not the same as one of the indicated initial directors or incorporators.
• Registration forms signed.
Finally, once the company is registered, the customer receives an email confirming that the company is registered and a link back to the CIPC website to retrieve the disclosure certificate and all the Incorporation documents.
| ||2||Open a bank account
In order to open a bank account, the applicant must submit proof of the directors' identity, and the original company documents. This procedure may take longer in practice if the required documents as per the Know your customer ("KYC") requirements in The Financial Intelligence Centre Act No. 38 of 2001 are not in order.
|1 day on average
| ||3||Register for income tax and withholding taxes (PAYE, UIF and SDL) at the South African Revenue Service (SARS)
The Companies and Intellectual Property Commission (CIPC) and the South African Revenue Service (SARS) are linked electronically. When the entrepreneur visits a SARS branch to register for income tax, SARS retrieves the information previously provided by the entrepreneur to the CIPC during procedure 1. The entrepreneur still needs to visit the SARS office for:
a) Income tax registration – for which the applicant needs to present:
• Owner ID
• Registration Certificate
• Bank Statement
b) Employees tax (PAYE), Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL) registration:
The entrepreneur must submit the EMP 101e form which is available online or at the local SARS office. Registration is immediate and can be done online or at the branch.
• Pay as you earn (PAYE) tax refers to the tax required to be deducted by an employer from an employee’s remuneration paid. The employer is compelled to register in terms of paragraph 15 of the 4th Schedule to the Income Tax Act.
• Unemployment Insurance Fund (UIF): this is a compulsory contribution to fund employment benefits. The funds are used to provide short-term relief should workers become unemployed or unable to work for various reasons. Any employer who is liable to register for the employees tax (PAYE) is required to register with SARS for the unemployment insurance contributions.
• Skills Development Levy (SDL): this levy is used by the government to fund education and training as stated in the Skills Development Act, 1998. This levy is payable monthly by employers to SARS.
| ||4||Register for VAT at the South African Revenue Service (SARS)
Businesses with annual taxable turnover of more than ZAR 1,000,000 must register for VAT. The application for the registration of VAT is done on a VAT 101 form. VAT registration can take from 1 to 21 working days depending on the risk level assigned to the company by SARS. The risk level is assessed based on different variables such as company activity, turnover and consistency of the information provided. For the case study company considered by the Starting a Business indicator the median time is 7 days.
|*||5||Register the company with the Unemployment Insurance Fund (UIF)
Agency: Department of Labor for Unemployment Insurance
According to the Unemployment Insurance Act and the Unemployment Insurance Contributions Act, all employees working more than 24 hours per month must be registered with the UIF. The employer is liable for the registration of the employees.
Employers must pay unemployment insurance contributions of 2% of the salary of each worker's pay per month. The employer covers 1% and the employee another 1%. The employer is responsible of withholding the employee’s 1%. The payment is done through SARS but the employee claims are requests through the UIF.
The employer must submit the forms UI-8 (company registration) and UI-19 (employees registration) either at the Pretoria UIF office, labour centers or by email. When the process is completed, a confirmation letter (form UI-33) is sent by email.
|4 days (simultaneous procedure)
|*||6||Register with the Commissioner in deference to the Compensation for Occupational Injuries and Diseases Act
Agency: Office of the Compensation Commissioner
According to the Compensation for Occupational Injuries & Diseases Act 130/1993 amended in 1997, the employer is responsible for registering employees with the Compensation Fund.
Registration forms can be obtained from the Department of Labor's website (www.labour.gov.za). However, online registration does not exist and must be done in person and the time it takes to complete this step varies according to the level of risk under which the business is assessed.
The relevant form is W.As.2. After completing and submitting the W.As.2 form at the office of the Compensation Commissioner, the Company will be sent the following documents to complete at various times throughout the year (although these are not required for registration):
• W.As.8 must be filed within 30 (thirty) days of financial year end, which must balance with Employer's COIDA account;
• W.As.6a which details the assessment of the Commissioner for premiums payable, excluding any amounts paid in advance;
• WG30, W.As.2 and W.Acl(E) which are claim forms
|30 days (simultaneous procedure)