sapcc guide to doing business in south africa 2017...traveller’s choice 2016 (lisbon is ranked...

SAPCC Guide to Doing Business in South Africa 2017

The South African Portuguese Chamber of Commerce (SAPCC) Business Guide is an insider’s guide designed to assist our corporate members

and entrepreneurs on how to navigate the political, regulatory and increasingly complex requirements of

doing business in the new South Africa.

Specially packaged with the latest market research and economic and legislative indicators, the SAPCC’s

Guide to Doing Business in South Africa was compiled by seasoned professionals with intimate knowledge and experience in several sectors and

aims to help your business stay relevant and competitive in the most developed

economy in Africa.

SAPCC Guide to Doing Business in South Africa

Welcome ..................................................................................................5

Why invest in South Africa? .......................................................................6 Country Overview | An Economic Overview

Investment Vehicles and Company Law .....................................................9 Types of Entities | Companies Act, 71 of 2008

Taxation ................................................................................................12 An Introduction to South African Taxation | Direct Taxes | Income Tax | Normal tax | Calculating tax payable to SARS Donations tax | Dividends tax | Withholding tax | Estate duty | Capital gains tax | Indirect Taxes | General anti-avoidance rules (GAAR)

Labour Regulations .................................................................................18 Introduction | The Employment Contract | Basic Conditions of Employment Act of 1997 (BCEA) | Labour Relations Act of 1995 (LRA) | Dispute resolution | The Employment Equity Act of 1998 (EEA) | Occupational Health and Safety Act No. 85 of 1993 (OHSA)

Broad-Based Black Economic Empowerment (B-BBEE) ..........................20 Introduction | Objectives of the B-BBEE Act | Key principles | Definition of “Black People” | Legislative framework Measuring BEE compliance | Types of Companies under Revised Codes | Generic BEE Scorecard I Generic BEE Scorecard II | Ownership | Equity Equivalent (EE) Programmes | Skills development | Enterprise and Supplier Development (ESD) | Fronting | Sector specific codes

Contract, Consumer and Credit Law .......................................................25 Law of Contract | Consumer Protection Act (CPA) | National Credit Act (NCA)

Real Estate and Property Rights ..............................................................29 Introduction | Who can own property in South Africa? | Foreign Ownership Limitations | Land registration and property rights | Relevant legislation | Constitution | Deeds Registries Act, 1937 | Sectional Titles Act, 1986 | Share Blocks Control Act, 1980 | Mineral and Petroleum Resources Act, 2002 | Consumer Protection Act, 2008 | Land Reform and Land Restitution | Taxes and duties on transfer of property | Transfer Duty Act,1949 | Value-Added Tax (VAT) Act, 1991 Income Tax Act, 1962 | Withholding Tax | Remittance abroad

South Africa and World Rankings ............................................................32 World Bank’s Ease of Doing Business Index | Overall Index Raking | WEF Global Competitiveness Index A.T. Kearney FDI Confidence Index

Exchange Control Regulations .................................................................35

Government Grants and Incentives ..........................................................38

Contributors ............................................................................................42

Contact SAPCC ......................................................................................43

CONTENTS

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5SAPCC Guide to Doing Business in South Africa 2017 I

INTRODUCTION

Welcome to South Africa!South Africa is a key investment destination, especially for many Portuguese companies wishing to take advantage of its geographic location and infra-structure, to use it as a gateway to expand their business operations into Africa and Angola and Mozambique, our key Portuguese-speaking regional neighbours in the Southern African Development Community (SADC).

Any business intending to enter into a new market needs to familiarize itself with the how to do business in that country. It is important to understand how to set up a business, company structures, tax and legal requirements, employment legislation and various other aspects critical to the foundation of setting up a business in another country.

This Guide is aimed at assisting our corporate members and entrepreneurs on how to navigate the regulatory and increasingly complex requirements of doing business in the new South Africa. It is both practical and technical. It was initially published as a 12-part series in our monthly newsletter and is now collated and re-distributed.

The SOUTH AFRICAN PORTUGUESE CHAMBER OF COMMERCE (SAPCC) Guide to Doing Business in South Africa was contributed to by a number of experienced professionals in various sectors including law, tax, business and Communications. The information contained herein was current as at December 2017.

It is hoped that this Guide will assist those members, investors, entrepreneurs and exporters seeking to do business in South Africa. Contact the SAPCC for further information and advisory support.

The SAPCC is a non-profit company acting for the benefit of its members. Its main objectives are:

• To encourage bilateral trade;

• To create a platform and network for our members to increase business;

• To promote and showcase our members through our newsletter, social media and website;

• To unite the Portuguese business community;

• To support Portuguese companies (members) wanting to invest in SA;

• To inform and update our members on relevant topics.

SOUTH AFRICA PORTUGUESE CHAMBER OF COMMERCE www.sapcc.co.za

6 I SAPCC Guide to Doing Business in South Africa 2017

Welcome to The SAPCC Guide to Doing Business in South Africa 2017. The main objective of the Guide is to provide you with a basic knowledge about South Africa; an overview of its economy, starting a business, potential opportunities and to identify the main issues associated with initial research and market entry.

South Africa is a sophisticated, multi-faceted and relatively open economy and promising emerging market. Its geographic location makes it a key investment destination, especially for Portuguese companies wishing to take advantage of its infra-structure to use it as a gateway to, especially Portuguese-speaking, southern African countries.

South Africa is a constitutional democracy. South Africa's economy has been completely overhauled since the advent of democracy in 1994. It has a population of approximately 55 million people, 60% of whom are under the age of 35. There are 11 official languages, though English is used in commercial and everyday life.

South Africa is dubbed as Africa’s powerhouse contributing approximately 15% of the continent’s GDP. It is ranked 47th out of 138 nations internationally according to Overall Economic Index of The World Economic Forum’s Global Competitiveness Report 2016-17 (Portugal: 46). South Africa has also been ranked 74th out of 190 economies according to The World Bank’s Report: Doing Business 2017 (Portugal: 25).

South Africa has a well-developed transport infrastructure. The roads are world-class. The air and rail networks are of the largest on the continent and the country’s ports provide a natural stopover for shipping to and from Europe, the Americas, Asia, Australasia and both coasts of Africa.

It has world-class infrastructure, exciting innovation, research and development capabilities and an established manufacturing base. It is at the forefront of the development and rollout of new green technologies and industries, creating new and sustainable jobs in the process and reducing environmental impact.

South Africa has sophisticated financial, legal and telecommunications sectors, and a number of global

business process outsourcing operations are located in the country.

It has political and macro-economic stability, an abundant supply of semi-skilled and unskilled labour. For professional jobs, labour costs are less than half of the cost of European countries. For manufacturing jobs, labour costs are around one-third of the cost of Europe. South Africa compares favourably to other emerging markets in terms of the overall cost of doing business.

South Africa has a wealth of natural resources, including gold, chromium, antimony, coal, iron-ore, manganese, nickel, phosphates, tin, rare-earth elements, uranium, gem diamonds, platinum, copper, vanadium, salt, natural gas. It is attractive to international energy and exploration companies, particularly in the oil and gas sector.

Increasingly, the “Green Economy” is taking prominence as the country is moving away from traditional coal-fired power stations to cleaner energy production.

South Africa is ranked amongst the top three countries in the world in respect of tourism growth. It is ranked 48th overall out of 141 countries, in the World Economic Forum’s Travel and Competitiveness Report 2015 (Portugal:15). Cape Town was named the top tourist destination in the world in the 2013 Traveller’s Choice Destinations Awards. It is ranked 20th on the Trip Advisors’ Traveller’s Choice 2016 (Lisbon is ranked 12th).

South Africa forms part of the BRICS group of countries with Brazil, Russia, India and China. It has a favourable demographic profile and its rapidly expanding middle class has growing spending power. South Africa is also a member of, among others, the Southern African Development Community (SADC), the Southern Africa Customs Union, the World Trade Organisation and the African Development Bank.

Why invest in South Africa?

South Africa: Country Overview

By Rui Marto*

PART 1


PART 1 – WHY INVEST IN SOUTH AFRICA?

South Africa: An Economic OverviewSouth Africa’s economy has traditionally been dominated by the primary sectors resulting from a wealth of mineral resources and favourable agricultural conditions. Since the 1990s, however, the economy has developed to reply more on the tertiary sector, including wholesale, retail, tourism and communications. South Africa is moving towards a knowledge-based economy, with a greater focus on technology, e-commerce and financial and other services.

The sectors that contributed to South Africa’s GDP in 2013 (Statistics South Africa www.statssa.gov.za) are:

• Agriculture: 2.4%

• Construction: 3.7%

• Electricity and water: 3.0%

• Finance, real estate and business services: 21.52 %

• Government services: 17.0%

• Manufacturing: 11.7%

• Mining: 9.2%

• Personal services: 6.0%

• Transport, storage and communication: 8.0%

• Wholesale, retail and motor trade: 16.6%

South Africa has a number of investment incentives that are aimed at encouraging commercial activity. A variety of these incentive schemes seek to support the development or growth of commercially viable and sustainable enterprises through the provision of either funding or tax relief.

Other indicators are:• In terms of Purchasing Power Parity (PPP), South Africa has the seventh highest per capita income in Africa. (World Bank) • The Johannesburg Stock Exchange (JSE) ranked as the 12th best stock exchange in the world in terms of market value, trade and turnover in 2014. • South Africa’s tax revenue increased from R100 billion in 1994 to R1 trillion in 2014. • South Africa is the second largest exporter of fruit in the world. (Economist) • South Africa ranks first in platinum output, second in palladium output, third in gold output, sixth in coal output and ninth in wool output. (Economist) • Resources (including gold, platinum, ferrochrome, coal and palladium) account for about 30% of South Africa’s export earnings. • South Africa ranked 24th out of 192 countries in the Largest Gold Reserves Index 2013. (Economist)

The above factors make South Africa an attractive investment destination. In the next chapter of our Guide, we will examine Investment Vehicles and Company Law.

2.4% 3.7%3.0%

21.52%

17.0%

11.7%

9.2%

6.0%

8.0%

16.6%

Key Indicators:GDP (US$ billions) 313.0

GDP per capita (US$) 5694.57

GDP (PPP) per capita (US$) 13165.16

GDP (PPP) as share (%) of world total 0.64

From the World Economic Forum’s Global Competitiveness Report 2016-17, achievements to date include: Ranked below

1st - strength of auditing and reporting standards (Por: 108)

125th - time to start a business (Por: 6)

3rd - the efficacy of corporate boards (Por: 85)

1st - the protection of minority shareholders’ interests (Por: 95)

7th - effectiveness of anti-monopoly policies (Por: 55)

2nd - availability of financial services (Por: 53)

2nd - soundness of banks (Por: 129)

3rd - regulation of securities exchange (Por: 120)

9th - Efficiency of legal framework in settling disputes (Por: 126)

11th - Financial Market Development (Por: 116)


Legal Services

Commercial Law

Company Structures

Property Law

Civil Litigation

Mergers & Acquisitions

ATTORNEYS, NOTARIES, CONVEYANCERS

Tel: 011 616 6420 11 Smith Street, Bedfordview

www.martolafitte.co.za Email: [email protected]

Associated with MLA - Maricato, Lima & Associados

(Portugal and Mozambique)

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• Private Company (Pty) Ltd is a compa-ny that is not a state-owned company and its Memorandum of Incorporation (MOI) prohibits it from offering any of its securities to the public, and restricts the transferabili-ty of its securities.

• Public Company (Ltd) is a company that is not a state-owned company, private company or personal liability company.

• Personal Liability Company (Inc.) is a private company of which the company’s MOI determines that the company and the directors are jointly and severally liable for any debts and liabilities of the compa-ny. Example with attorneys, auditors, etc

• Foreign and External Company.

- A foreign company wishing to conduct business in South Africa can either establish a separate South African company or it may establish a branch office by registering as an external company with the Companies and Intellectual Property Commission (CIPC).

- A foreign company is a company incorporated out side of South Africa, irrespective of whether it is a profit or non-profit company or carrying on business in South Africa or not.

- A foreign company is required to register as an “external company” if it conducts or intends to conduct business in South Africa. It is not recognised as sepa rate legal entities (except for exchange control purposes).

- A foreign company is prohibited from offering securities to the South African public unless it follows the specific provisions of the companies Act, relating to offers to the public.

Investment Vehicles and Company Law

Business may be carried on in South Africa using a number of possible investment vehicles, ranging from companies to business trusts and joint ventures. An investor could register the following types of entities: a private or public company, a personal liability company, an ‘external company’, business trust or operate individually as a sole proprietor and in a partnership.

By Rui Marto*

PART 2

Types of Entities


PART 2- INVESTMENT VEHICLES AND COMPANY LAW

• Business Trust is a legal arrangement whereby ownership and control over prop-erty is transferred to a person or organisa-tion (the trustee) for the benefit of someone else (the beneficiary). Trusts are often used to attain a form of limited liability without the formalities of incorporating a close corpo-ration or company. A business trust is an operating business entity, usually an inter vivos trust, which operates as a business entity, but because of adverse tax conse-quences is not as popular as it used to be.

• Sole Proprietorship and Partnership

- Sole Proprietorship is a business owned by oneindividual. The sole proprietorship is not a legal entity. The business has no existence separate from the owner.

- A partnership (or unincorporated joint venture) is the business relationship existing between two or more persons (limited to 20) who join together to carry out a business.

- A partnership is also not a separate legal person or taxpayer.

- The net profit of the Sole Proprietor and Partner is viewed as personal income of the business owner and taxed in his personal name.

- A sole proprietorship and partnership can operate under the name of its owner/s or it can do business under a trade name. The trade name does not create a legal entity separate from the sole proprietor or partnership.

Tax and other considerations affect the choice of a particular form of business entity. The most commonly adopted forms of doing business by foreign (and local) investors are private companies.

Companies Act, 71 of 2008

The registration and management of companies are governed by the Companies Act, No. 71 of 2008 (the Act). A company exists as a separate legal entity from its shareholders and managed and controlled by its directors. Liability is limited to the shareholders’ capital contributions. Generally, there are no minimum share capital requirements in South Africa, although certain industry laws, such as banking and insurance, impose these requirements.

Formalities for Registering a Company

The registration process for private and public companies commences with the reserva-tion of the company name. A company is incorporated by submitting its Memorandum of Incorporation (MOI). A standard form of the MOI is included in the Companies Act, however, a company may choose to submit its own version. A company may trade only when the Commissioner has issued it with a certificate to commence business.

A private company is only required to prepare annual audited financial statements where the company’s turnover, number of employees and the nature and extent of its activities require it by law to do so. The effect is that larger companies must be audited.

Shareholders generally conclude a shareholders’ agreement which regulates the material terms of the relationship including voting rights. Should any provisions of a shareholders’ agreements be in conflict with either the Companies Act or the MOI, same will be deemed to be void.


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An Introduction to South African Taxation South Africa imposes tax (subject to certain exemptions) on all forms of corporate entities as well as on individuals and trusts. These taxes refer to payments to a minimum of two different levels of government: central government through the South African Revenue Service (SARS) or to local government through our local municipalities.

Central government revenues come primarily from direct taxes such as, inter alia, individual and company income tax, donations tax, withholding tax on dividends, estate duty and capital gains tax.

Indirect taxes are taxes which are levied on transactions rather than on persons (whether individuals or company). These include Value Added Tax (VAT), and other taxes like the fuel duty, airports passenger tax, securities transfer taxes, skill development levies, sin taxes and other more industry specific taxes.

Local government revenues come primarily from grants from central government funds and municipal rates and taxes paid by residents of the area.

The country's taxation laws are contained in various elements of legislation, which are amended normally annually through the Finance Ministers budget. The annual budget sets out revenue trends and tax proposals and providing valuable insights into the tax laws that are likely to be proposed by Government in the future tax year.

The collection of tax is administered by the South African Revenue Service (SARS) which is governed by the Tax Administration Act of 2011.

DIRECT TAXES

1. Income Tax

South Africa has a progressive income taxation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State than the poor. This means that the more a person earns the higher percentage tax they pay. By law all employers have to register all employees as taxpayers regardless of their tax liability. Data from KPMG, in terms of individual income tax, says that South Africans pay the 31st highest average income tax rate in the world.

The applicable legislation in force is the Income Tax Act No 58 of 1962 which set out different types of income tax. The following main taxes form part of the Income Tax Act:

I. Normal Tax

II. Donations tax

III. Dividends tax and

IV. Withholding tax on royalties and interest

V. Turnover tax

I. Normal tax

Normal tax in South Africa is a levy imposed on all persons in the form of an annual tax that is calculated by applying predetermined rates to a person's taxable income. This type of income tax can be divided into individual income tax and company income tax.

a) Individual income tax

Tax and other considerations affect the choice of a particular form of business entity.

Taxation

By Antonio Duarte*

PART 3

Individual income tax (otherwise known as Personal income tax) rates in South Africa range from 18% (for income below R189,000p.a) to 45% (for amounts, over R1 500,000), although the tax threshold of R75,750 (for persons below age 65), and R117,301 (for persons older than the age of age 65) means that anyone earning taxable income less than this amount pays no income tax. Individuals earning less than R350,000 do not need to submit an income tax return so long as their remuneration is from a single employer, have no car allowance or other income, are claiming tax from other related deductions, have received interest from a source in South Africa not exceeding taxable limit provided by stature.

Not sure whether you must submit an Income Tax Return (ITR12), then if any of the following apply to you, you need to register as an individual taxpayer and submit a return:

• Did you conduct any trade in South Africa?

• Did you receive an allowance such as a travel, subsistence or office bearer allowance? Check your IRP5/IT3(a) if unsure.

• Do you hold any funds or assets outside South Africa that have a value of more than R225 000?

• Did you have a local Capital Gain/Loss exceeding R30 000?

• Did you receive any income or have a Capital Gain/Loss in a foreign currency?

• Do you hold any rights in a Controlled Foreign Company?

• Did you receive an Income Tax Return or were you asked to submit an Income Tax Return for the tax year?

Tax revenue collection for 2015/16 amounted to R1 070.0 billion (R1.07 trillion), growing by R83.7 billion (8.5%) relative to 2014/15. The Tax-to-GDP ratio increased from 25.5% in 2014/15 to 26.2% in 2015/16, slightly below the peak of 26.4% achieved in 2007/08. Revenue growth was mainly supported by personal income tax (PIT), which grew by R35.4 billion (10%). The cost of revenue collection ratio decreased from 0.97% in 2014/15 to 0.96%, well within the international benchmark of 1%.

Of the 6 662 490 individual taxpayers expected to submit returns for the 2014/15 tax year, 4 788 334 (71.9%) have been assessed. In ensuing years, the level of assessment for any given tax year increases as more outstanding returns are submitted and processed.

A demographic and geographic analysis of assessments at the time of the release of this publication shows:

• 1 920 874 (40.1%) assessed taxpayers were registered in Gauteng;

• 607 092 assessed taxpayers lived in the Johannesburg Metro and were taxed on an average taxable income of R404 430;

• 1 292 334 (27.0%) assessed taxpayers were aged 35 to 44; and

• 2 667 054 (55.7%) assessed taxpayers were male.

b) Company or corporate income tax

Corporate Income Tax (CIT) is a tax imposed on companies resident in the Republic of South Africa (i.e. incorporated under the laws of, or which are effectively managed in, the Republic, and which derive income from within or outside the Republic. Non-resident companies which operate through a branch or which have a permanent establishment within the Republic are subject to tax only to all income from a source within the Republic. Corporate Income Tax is payable at a flat rate of 28%.

A very brief high level view at calculating tax payable to SARSThe Income Tax Act No. 58 of 1962 sets out a series of steps to be followed in calculating a taxpayer’s “taxable income”. This then forms the foundation on which tax liability is calculated. These steps are briefly set out below and are tackled in greater detail in the explanations that follow.

A. Determine gross income

First determine your total receipts and accruals, or total income. These concepts are not contained in the Act, but they are implied by the wording of the definition of “gross income” in Section 1 of the Income Tax Act.

Deduct from “total income” those amounts that are excluded from the ambit of the definition of “gross income”. In other words, exclude accruals or receipts:

PART 3 - TAXATIONPART 3



PART 3 - TAXATION

• that are from a source outside South Africa for non- residents; or

• That is of a capital nature.

Gross income of residents for any person who is a resident, gross income is the total amount of worldwide income, in cash or otherwise, received by or accrued to or in favour of that person.

Gross income of non-residents For any person who is not a resident, gross income is the total amount of income, in cash or otherwise, received by or accrued to or in favour of that person from a source within or deemed to be within South Africa during the year of assessment.

Capital receipts and accruals Receipts or accruals of a capital nature are generally excluded from gross income as the Eighth Schedule covers these as capital gains and losses. However, certain other receipts and accruals are specifically included in gross income, regardless of their nature.

A taxpayer needs to include in gross income:

• the general inclusions in terms of the general definition of “gross income” as contained in Section 1;

• the specific inclusions in terms of paragraphs (a) to (n) of the definition of “gross income” in Section 1; and

• Deemed accruals (contained in Section 7), deemed interest (in Section 8E) and the accruals or receipts deemed to be from a source in South Africa (in Sections 9 and 9D).

B. Deduct exempt income

“Gross income” minus the exemptions set out in Section 10 is equal to “income”. A taxpayer’s “income” is therefore calculated by deducting from the taxpayer’s gross income all amounts that are exempt from tax.

C. Deduct allowable deductions

The next step is to subtract certain allowable deductions from “income”, then add taxable gains and then subtract the other deductions, which leaves “taxable income”. Deductions include:

• general deductions that qualify in terms of the general deductions formula contained in Sections 11(a ) and 23(f) and (g);

• specific deductions contained in Sections 11(c) to (x);

• Allowances and other special deductions and rulings contained in Sections 11bis to 24L.

D. Multiply ‘taxable income’ by tax rate

Once taxable income has been determined, the applicable tax rate is applied to determine tax liability. Companies are taxed at a flat rate of 28%.Individuals are considered “persons other than companies” and are taxed on a sliding scale:

2018 tax year (1 March 2017 - 28 February 2018) - see changes from last year

Taxable income (R) Rates of tax (R)

0 – 189 880 18% of taxable income

189 881 – 296 54034 178 + 26% of taxable income above 189 880




708 311 – 1 500 000209 032 + 41% of taxable income above 708 310

1 500 001 and above533 625 + 45% of taxable income above 1 500 000

2017 tax year (1 March 2016 - 28 February 2017)

Taxable income (R) Rates of tax (R)

0 – 188 000 18% of taxable income





701 301 and above206 964 + 41% of taxable income above 701 300

E. Subtract rebates

The taxable income multiplied by the tax rate will leave a certain amount, from which must be subtracted:

• rebates for natural persons set out in Section 6; and

• Any applicable rebates for foreign taxes allowed by double-taxation agreements.

Rebates over the last 5 tax years are as follows:

Tax Rebate

Tax Year

2018 2017 2016 2015 2014

Primary R13 635 R13 500 R13 257 R12 726 R12 080

Secondary (65 and older)

R7 479 R7 407 R7 407 R7 110 R6 750

Tertiary (75 and older)

R2 493 R2 466 R2 466 R2 367 R2 250


II. Donations taxTax on donations is linked to Estate Duty which was first introduced in South Africa in 1955. It is not a tax on income but rather on the transfer of wealth but differs from estate duty in that it specifically taxes gifts and donations as opposed to inheritance. This tax subjects certain donations made by persons to a flat rate of 20%.

Exemptions:

• Section 56(1) contains a list of exempt donations which include amongst others donations between spouses and donations to approved public benefit organisations.

Annual exemptions:

• A donation will be exempt if the total value of donations for a year of assessment does not exceed:

• Casual gifts by companies and trusts: R10 000.

• Donations by individuals: R100 000 (2016 – R50 000) (section 56(2) (a) and (b)).

III. Dividends taxDividends Tax is a policy tax imposed by government with the aim of encouraging companies to retain profits instead of giving out dividends. It takes the form of a 20% tax on receipt of dividends given by companies and closed corporations. Some of the recent growth in this tax revenue for 2012/13 occurred due to increases in the value of taxable economic activities and higher compliance rates even though this tax rate remained the same.

Prior to 1 April 2012 this tax was known as the Secondary Tax on Companies and took the form of a 10%/ later 12.5% tax on the net dividend distributed by companies and closed corporations.

IV. Withholding taxWithholding tax, also called retention tax, is a gov-ernment requirement for a South African payer of an item of income to a non-resident in South Africa to withhold or deduct tax from the payment, and pay that tax to the government. This tax can be divided into two categories:

A withholding tax on royalties of 15% (previously 12%) unless double taxation agreements apply.

A withholding tax on payments for fixed property which applies to any person who must pay a non-resident for immovable property in South Africa. This tax ranges between 5% and 10%.

V. Estate dutyEstate duty is similar to donations tax in that it is a tax on the transfer of wealth. The duty is charged on the death of a person and is based on the value of the deceased's estate at the date of their death. It is 20% on the amount remaining in the deceased's estate over R3.5 million.

VI. Capital gains taxFirst introduced on 1 October 2001, capital gains tax is effectively charged by adding a percentage of the increase in value of an asset that was disposed of for more than its base cost, to the taxpayer's taxable income (see normal tax). For individuals, deceased estates and special trusts 40% of the net gain exceeding R 40 000 exclusion for individuals is added to their taxable income. For companies, close corporations and trusts 80% is added. Net capital losses in any given year cannot be used as a set-off against ordinary income; but can be carried forward to the following years to be used as a set-off against future capital gains.

CGT applies to individuals, trusts and companies. A resident,

Taxation II

By Antonio Duarte*

PART 4

as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa. A non-resident is liable to CGT only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property. Some persons such as retirement funds are fully exempt from CGT. Public benefit organisations may be fully or partially exempt.

Indirect TaxesValue-Added Tax is commonly known as VAT. VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as the agent for government in collecting the VAT.

• VAT is charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.

• VAT is presently levied at the standard rate of 14% on the supply of most goods and services and on the importation of goods. The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at the zero rate or are exempt from VAT.

• Any person that carries on a business may register for VAT. You can register once for all different tax types using the client information system. The term person is not only limited to companies but also includes, amongst others, individuals, partnerships, trust funds, foreign donor funded projects and municipalities. In order to register, an application form must be completed and a specific process must be followed, both of which you can find on our page how to register for VAT.

• It is mandatory for a person to register for VAT if the taxable supplies made or to be made is, in excess of R1 million in any consecutive twelve month period.

• A person may also choose to register voluntarily if the taxable supplies made, in the past period of twelve months, exceeded R50 000. As from the 1st of March 2012, qualifying micro businesses that are registered for Turnover Tax may also choose to register for VAT provided that all the conditions for voluntarily registration for VAT are met.

• A person who is obliged to register for VAT is referred to as a vendor.

VAT remained the second largest contributor to total tax revenue for 2015/16, totalling R281.1 billion (26.3% of total tax revenues). Net VAT collections grew by 7.6% compared to the previous year. Aggregate growth in net VAT revenue was driven by an increase of 10.4% in import VAT payments as domestic VAT payments only increased by 3.7% (due to subdued

consumption expenditure by households). The main sectors that contributed to domestic VAT growth were financial intermediation, insurance, real-estate & business services; community social & personal services; and construction.

General anti-avoidance rules (GAAR)This part explains the important topic of the promulgated general anti-avoidance rules in the Income Tax Act. SARS is serious about tax compliance and does not respond kindly to any tax avoidance scheme. When it was promulgated, Minister Trevor Manuel stated clearly in parliament that SARS is now empowered with the new anti-avoidance rules to bring to book all the anti-avoidance schemes that escaped the tax net for a number of years.

The Duke of Westminster appeared in the number 1 spot of the “Rich List” as published by the London Sunday Times some decades ago. This very same Duke was the defendant in the most famous tax avoidance case in modern history. The judges of that court ruled in favour of the Duke and stated that:

“Every man is entitled, if he can, to order his affairs so that the tax attaching is less than it otherwise would be”

To prove tax avoidance, the Commissioner needs to successfully prove S80A to S80L of the Act. These sections replaced the very famous Sec 103(1).

At a glance, these sections, talk about a need for the Commissioner to define that there had to be a transaction, operation or scheme, which had to have the effect of avoiding, reducing or postponing any tax under the Act, that the sole or main purpose of the transaction, operation or scheme had to be the avoidance, reduction or postponement of any tax administered by SARS. Finally, there had to be the so-called abnormality requirement, in terms of which the means or manner of undertaking the transaction was not how it would normally be done, or the transaction had created rights or obligations that would not normally be created between persons dealing at arm's length.

Conclusion Given the extensive and constantly changing tax laws, it is imperative that local and foreign investors consider the South African tax consequences of investing in the country carefully. It is important, when applying South African tax laws, to ascertain whether a taxpayer is a South African resident or non-resident (for tax purposes) as this impacts the extent and types of the tax levied.

When obtaining advice regarding South African tax laws, it is also important to note that no person may provide tax advice to another person or assist a person in completing a tax return without being registered as a tax practitioner with SARS.

PART 4 - TAXATION II



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PART 5 - LABOUR REGULATIONS

LABOUR REGULATIONSIntroduction

A number of sources regulate the various aspects of employment and labour relations in South Africa, including the Constitution of the Republic of South Africa, legislation, collective agreements concluded with trade unions or organised labour, sectoral determinations and bargaining council agreements that regulate basic conditions of employment in a specific industry common law and the employment contract.

Any foreign employees working in South Africa for a South African employer will be protected by South African employment laws. The employment relationship will, therefore, be governed and regulated by South African employment law.

For the purposes of this article, we will focus on the employment contract and the main applicable legislation, namely The Basic Conditions of Employment Act, The Labour Relations Act, The Employment Equity Act and The Occupational Health and Safety Act.

Basic Conditions of Employment Act of 1997 (“BCEA”)

Minimum terms and conditions of employment are governed by the Basic Conditions of Employment Act. The minimum standards must be adhered to, such as:

• Ordinary hours of do not exceed 40 hours in any one week or nine hours in a day. Any work over this will constitute “overtime” work;

• Overtime is paid at 1.5 times the employee’s ordinary rate;

• If an employee, however, earns in excess of a certain threshold per annum (currently R205 433.30) such an employee will not qualify for overtime pay;

• Every employee will be entitled to three consecutive weeks paid annual leave;

• An employee will be entitled to 30 days paid sick leave in a three-year cycle;

• An employee is entitled to three days paid leave as family responsibility leave.

The BCEA also regulates:

• Leave: Annual leave, sick leave, family responsibility leave and maternity leave;

• Particulars of employment and remuneration: Written particulars, informing employees of rights, record keeping, payments, deductions and calculation of remuneration; and

• Termination of employment: Notice of termination, payments on termination, severance pay and certificates of service.

Labour Regulations

By Rui Marto*

PART 5

The Employment Contract

The employment contract usually sets the basis

governing the employment relationship. The employment

contract is, however, subject to sectoral determinations,

bargaining council agreements and employment

legislation that provide minimum standards and

entitlements to the employment relationship.



Many employers are required by law to register with bargaining councils specific to their industry which prescribe terms and conditions applicable to employees in that industry. In certain instances, a main agreement regulating a particular industry will be applicable and may provide for more favourable terms and conditions of employment than the BCEA.

Labour Relations Act of 1995 (“LRA”)

The LRA governs collective bargaining at the workplace, workplace forums, regulates the right to strike and the recourse to lockout, and governs the dismissal of employees, as well as the relief to which unfairly dismissed employees are entitled.

The LRA promotes collective bargaining as a method of setting wages and conditions of employment.

Most collective bargaining occurs at employer level, but some industries are regulated by industry level bargaining councils where bargaining between employer and employee organisations will take place.

The Labour Relations Act also regulates and deals with dismissals or termination of employment, which must be both substantively and procedurally fair. The reason/s for the termination must be fair as well as the actual procedure which leads to the termination. Procedural fairness refers to the manner in which any action is required to be taken by an employer. Any employer failing to adhere to this standard could be found guilty of unfair conduct and risk having to pay compensation to the employee.

Dispute resolution

The dispute resolution institutions created by the LRA are the Commission for Conciliation, Mediation

and Arbitration (“the CCMA”) and Labour Court. These are given wide powers in determining

whether parties have acted fairly in regulating or terminating an employment relationship.

The LRA also created the processes for dispute resolution in the aforementioned

institutions.

If there is a bargaining council, an aggrieved employee must refer a

dispute to the relevant bargaining council. If no bargaining council exists then the dispute is referred to the CCMA for conciliation. If conciliation fails to resolve the dispute the employee may refer it to the next level which, depending on the nature of the dispute, will either be an arbitration tribunal or to the Labour Court.

The matters referred to the Labour Court are matters such as multiple retrenchments, strike dismissals or automatic unfair dismissals. The use of industrial action in relation to interest disputes is considered as a method of last resort.

The Employment Equity Act of 1998 (“EEA”)

The EEA governs the implementation of affirmative action measures in the workplace aimed at eliminating unfair discrimination against previously disadvantaged groups. It promotes equal opportunity and fair treatment in the workplace. The EEA also provides for equal pay for equal work claims, prohibits unfair discrimination in any employment policy or practice, and requires designated employers to formulate employment equity plans and report on the implementation of such plans.

No employer may unfairly discriminate against an employee in any policy or practice on any grounds, including race, gender, sex, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, political opinion, culture, language, birth or HIV status.

However, it is not unfair discrimination to take affirmative action measures or exclude or prefer any person on the basis of an inherent requirement of a job. Affirmative action measures are implemented for people from designated groups defined as meaning Black people (African, Coloureds and Indians), women and people with disabilities.

The EEA also enforces the principle of equal pay for equal work. Employees of the same employer, performing the same work or work of equal value, must not be treated differently in terms of benefits and remuneration, unless justifiable reasons exist for the differentiation.

Occupational Health and Safety Act No. 85 of 1993 (“OHSA”)

The OHSA aims to provide for the health and safety of persons at work and for the health and safety of persons in connection with the activities of persons at work and to establish an advisory council for occupational health and safety.

The OHSA requires an employer to maintain a work environment that is safe and without risk to the health and safety of its workers. The employer must ensure that the workplace is free of hazardous substances, articles, equipment and processes that may cause occupational injury, damage, disease or ill-health.

Where this is not possible, the employer must inform workers of the hazards and risks present in the workplace. The employer must also educate employees on how these may be prevented, and how to work safely. Protective measures for a safe workplace must also be provided.

PART 5 - LABOUR REGULATIONS


Introduction

It is essential for companies wanting to do business in South Africa to be aware of the legislative framework for B-BBEE. We deal with the general aspects of B-BBEE to allow you to best understand the origin, objectives and requirements of this legislation.

The history of South Africa has resulted in an economic and opportunities disparity based on race and has resulted in many black people in South Africa not enjoying the same opportunities and so not being substantively equal to the remainder of South Africa. Post the first democratic elections in 1994, the South African government sought to redress the inequalities of the past in various spheres especially political, social and economic. In the economic sphere, government enacted a legislative framework for the transformation of South Africa's economy including the Black Economic Empowerment. The BEE programme was implemented in 2003. After being criticised for benefiting only a narrow stratum of previously disadvantaged groups, it was modified in 2007 to introduce Broad-Based Black Economic Empowerment or B-BBEE.

Objectives of the B-BBEE Act

The fundamental objectives of the Act are: • to advance economic transformation and enhance the economic participation of black people in the South African economy; • to empower the Minister to issue codes of good practice and to publish transformation charters; • to establish the Black Economic Empowerment Advisory Council; • promote the achievement of the constitutional right to equality, increase broad-based and effective participation of black people in the economy and promote a higher growth rate, increased employment and more equitable income distribution; and

• establish a national policy on broad-based black economic empowerment so as to promote the economic unity of the nation, protect the common market, and promote equal opportunity and equal access to government services.

BEE in South Africa has been implemented on an arguably incentivised basis. While a company is not penalised for having a low BEE score, it is unlikely to be awarded tenders, contracts and, in certain cases, licences by the government. It is also less likely to be awarded contracts in the private sector.

Key principles

In terms of the Strategy For Broad-Based Black Economic Empowerment published by the Department of Trade and Industry, the strategy is underpinned by four key principles.

• BEE is broad-based. • BEE is an inclusive process. A more equitable economy will benefit all South Africans, individuals and enterprises. The process of BEE is an inclusive one, and all enterprises operating within South Africa can, and indeed should, participate in this process. This strategy is implemented throughout all sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government. • BEE is associated with good governance. A fundamental part of our economic reform and transformation is improving the quality and transparency of all economic activity. Accordingly, BEE must be associated with and ensure the highest standards of corporate governance. • BEE is part of our growth strategy. o Economic growth, development and BEE are complementary and related processes. No economy can grow by excluding any part of its people and an economy that is not growing cannot integrate all of its citizens in a meaningful way. As such this strategy stresses a BEE

Broad-Based Black Economic Empowerment (B-BBEE)

By Rui Marto*

PART 6


PART 6 - BROAD-BASED BLACK ECONOMIC EMPOWERMENT (B-BBEE)

process that is associated with growth, development and enterprise development, and not merely the redistribution of existing wealth.

o New, inclusive patterns of wealth accumulation must come from both existing economic activity and new economic activity. Thus we need higher levels of investment that generates a substantial amount of new economic activities. At the same time, ownership patterns must change.

Definition of “Black People”

For the purposes of the BEE Act, "black people" means African, Coloured or Indian persons who are South African citizens. Following a court ruling, this definition was extended to include Chinese South Africans who were citizens before 27 April 1994, including their descendants, for purposes of this Act and the Employment Equity Act.

Legislative framework

BEE is governed by the Broad-Based Black Economic Empowerment Act 2003 (BEE Act), as amended by the Broad-Based Black Economic Empowerment Amendment Act 2013 (Amendment Act) and the generic Codes of Good Practice on Black Economic Empowerment (Codes), as well as various sector-specific Codes of Good Practice (Sector Codes) promulgated under the BEE Act.

Measuring BEE compliance

As part of government’s strategy, the BEE Act implemented the use of a scorecard to measure progress made in achieving BEE by enterprises and sectors. The use of a common scorecard by different stakeholders provides a basic framework against which to benchmark the BEE. The scorecard further facilitates the process of setting measurable targets for BEE, for BEE ratings and other measurement purpose.

The scorecard allows for a measure of flexibility in order that it can be adapted to the particular circumstances of specific sectors or enterprises, while at the same time bring a measure of standardisation to the definition and measurement of BEE

The Codes contain a scorecard (Generic Scorecard) which is used to measure an entity’s BEE compliance. The Generic Scorecard in the Current Codes contains five elements (reduced from 7 previously), namely Ownership, Management, Skills Development, Enterprise And Supplier Development and Socio Economic Development. Each element has its own sub-elements, and the measured entity will receive a score for each element. The measured entity’s score will determine its BEE Status and BEE Recognition Level.

Types of Companies under Revised Codes

• EME’s- Under the Revised Codes, an entity with an annual total revenue of under R10 million qualifies as an Exempted Micro-Enterprise (EME). • QSE’s- An entity with an annual total revenue between

R10 million and R50 million qualifies as a Qualifying Small Enterprise (QSE). Under the Revised Codes, QSEs are measured against all five elements on the Generic Scorecard. • Generic- Any entity with an annual total revenue of more than R50 million is measured against a Generic BEE Scorecard. Generic (Large) Entities are required to be measured against all 5 of the BEE Scorecard elements.

The Revised Codes have also introduced the concept of priority elements. Entities must now comply with sub-minimum requirements for certain portions of each of the priority elements (ownership, skills development and enterprise and supplier development). Entities with a turnover of more than R50 million annually must comply with all the sub-minimum requirements, while QSEs need only comply with the compulsory ownership sub-minimum and either the sub-minimum requirement for skills development or the sub-minimum requirement for enterprise and supplier development. Failure to comply with these subminimum requirements results in a measured entity being discounted by a BEE Recognition Level on its scorecard (for example, from Level 3 to Level 4) until it complies with the sub-minimum requirements, irrespective of what its actual score states its recognition level should be.

Generic BEE Scorecard

The difference between the 2007 BEE Scorecard and the 2013 Scorecard is shown below;

Criteria2007 BEE Codes 2013 BEE CodesWeighting Bonus

Weighting Bonus

Ownership 20 3 25 0Management Control

10 1 15 4

Employment Equity

15 3 - -

Skills Development

15 0 20 5

Preferential Procurement

20 0 - -

Enterprise and Supplier Development

15 0 40 4

Socio-economic Development

5 0 5 0

TOTAL 100 7 100 13

The Revised Codes have reduced the Scorecard Elements from 7 to 5 by combining Management Control and Employment Equity into one element and combining Preferential Procurement and Enterprise Development into one element. A portion of the old Enterprise Development element has been limited to Supplier Development.

In the next edition, we will expand on the Generic Codes and look at each element in more detail.


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Generic BEE ScorecardThe B-BBEE Codes contain a scorecard (Generic Scorecard) which is used to measure an entity’s BEE compliance. The Generic Scorecard in the Current Codes contains five elements (reduced from 7 previously), namely Ownership, Management, Skills Development, Enterprise and Supplier Development and Socio Economic Development. Each element has its own sub-elements, and the measured entity will receive a score for each element. The measured entity’s score will determine its BEE Status and BEE Recognition Level.

OwnershipThe ownership element measures the effective ownership of enterprises by black people. In order to measure the extent of black ownership participation, the ownership scorecard measures the different rights normally attached to ownership. These rights are:

• Control: Control of the Enterprise, through the exercise of voting rights at shareholder meetings

• Economic Interest: The entitlement of black people to dividends, capital gains and other economic rights of shareholders

• Net Equity Interest: The accumulated net economic interest in the hands of the black shareholders, after the deduction of monies owed by these black shareholders.

In order to score well for this element, an entity should strive to achieve a minimum black ownership of 25 per cent, with a spread across black designated groups, black women and broad-based black groups.

Despite ownership being an element of the BEE scorecard, it is possible to score points for the ownership element without any black ownership by contributing to equity equivalent programmes approved by the DTI.

Under the Revised Codes, employment equity element is included in the management control element. This element measures the effective control of enterprises by black people by measuring the number of black people holding board positions and being involved in board participation, senior management, middle management and junior management of the entity. This element requires any entity to undertake a comprehensive and widespread recruitment process.

The employment equity element intends to achieve equity in the workplace under the BEE Act and the Employment

In part 2 of Broad-Based Black Economic Empowerment (B-BBEE) we will expand on the Generic Codes and look at each element of the B-BBEE Scorecard in more detail, Fronting and Sector Codes.

B-BBEE II

By Rui Marto*

PART 7

Equity Equivalent (EE) Programmes

The Codes of Good Practice require that all entities operating in the South African economy make a contribution towards the objectives of B-BBEE. Owing to the fact that many foreign multinational corporations simply cannot meet the ownership requirements of B-BBEE, an objective that holds much weight on the B-BBEE Scorecard, alternative contribution means are now recognised by the Codes of Good Practise – allow multinationals retention of their B-BBEE scores by contributing in lieu of a direct sale of equity. Through implementation of an Equity Equivalents Programme, once approved by the Department of Trade and Industry, contributions are set at 25% of the value of South African operations, or at 4% of the total revenue from the organisation’s South African operations over a period of continued measurement.

An EE Programme would entail a public programme/scheme and/or private programme/scheme designed to fulfill the requirements of B-BBEE ownership. Such a programme needs to be approved by the Minister of Trade and Industry in order to qualify for ownership points on the scorecard.


PART 7 - B-BBEE II

Equity Act 1998. The targets for black representation remain the same, namely 50% for top management, 60% for senior management and 75% for middle management, whilst the requirements for junior management has risen from 80% to 88%.

The most recent amendments to the B-BBEE codes begin by noting that Economically Active Population (EAP) statistics are reported under race groups that distinguish between Africans, Coloureds, and Indians, with a further divide of each race group by gender. It is expected that organisations workforce should be representative of the EAP profile within each occupation level, and not solely of the total workforce.

Skills developmentThis element measures the extent to which employers carry out initiatives designed to develop the competencies of black employees. The amended codes place a great deal of emphasis on organisations assisting and transferring hard skills (qualifications and accredited courses) to black employees and black unemployed persons. This element is based on monetary contributions will require companies in almost all industries to spend 6% of payroll on skills development spending on black people, increased from previous 3%.

Enterprise and Supplier Development (ESD)Preferential Procurement and Enterprise Development were merged to form the element Enterprise and Supplier Development.

The element has three sub-categories namely, Preferential Procurement, Supplier Development and Enterprise Development. ESD is primarily aimed at ensuring that big companies, as far as it is possible, procure their goods and services from black-owned and managed businesses. Enterprise Development was always aimed at ensuring that big companies not only procure from small black-owned businesses, but also assist them to grow their businesses so that they can play a meaningful role in the economy.

One of the indicators on ESD element is for a company to spend at least 40% of its procurement from empowering suppliers that are at least 51% black owned. Measured enterprises are now required to spend 2% of their net profit after tax annually on supplier development and a further 1% of the net profit after tax on enterprise development and sector specific programmes.

In terms of the previous Codes, a measured entity will score points for the preferential procurement element based on its suppliers’ BEE scores. However, in terms of the Revised Codes, a measured entity will only score points for the preferential procurement element based on its ‘Empowering Supplier’ BEE scores. Regardless of a supplier’s BEE score, any supplier which does not qualify as an Empowering Supplier will not qualify as spend for the purposes of the preferential procurement element.

Exempt Micro Enterprises and Start-Ups are automatically recognised as Empowering Suppliers.

FrontingThe definition of “fronting practice” is now included in the Broad-Based Black Economic Empowerment Amendment Act (the B-BBEE Amendment Act). The definition is broadly, a transaction arrangement or other act or conducts that directly or indirectly undermines or frustrates the achievement of the objectives and implementation of B-BBEE.

Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person in order to secure a fictitious B-BBEE status level. Fronting practices usually include “Window-dressing”, benefit diversion or opportunistic intermediaries.

The B-BEE Amendment Act has introduced criminal sanctions (a fine, imprisonment or both) for those found guilty of BEE fronting. In addition, any person convicted of an offence in terms of the Amendment Act may not contract or transact with any organ of state or public entity for a period of ten years from the date of the conviction.

A Broad-Based Black Economic Empowerment Commission has been established under the B-BEE Amendment Act. One of the functions of the Commission will be to oversee, supervise and promote adherence with the BEE Act in the interest of the public. The Commission will also be responsible for investigating any BEE initiatives either on a proactive basis or in response to a complaint.

Sector specific codesSpecific charters exist for certain industries in South Africa. Sector codes exist for the following sectors: financial, construction, property, agricultural, information and communications technology, mining, tourism, petroleum and liquid fuels and chartered accountancy.

The Revised B-BBEE Codes provide that where a measured entity falls within a sector code, then that entity may only be measured for compliance in accordance with that specific sector code where as previously, entities could elect whether to be governed by the generic codes.

ConclusionB-BBEE allows enterprises to achieve increased participation in the economy and transformation thereof, as well as a greater distribution of wealth in South Africa. In addition, compliance can create greater business opportunities. B-BBEE legal framework is complex and companies are advised to seek expert advice for assistance on compliance and the structuring of transactions to derive maximum B-BBEE benefit.


By Rui Marto*

The basic principles of contract, consumer and credit law are applicable to business on a daily basis. There has been a strong shift in South African contractual law in the last 10 years towards a greater protection of the consumer. This is especially evident in the Consumer Protection Act and National Credit Act and the common law that has developed around this legislation.

Contract, Consumer and Credit Law

PART 8

A. Law of Contract1.What is the law of contract?

The South African law of contract is in many respects similar to the English law of contract. It is sourced from the common law. Contracts are fundamental to business functions. At its core a contract is an agreement between parties

with the purpose to create obligations. For a contract to be valid it must comply with the following requirements: consensus, formality, capacity, and legality.

2.ConsensusIn general a contract in South African law is concluded by offer and acceptance.

3. FormalityMost agreements do not need to be in writing to be valid. The exceptions to this occur when the law or the parties themselves prescribe such formalities.

Examples of contracts that are required to be in writing and signed by the parties are:

• sale of immovable property • suretyships • executory donations except land

In terms of the Rental Housing Amendment Act, which has been proclaimed but is not yet in operation, residential lease agreements will be required to be in writing.

In business however, most commercial agreements are concluded in writing between parties.

4. CapacityAll persons, both natural and juristic, have passive legal capacity and can therefore have rights and duties. However, not all parties have contractual capacity.

Certain natural persons lack contractual capacity, such as infants, those with mental incapacity and intoxicated persons. These must be represented by their guardian or curators. Minors have limited contractual capacity and require the consent of their parents or guardians, or of court appointed person for specific transactions.

Juristic persons are represented by authorised natural persons.

5. LegalityAn underlying principle of the law of contract is that agreements must be legal and not be contrary to the law or public policy. The law regards illegal or unlawful contracts either as void and thus unenforceable, or as valid but unenforceable.

As stated above, consumer protection legislation has had a significant effect on the law of contract and enforces limits on the provisions that may be included in a consumer contract.


PART 8 - CONTRACT, CONSUMER AND CREDIT LAW

B. Consumer Protection Act (CPA) 1. Introduction

South Africa adopted its first comprehensive Consumer Protection legislation in April 2011. This legislation was a “game-changer” with far reaching consequences applicable across all sectors. It brought a number of previous disparate pieces of consumer legislation into a single piece of legislation.

2. ObjectivesThe Act aims to promote and advance the social and economic welfare of consumers in South Africa. It aims to achieve this through, inter alia, establishing a legal framework for maintaining a fair, accessible and efficient marketplace for consumers; reducing the disadvantages experienced in accessing goods or services by vulnerable consumers; protecting consumers from unfair trade practices; encouraging responsible consumer behaviour; promoting consumer empowerment and providing an efficient system of redress for consumers.

3. Application of the CPAThe law covers the entire transaction between suppliers and consumers, if the supplier is acting in the ordinary course of their business. The CPA seeks to protect individual consumers and small businesses which for the purposes of the Act are defined as those with an annual asset value or turnover of R2 million or less

In most cases a consumer must be party to a transaction with the supplier. However the definition of a consumer is extended to include users and beneficiaries of goods and services where appropriate. In addition, franchisees are explicitly covered as consumers and they receive the benefit of the majority of many protections afforded to individual consumers.

4. Consumer Rights and ProtectionThe CPA sets out consumer rights. These include right to privacy, right to choose your product, right to fair and honest dealing, right to disclosure of information, right to fair and responsible marketing, right to accountability by suppliers, right to fair value, good quality and safety, right to fair, just and reasonable terms and conditions, and right to equality in the consumer market and protection against discriminatory marketing.

The CPA covers all aspects of marketing, including direct marketing, misleading advertising, and some prohibited and restricted marketing practices. The Act restricts and strictly governs competitions, promotional offers and loyalty programmes. It has brought about changes to required disclosures, pricing, warnings and product

labelling. The Act also regulates auctions and franchises.

5. CPA effects on contracts

The CPA emphasizes disclosure and fairness in contractual dealings. Consumer contracts must be in

plain and understandable language. Contracts concluded with consumers must contain terms and conditions that are fair and reasonable. Terms

cannot be excessively one-sided and inequitable to consumers. Waivers of consumer rights or supplier liabilities have to be fair and reasonable.

Any provision in a consumer agreement that limits the supplier’s risk, causes the consumer to assume liability, imposes an obligation on the consumer to indemnify

the supplier or which constitutes an acknowledgment of fact by the consumer, must be brought to the consumer’s attention before the contract is entered into. This can

be effected by highlighting these terms on a contract. The law also specifies a number of prohibited terms that may not be included in a contract.

Fixed term agreements with individual consumers have been capped at a maximum length of 24 months unless a longer period will result in a demonstrable financial benefit to the consumer. An individual consumer is entitled to cancel a fixed term agreement on 20 business days’ notice at any time subject to a reasonable cancellation penalty.

6. Implied warranty on qualityIn any agreement pertaining to the supply of goods to a consumer there is an implied provision that the producer or importer, the distributor and the retailer each warrant that the goods are safe and of good quality. The Act

CONTRACT


PART 8 - CONTRACT, CONSUMER AND CREDIT LAW

introduced a no fault liability for harm caused by the supply of unsafe, defective or hazardous goods or by a lack of adequate instructions for the safe use of the goods. Persons harmed may claim for death, injury, or illness or damage to property and the economic loss flowing from the harm. Liability in the supply chain is joint and several, and there are limited defences to liability under this section.

7. EnforcementThe CPA aims to promote consumer activism and has established a free and accessible system for consumer redress. The Act gives rise to the establishment of the National Consumer Commission, a body assigned to investigate consumer complaints, as well as the National Consumer Tribunal, which is responsible for the adjudication of violations and transgressions of the Act.

There are financial and sometimes criminal consequences for non-compliance. Suppliers who are found to have contravened the provisions of the Act may be issued with a compliance notice. A failure to comply with a compliance notice can result in financial penalties. The Consumer Tribunal is empowered to impose administrative fines of up to 10% of a supplier’s total turnover in the preceding financial year or R1 million, whichever is the greater amount. Suppliers who are found to have committed an offence under the Act will be referred to the National Prosecuting Authority for possible prosecution.

C. National Credit Act (NCA)The NCA regulates all aspects of consumer credit in South Africa and came into force on 1 June 2007.

1. Objectives of the NCASome of the principle objectives of the Act are:

• To promote a fair and non-discriminating marketplace for the access of credit

• To prohibit unfair practices

• To promote responsible credit-granting practices by credit providers

• To prohibit reckless credit-granting

• To provide for the general regulation of consumer credit and improved standards of consumer information

2. Consumer Rights The Act introduces new rights for the consumers as well as measures that allow consumers to make informed decisions before buying goods and services on credit.

Consumer rights include:

• The right to apply for credit, free of discrimination against the borrower

• The right to plain and understandable language being used in the credit agreements

• The right to privacy regarding your personal information

• The right to redress

• The right to assistance by a Debt Counsellor to assist over-indebted consumers with restructuring debts to prevent unnecessary forfeiture of assets

Credit providers who extend credit to consumers may only charge the fees, interest rates and other charges expressly permitted. The NCA regulates credit agreements with regard to form, disclosures, and other requirements and debt recovery procedures are regulated.

3. EnforcementThe NCA established a National Credit Regulator (NCR) and National Credit Tribunal and requires that all credit providers be registered as such.

If the Act has been contravened, a consumer may lodge a complaint with the NCR or make use of one of the other dispute-resolution mechanisms established by the Act.

If a credit agreement is found to be unlawful, a court must order:

• that the credit agreement is void;

• that the credit provider refund to the consumer any monies paid by the consumer, with interest; and

• that the credit provider’s rights to recover monies paid or goods delivered to the consumer be cancelled or forfeited to the State

Any business involving the processing or granting of consumer credit will need to consider the implications of the NCA and comply with its provisions.


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By Rui Marto*

Real Estate and Property Rights

PART 9

Real Estate and Property RightsIntroductionSouth African law protects ownership and property rights as contained in the common law, precedent, legislation and more recently in its Constitution. This edition of the guide will cover general property rights and the main legislation covering property rights in South Africa.

Title to immovable property in South Africa vests in the landowner and not the state. Although South Africa allows for a 99-year leasehold, the main real right in land is that of ownership and most land in South Africa is privately held by such. The separate ownership of buildings or parts of buildings in a development is recognised by the Sectional Titles Act.

The World Economic Forum’s Global Competitiveness Report 2016/7 ranked South Africa’s property rights 29th in the world (down from 20th in 2015/16).

Who can own property in South Africa? The following type of persons can own property in South Africa:

• Any person, natural or juristic;

• A foreign person;

• An external company.

Foreign Ownership LimitationsIn terms of the proposed new Land Holdings Bill foreign nationals will not be able to own certain types of land in South Africa. The Minister of Rural Development and Land Reform published the draft Regulation of Agricultural Land Holdings Bill for public comment until 13 June 2017. The Bill has not yet been assented to. In terms of the Bill,:

• foreign nationals will not be able to own agricultural land;

• foreign nationals include all non-citizens of South Africa and foreign juristic persons, being juristic persons whose dominant shareholder(s) is / are under foreign control;

• the restriction only applies to agricultural land. Residential, commercial and industrial property will still be available to foreign nationals for purchase and ownership;

• foreign nationals will be able to have leaseholds over agricultural land for a minimum of 30 years to a maximum of 50 years;

• the Bill will not operate retrospectively. This means that foreign nationals who already own land in South Africa will be unaffected;

• foreign land ownership will not be permitted in respect of land which is environmentally sensitive, sensitive regarding security or is of cultural or historical significance;

• there will be a ceiling on the amount of land which can be held by any single natural or juristic person (including South Africans). The proposed limit is 12 000 hectares. Any agricultural land in excess of this will be purchased from the owner by the State for purposes of redistribution; and

• all foreign persons intending to sell their agricultural land must first offer their land to the Minister to purchase. If the Minister, within 90 days, refuses such offer or does not respond to the offer, only then can the foreign person advertise the land for sale to citizens.


PART 9 - REAL ESTATE PROPERTY RIGHTS

Land registration and property rightsSouth Africa boasts one of the world’s most efficient and sophisticated land registration systems. The registration of rights in land and other immovable property is regulated by the Deeds Registries Act. The system provides owners with absolute security of title. The land registration system is based on a land survey system. Each title deed is linked to a specific survey conducted by a qualified land surveyor and approved by the Surveyor-General’s office. Ownership recorded in one of the regional Deeds Registries, where documents are available for public viewing.

Any deed of title to land in South Africa must be prepared and executed by a conveyancer. A conveyancer is an attorney who has passed a conveyancing examination and has been admitted by the High Court of South Africa.

Relevant legislationSouth African property law has a comprehensive legislative framework which regulates the sale, registration and transfer of land and other immovable property.

ConstitutionProperty rights are protected in the Constitution of South Africa. The Bill of Rights in the Constitution restricts the deprivation of property, except in the case of expropriation, which must then be subject to compensation, which must be agreed by the affected persons or approved by a court. That compensation must be just and equitable and generally requires that regard be given to the fair-value principle.

Deeds Registries Act, 1937The main piece of legislation dealing with the registration of property rights is the Deeds Registries Act, 1937. This Act regulates the registration and transfer of land, the registration of long leases which exceed ten years and the registration of limited real rights such as servitudes.

Sectional Titles Act, 1986The Sectional Titles Act, 1986 regulates ownership of individual units in buildings, known as sectional title units. Ownership of such units is registered in a deeds registry together with a sectional title plan prepared by a qualified land surveyor registered with the Surveyor General

Share Blocks Control Act, 1980In terms of the Share Blocks Control Act, 1980 a person can acquire the right to use and enjoy land owned or leased by a share block company by acquiring shares in the company. These rights are not registered in a deeds registry and are afforded protection by the Share Blocks Control Act.

Mineral and Petroleum Resources Act, 2002In terms of the Mineral and Petroleum Resources Act, 2002, mineral and petroleum resources are the common heritage of all the people of South Africa and the state is the custodian thereof for their benefit. The state grants and administers all prospecting and mining rights in the country. The Act separates the rights to minerals in and under land from the ownership of the surface rights to the land, so buying a property in South Africa doesn’t entitle you to the mineral rights below it.

Consumer Protection Act, 2008The Consumer Protection Act, 2008 (CPA) regulates the rights and obligations between consumers and suppliers of goods and services, which includes property developers and those trading in property. The CPA does not apply to sellers selling their private homes in once-off transactions.

Land Reform and Land RestitutionThe land restitution process provides for restitution of land to persons or communities dispossessed of such rights after 19 June 1913 by past racially discriminatory laws or practices. This is regulated by The Restitution of Land Rights Act of 1994.

The legislation established a Commission on Restitution of Land Rights, now known as the Land Claims Commission, and a Land Claims Court. In terms thereof, persons are entitled to lodge a claim for restitution of land with the Land Claims Commission. The Commission investigates the claim and if the claim has merit, it publishes the claim in the Government Gazette. It is possible to determine with a fair degree of accuracy whether a piece of land is subject to a claim by a community through enquiry at the local land

The title deed is documentary proof of ownership and includes:

• the name of the existing owner as well as the previous owners.

• a detailed property description which includes size.

• the purchase price of the property paid by the existing owner.

• conditions applicable to the zoning, use and sale of the land.

• all real rights registered in respect of the property.


claims office or by reviewing claims published in the Government Gazette.

A claim may be resolved either by the state settling the claim and compensating the owner of land, or where matters cannot be resolved, the Land Claims Court may hear the matter and make rulings.

It must be noted that government is currently attempting to move away from this. The proposed Property Valuations Bill, read with the provisions of the Expropriation Bill, seek to accelerate the current land reform programme. The Bill would create the Office of the Valuer-General who would be tasked with the duty of valuating all properties that will be expropriated and to develop criteria for the valuation of such properties.

The Land Claims Commission continues to settle land claims. Land claims have been made mostly in respect of rural property and not urban property, although certain tracts of urban property are subject to outstanding land claims.

Taxes and duties on transfer of propertyIt is necessary to determine whether transfer duty or VAT is payable on a transaction. Any sale is subject to only transfer duty or VAT. VAT takes preference over transfer duty. If the seller is a registered VAT vendor and the property forms part of his enterprise, then VAT is payable by the seller. If the seller is not registered for VAT, or if the property does not form part of the VAT enterprise, then transfer duty is payable by the person acquiring the property.

Transfer Duty Act,1949In terms of the Transfer Duty Act,1949, any acquisition of land or real right in land is subject to transfer duty, save for a few exceptions. This duty is payable prior to registration of the transfer in the deeds registry. Transfer duty is based on a percentage of the value of the land or right. It is calculated on a sliding scale, with the first R900 000 being free of transfer duty and the highest rate being 13%.

Value-Added Tax (VAT) Act, 1991As a general rule, if the seller is registered for VAT purposes, VAT is payable on the transaction and no transfer duty is payable by the purchaser. VAT is payable at a rate of 14%. If the seller of land or a right in land is registered as a VAT vendor and the sale forms part of the seller’s vatable supplies, then VAT and not transfer duty is payable on the transfer; the purchaser is entitled to claim input VAT should it be a VAT vendor.

Where both parties are registered for VAT and the transfer forms part of the disposal of a Vat enterprise or going concern, the transfer is subject to VAT at a rate of 0% and no transfer duty is payable.

Income Tax Act, 1962In terms of the South African Income Tax Act, 1962, capital gains tax (CGT) is payable on the disposal of any property of a capital nature. The effective rate is 16.4% for natural persons and special trusts, 22.4% for companies and 32.8% for other trusts on the capital gain generated by the disposal of the property.

Withholding TaxWhere a non-resident disposes of immovable property in South Africa to a South African resident at a price exceeding R2 million, the non-resident has to pay a withholding tax to the South African Revenue Service (SARS). This withholding tax is not a final tax but an advance payment of tax on the seller’s actual account of normal tax liability. This tax is calculated on the price of the property. The withholding tax is payable, at a rate of 5% for individuals, 7.5% for companies and 10% for trusts, pending the determination of the actual tax liability of the non-resident to SARS.

Remittance abroadBefore the proceeds of the sale of immoveable property in South Africa or shares in a company owning South African immoveable property may be remitted abroad by a non-resident, South African Reserve Bank approval is required, and one of the requirements for approval is that all taxes have been paid. That aside, there is generally no restriction on remitting the proceeds from the sale of a property, provided the purchase price was funded from abroad.

PART 9 - REAL ESTATE PROPERTY RIGHTS


South Africa has recently seen some decline from critical rankings and indices compare to the previous three years from important world organizations like the World Economic Forum’s Global Competitiveness Index. We live in economic times of rankings and indices that claim to provide easily digestible insights into the relative attractiveness of a country/location in terms of a vast range of attributes, including global competitiveness, ease of doing business, quality of life and even peace. Egypt has knocked South Africa from its long-standing top spot regarding investments in Africa, according to the Rand Merchant Bank’s latest Where to Invest in Africa Report for 2018. This is the first time South Africa has not been in top spot since the report was launched 7 years ago. Egypt displaced South Africa largely because of its superior economic activity score, while South Africa has shown sluggish growth rates, which has deteriorated over the past seven years. While the report found that South Africa also faces mounting concerns over issues of institutional strength and governance, some things still count in the country’s favour. These include the rand, equity and capital markets, which the report points out are still “a cut above the rest” compared to many other African economies facing liquidity constraints. While it’s natural to want to top rankings and beat your competitors, whatever the field may be, what matters is having an understanding both of the relative importance current and potential investors attach to each ranking or index as well as the methodology used to compile them. Without an in-depth understanding of the rankings that benchmark countries/locations, host governments are, in the case of a positive ranking, at risk of missing out on important messaging.

On the other hand with a negative ranking, they are in danger of being unable to credibly detract from the findings and reassure investors of their locations’ attributes in spite of a bad result which might arguably be founded on questionable methodology or even factors that are less relevant for investors. I would like to briefly discuss some of the key rankings and indices that South Africa should not only be aware of, but also understand deeply and monitor closely as we position our country as a preferred destination for foreign direct investment (FDI) in Africa.

World Bank’s Ease of Doing Business Index The Ease of Doing Business Index ranks 190 economies on the basis of nine factors, which indicate the regulatory environment in each economy. These factors include: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulation. The World Bank is broadly regarded as a leading authority on Foreign Direct Investment-related matters, and as such its findings on South Africa will tend to be closely studied by leading investors/companies. South Africa is ranked 74 among 190 economies in the Ease of Doing Business, according to the latest World Bank annual ratings. The rank of South Africa deteriorated to 74 in 2017 from 73 in 2016. Ease of Doing Business in South Africa averaged 48.22 from 2008 until 2016, reaching an all-time high of 74.00 in 2017 and a record low of 32.00 in 2008.

In Part 10 of The Guide of Doing Business in South Africa, we look at how to garner investor confidence when companies are considering whether to invest internationally and where to locate a given project.

SA and World Rankings

PART 10

By Thokozani Thwala


South Africa compares relatively better in the Ease of Doing Business Ranking to other members of BRICSOverall Index RakingRank out of 190 economies Source: 2017 World Bank, Ease of Doing Business Report

World Economic Forum’s Global Competitiveness IndexThe World Economic Forum’s (WEF) Global Competitiveness Index forms part of the WEF’s annual report with the same name and has been measuring national competitiveness’ (institutions, policies and various micro-macroeconomic factors) that collectively seek to determine a country’s overall competitiveness. Given the WEF’s strong private sector contingency, this index is also held in high regard by corporate leaders and investors. South Africa is ranked 61, down 14 positions in this WEF’s annual report, but remains one of sub-Saharan Africa’s most competitive economies. According to the report, South Africa’s economy is nearly at a standstill. The GDP growth forecast is at only 1% in 2017 and 1.2% for 2018.

South Africa compares relatively poor in the Global Competitiveness Index to other members of BRICSOverall Index RakingRank out of 137 economies Source: 2017-18 World Economic Forum, Global Competitiveness Index Report

A.T. Kearney’s FDI Confidence IndexThe FDI Confidence Index is a regular global survey of executives conducted by the management consultancy A.T. Kearney since 1998 and ranks which markets are likely to attract the most investment in the next three years. The index is calculated as a weighted average of the number of low, medium and high responses to questions about the probability of direct investment in a given country over the following three years. With a specific focus on FDI as opposed to broader business topics, this Index is widely regarded as one the management consultancy world’s leading analyses of investor confidence.

South Africa Compares Poorly In The 2017 Foreign Direct Investment Confidence Index To Other Members Of BricsOverall Index Raking Source: 2017 A.T. Kearney, Foreign Direct Investment Confidence Index Report Coming in at 25th, South Africa makes a comeback to the Index for the first time since 2014. Our country has a mixed outlook with respect to attracting FDI in the coming years. These and other indices, while viewed by some policy-makers and elected leaders with a degree of cynicism, are nevertheless reviewed by many investors, and therefore need to be taken into consideration and understood. One could even argue that the methodology they employ is less important than the influence they have among their readers, although understanding the former is necessary if a country/location is going to be able to competently respond to their findings. Only in this way will a country like South Africa be able to engage in a compelling dialogue with investors and explain to them how a particular ranking or result either is or isn’t relevant to their specific investment plans, or doesn’t paint a complete or even true picture of the realities they will encounter.

PART 10 – SA & WORLD RANKINGS

40

Russia

74

South Africa

78

China

123

Brazil

130

India

27

China

38

Russia

40

India

61

South Africa

80

Brazil

3

China

8

India

16

Brazil

25

South Africa

-

Russia


Ready to talk growth? Let’s TalkWe’ll partner with you to make it happen

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Experience shows that business internationalization is a lengthy and costly process. To help you overcome this obstacle GROWTHMAPINFONOMICS is prepare to represent your business in selected markets and advise your company up to the moment that your new business becomes self-sufficient.

Let’s get the conversation started by letting us know more about you and your company:what you’d like to see your company blossom intoSouth Africa / Southern Africa. To do so, please email us at [email protected] or visit www.growthmap.com

If you have questions, please call us at +27 (0) 83 3888 031 or on Skype at Growthmap Infonomics.

We provide these services on a project contract or retainer basis:

• Market Research& Business Intelligence • Business Brokerage / Corporate Finance • Immigration and Relocation Services• Government Incentives Negotiations• Black Economic Empowerment (BEE) Thinking(a legislative requirement in SA)

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By Rui Marto*

Exchange Control Regulations

PART 11

1. Introduction

The South African Reserve Bank (“SARB”)

administers exchange control in South Africa.

The administration of exchange control is

administratively performed by its Financial Surveillance Department. Certain powers

have been delegated to authorised dealers, namely banks that are licensed to deal in

foreign exchange.

The basic legal framework is a prohibition in dealing in foreign exchange, except with permission and on the conditions set out by the SARB. Exchange controls were implemented to regulate the flow of capital into and out of South Africa. The purpose of exchange control is to allow a greater degree of economic stability by limiting the amount of exchange rate volatility due to currency inflows/outflows and to limit speculation against the South African currency.

2. ApplicationExchange controls apply to:

• every transaction, no matter the size.

• All countries comprising the Common Monetary Area (CMA), which consists of South Africa, Lesotho, Namibia and Swaziland.

• All residents

• All legal entities

The acquisition by residents of assets outside South Africa is also regulated by the exchange control authorities.

3. ResidencyExchange control regulations apply to South African residents, not citizens or permanent residency holders. Residency for exchange control purposes is different to tax residency. A South African tax resident will not automatically be a resident for exchange control purposes, although this may often be the case.

In South Africa, an exchange control resident is regarded as a person, irrespective of nationality, who has taken up permanent residence or is domiciled or registered in South Africa. Under the "registration" criteria, subsidiaries and branches of foreign companies (external companies) would qualify as residents of South Africa for exchange control purposes. A trust which is established in a foreign jurisdiction but registered in South Africa would also qualify as a resident for exchange control purposes.

4. Authorised DealersExchange control is administered and enforced through a officially authorised foreign exchange dealers. Authorised dealers include all of the major South African retail banks.

The Reserve Bank gives authorised dealers written directives as to the type of payments and transactions in respect of which they may exchange Rand for foreign currency or transactions that they may otherwise authorise.

If an authorised dealer is not empowered to approve a specific transaction an application must be submitted to and approved by the Reserve Bank. Applications for exchange control approval must generally be made through authorised dealers, which are in turn expected to submit the applications to the Reserve Bank on behalf of the person making the application or requesting the approval.

An approval from an authorised dealer may take 3 to 5 days and an application to Reserve Bank may take up to 4 to 6 weeks.


PART 11 - EXCHANGE CONTROL REGULATIONS

5 .Effect of Foreign Exchange Controls5.1.Individuals

South African exchange control regulations limit how much and under what circumstances an individual may transfer money out of South Africa.

5.2. Legal entitiesCompanies are required to justify reasons for the need to remit money to a foreign party and seek approval through the authorised dealer or the Reserve Bank. Exchange control regulations cover all payments and investment abroad made by a company, and loans made by overseas investors to a South African resident.

6. Effect of foreign exchange control on non-residentsThere are generally no exchange controls on the inward investment and disinvestment by foreign investors (non-residents) acquiring companies or businesses in South Africa, subject to certain documents being provided. The introduction of capital or the acquisition of shares does not require SARB approval, but the acceptance of foreign loans by South African residents (including a South African subsidiary or branch of a foreign company) is subject to prior approval being obtained.

In general, authorised dealers may, subject to exchange control requirements, remit the following to non-residents:

• Dividends

Dividends declared by South African subsidiaries of foreign

companies, and profits distributed by a branch of a foreign company operating in South Africa, may be remitted abroad.

Dividends by a South African resident company to its non-resident shareholders are freely remittable if the share certificates have been endorsed ‘non-resident’ for South African exchange control purposes and the company’s auditor has provided a certificate confirming the dividend.

• Interest

Non-residents who intend to invest in South Africa through loan capital need to obtain prior approval from an authorised dealer or Reserve Bank depending on the terms of the loan, the applicable interest rate, the legal relationship between the local borrower and foreign lender and whether there is any raising fee and any other fees payable by the borrower.

If prior approval for the loan has been obtained, interest may be paid without separate approval. The repayment of capital is subject to separate approval.

• Directors’ fees

There is no limit on directors’ fees which may be paid to non-residents. Requests to transfer such fees to directors’ must be accompanied by a copy of the resolution of the board of the remitting company confirming the amount to be paid to the director and proof that the director is non-resident.

• Royalties

Payment of royalties or similar fees for the use of know-how, patents, designs, trademarks, copyright or similar property, to non-residents in respect of local manufacturing of a product, are subject to the approval of the Department of Trade and Industry and the application must be supported by the auditor’s certificate.

Any other royalty is subject to the prior approval of Reserve Bank. Such royalties are generally limited to an amount of up to 4% of ex-factory selling price for manufacture of goods and up to 6% for capital goods.

• Management Fees

Management fees due to related parties are subject to exchange control approval.

• Services Rendered

Residents may effect payment for services actually rendered by non-residents, provided that the fees payable

Permissible reasons for transfers abroad include:

• Monetary gifts and loans

• Donations to missionaries

• Maintenance transfers

• Travel allowance

• Study allowance

• R 1 million foreign capital allowance

• R10 million individual capital allowance


are not calculated on the basis of a percentage of turnover, income, sales or purchases (based on a direct charge method). Payments to be made based on an indirect charge method require SARB approval.

In this regard, the current exchange control policy in relation to interest rates is that interest rate payments will not fall within the ambit of authority of an Authorised Dealer in two sets of circumstances. The first is where the interest rate in respect of a third-party foreign-denominated loan exceeds the base lending rate (known as the bank rate in certain foreign jurisdictions), plus up to two per cent. The second is where the interest rate in respect of Rand-denominated loans exceeds the prime rate plus up to three per cent on a third-party loan.

7. Imports and Exports7.1. Imports

Payment for imports may be made through an authorised dealer, against the submission of documentary proof evidencing the receipt of the merchandise in South Africa.

7.2. Exports

The receipt of export proceeds by residents is controlled. Foreign currency export proceeds must be repatriated and offered for sale to an authorised dealer within 30 days of receipt.

Exporters may grant credit of up to 180 days. This can be extended on application through an authorised dealer.

How much money can a non-resident invest into South Africa and can such funds be re-transferred abroad?(i) Non-residents may freely invest in South Africa, provided that suitable documentary evidence is viewed by the bank concerned, in order to ensure that such transactions are concluded at arm's length, at fair market related prices and are financed in an approved manner.

(ii) Such financing must be in the form of the introduction of foreign currency or Rand from a Non-Resident account (i.e. a Rand account opened by a non-resident at a South African bank).

(iii) Any income earned on the investment may be transferred abroad.

(iv) Should a non-resident disinvest from this country, the local sale or redemption proceeds of non-resident owned assets in South Africa would be regarded as freely transferable.

South African Reserve Bank www.resbank.co.za

PART 11 - EXCHANGE CONTROL REGULATIONS


Types of IncentivesIncentives generally fall into five categories in South Africa:

• Tax concessions.

• Below market cost of sites and buildings.

• Below market financing.

• Infrastructure improvements.

• Training programs for employees.

National government, provincial governments and city governments receiving the new investment usually share the costs of these incentives.

1. Manufacturing Below are 3 possible dedicated incentives to consider if you are in the manufacturing industry:

1) Section 12I Tax Incentive

• Section 12I is an income tax allowance for industrial policy projects.

• The extent of the additional investment allowance depends on the qualifying status obtained by the project.

I. Preferred status projects:

- 55% of the cost of new and unused manufacturing assets.

- 100% if located in an Industrial Development Zone (IDZ).

II. Normal status projects:

- 35% of the cost of new and unused manufacturing assets.

- 75% if located in an IDZ.

III. Additional training allowance to a company of R 36 000 per employee.

2) Manufacturing Investment Programme (MIP)

• MIP aims to enhance the sustainability of manufacturing investment projects that would not be feasible without the grant.

• Offers a cash grant of between 15% to 30% of the value of the qualifying costs in machinery, equipment, land and buildings and commercial vehicles.

• Capped at R 30 million cash benefit per project.

3) Manufacturing Competitiveness Enhancement Programme (MCEP)*

• This is a cash incentive with an objective to promote enterprise competitiveness and job retention. This is achieved through the seven key components of the programme:

I. Production Incentive

NEW MEMBER

South Africa like many other countries, regional entities, and cities is using investment incentives to attract investment. These typically take the form of measurable economic advantages afforded to individual enterprises or categories of enterprises in order to steer investment into strategic sectors and/or regions, or to influence the character of investments made in South Africa.

Some incentives have also taken the form of loans and rebates to support business development and enhance competitiveness.

The Department of Trade and Industry (DTI) as a department of the national government, provides various investment incentives schemes. These schemes entail both financial and non-financial incentives across many industries.

The schemes are aimed at encouraging and sustaining development and expansion of business in South Africa within various sectors.

Government Grants and Incentives

PART 12

By Thokozani Thwala

PART 12 - GOVERNMENT GRANTS AND INCENTIVES

- Capital Investment – Capped at R 50 million cash incentive;

- Green Technology and Resource Efficiency Improvement – Capped at R 50 million cash incentive;

- Enterprise-Level Competitiveness Improvement;

- Feasibility Studies – Capped at R 7,5 million cash incentive; and

- Cluster Competitiveness Improvement – Capped at R 50 million cash incentive.

II. Industrial Financing Loan Facilities

- Post and Pre-Dispatch Working Capital Facility; and

- Industrial Policy Niche Projects Fund.

* The MCEP is under review due to the high demand of the scheme.

2. Infrastructure

The following incentives may be applicable from an infrastructure development perspective:

1) Critical Infrastructure Programme

• This incentive is aimed at making the South African industry more competitive by lowering infrastructure cost and risks.

• A non-refundable, cash grant that is available to approved entities.

• The scheme covers between 10% - 30% of the total cost of development costs of the qualifying infrastructure.

• Capped at R 30 million cash benefit per project.

2) Special Economic Zones (SEZs)

• The objective SEZ’s are to improve the design deficiencies of the Industrial Development Zone (IDZ) programme and to provide a clear predictable and systematic framework for the development of a wider array of SEZs to support industrial policy objectives, regional development strategies. The New Growth Path and National Development Plan.

3) Industrial Development Zones (IDZs)

• The objective of the IDZ’s are to position South African-based manufacturing industries to meet the challenges of globalisation and to attract advanced foreign production and technology methods in order to gain experience in global manufacturing and production networks through attracting foreign direct investment (FDI).

3.Research and Development1) Section 11D Tax Incentive

• The objective of this incentive is to promote R&D in South Africa.

• Supercharged deduction of 150%.

• Additional benefit of 14% after tax.

• No cap on the available benefit.

• Pre-approval from the Department of Science and Technology is a prerequisite.

2) The Support Programme for Industrial Innovation

• There are 3 sub-programmes:

I. The SPII Matching Scheme is a non-payable grant of between 50% and 75% of direct costs incurred in the pre-competitive development activities of a specific project. The maximum grant is R 5 million per project.

II. The SPII Partnership Scheme provides a conditionally payable grant of 50% of the qualifying cost incurred during development activity. This grant is conditionally repayable on successful commercialisation via a levy on sales. It provides a minimum grant of R 10 million per project.

III. The SPII Product Process Development Scheme is a non-repayable grant of between 50% and 85%

of qualifying costs incurred during the technical development

stage. It provides a maximum grant of R 2

million per project.


PART 12 - GOVERNMENT GRANTS AND INCENTIVES

3) Technology and Human Resources for Industry Programme

• THRIP promotes partnership in pre-commercial research, between businesses and the public funded research base, including universities and research institutions. THRIP contributes funds according to a set of predetermined ratios, which is dependent on the type of industry partners.

4) Technology Transfer Fund

• The TIA provides funding through the Industry Matching Fund, Equity Fund, Technology Development Fund and the Idea Development Fund. Various funding and financing options are available.

5) Technology Transfer Fund

• The TTF funds defined components of the process of transferring available technology to small enterprises with its main focus on the second economy business. The benefit is a non-payable grant for small enterprises of up to a maximum of R 600 000 per project.

There are numerous other incentives available. These are:

Incentive Objective

Business Process Services (BPS) Incentive

To attract investment in the BPS sector that creates employment opportunities through off-shoring activities.

Foreign Investment Grant

To encourage foreign businesses to invest manufacturing companies by assisting in the cost of transporting productive qualifying assets to South Africa.

Tourism Support Programme

To stimulate growth within the tourism industry.

Automotive Investment Scheme

To grow and develop the automotive sector but increasing plant production volumes and strengthening the automotive value chain.

Film Incentive To encourage and attract large budget films that will contribute towards South Africa’s economic development and to support the local film industry and to contribute towards employment opportunities in South Africa.

Clothing and Textile Competitiveness Improvement Programme

To stimulate the competitiveness of the South African clothing and textile manufacturing sector by encouraging world class manufacturing initiatives aimed at improving people, processes and products.

Export Marketing and Investment Assistance Scheme

To assist South African exporters in establishing export markets for their products.

Capital Projects Feasibility Programme

To facilitate feasibility studies that are likely to lead to projects that will increase South African exports and stimulate growth for local capital goods and services.

Production Incentive An incentive available to final manufactures based in the Southern Africa Custom Union (SACU) and will be based on value added in the production process of qualifying automotive components.

Incentives are a critical and valuable tool for economic development in South Africa. They should be negotiated as a business deal that will benefit the South African economy as well as the prospective company/investor.


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CONTRIBUTORS

Carlos Henriques Carlos Henriques is a senior broadcaster and communications professional with over 20 years’ pan-Africa media experience. He is a former staff member of the British Broadcasting Corporation (BBC) in the United Kingdom; highly passionate about excellent storytelling and with proven success in developing marketing and communications strategies across several platforms in Southern Africa, West & Central Africa and East Africa. Carlos is a Senior Media Trainer for SPI – Sol Plaatje Institute for Media Leadership at Rhodes University and Reuters Foundation in Africa. He is the founder of Johannesburg-based communications consultancy practice Broadcast Advise.

Rui Marto Rui Marto is a practising attorney and director of attorneys Marto Lafitte & Assoc Inc. in Johannesburg specializing in commercial and property law.

Rui has a Bachelor of Arts degree and Bachelor of Law degree from the University of Witwatersrand. He co-founded attorneys Marto Lafitte & Assoc Inc in 1995. The firm specializes in Company and Commercial Law, M&A, Property law, Litigation, Labour and Administration of Estates.

Rui is a founder member and executive director of the South African Portuguese Chamber of Commerce and a director of the EU Chamber of Commerce. He has extensive experience in assisting local and foreign corporate clients with company structuring and with commercial aspects of investing in South Africa, including M&A and contractual law.

Rui hosts seminars and workshops on topics related to his area of expertise and is a guest speaker at events and for various organizations. He has been a contributor to the Real Estate Investor Magazine and other publications including Transform SA. He is a regular and resident expert on Africa Business Radio’s weekly “The Property Show” with Gaven Malope.

Thokozani Thwala Thokozani Thwala is an economic and business development specialist and the founder of GROWTHMAP INFONOMICS. Thokozani’s two professional missions are driving sustainable businesses growth…fast, and unlocking the real potential of individuals – missions spanning over two decades, 30 countries and engaging tens of thousands of businesses across a multitude of sectors, enterprises and governments. Thokozani’s thoughts, passion, sincerity, and client relationships are hallmarks of his way of life. Whether speaking, facilitating or consulting, Thokozani’s passion to make a real tangible difference is at the forefront of his work, and what sets him apart from his peers. His boldness, commitment, opinions, and team approach have made him one of the nation’s foremost economic and business advisor. Thokozani’s areas of expertise are: Business Brokerage, Corporate Finance, Mergers & Acquisitions, Corporate Re-organisation, Joint Ventures and International Expansion, Company Valuation and Investment Projects and, Immigration and Relocation.

Antonio Duarte Antonio Duarte is the Head of finance for Device Channel for Regional Business and Personal Banking at Standard Bank Group based in Johannesburg. Antonio is a seasoned accountant and tax practitioner with 20 years of financial services experience, having worked in banking, insurance and FMCG sectors. Antonio is married and has two sons. Antonio graduated in Accounting from University of Pretoria, Honours in accounting and tax law from UNISA, an Higher Diploma in taxation and is a of South African Institute of Professional Accountants.

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