Company formation in brief
In the variety of legal and organisational forms of companies permitted to be established by the law of South Africa, Private Company and Public Company may be of practical interest as international tax planning tools for foreign investors.
Private Company which must have the words "Proprietary Limited" or "PTY Limited” at the end of its name may be established without paying any charter capital by one shareholder (physical or legal person, resident or non-resident of South Africa). Maximum number of shareholders is 50. only registered shares that may not be transferred to third parties without all shareholders’ approval may be issued; A private company may have a sole director – resident or non-resident of South Africa. Corporate directors’ and shareholders’ data is recorded in the public state register.
Public Company may be established without paying any charter capital by at least seven shareholders (physical or legal persons, residents or non-residents of South Africa). Maximum number of shareholders is not limited; Both registered and bearer shares may be issued. Company’s shares may be transferred to third parties. Public company must have at least two directors and a secretary – residents or non-residents of South Africa. Corporate directors’ and shareholders’ data is recorded in the public state register. Public company must have the word “PLC” at the end of its name.
All South African companies are required to keep accounting records and to submit annual reports specifying the company’s current directors and shareholders as well as shareholders which held shares during any period in the reporting year. Companies are required to maintain a registered office in South Africa, to have an actual postal address and to appoint a local agent for communications with the Government authorities of the country.
Corporate letterheads and other attributes of businesses should include a name, address and registration number, as well as corporate members’ names.
Annual general meetings in companies and corporations must be held within 18 months of registration. Subsequent annual general meetings should be held no later than 9 months after the end of each subsequent financial year but no later than 15 months from the date of the previous annual general meeting.
The standard corporate tax rate in South Africa is 29%, but a company generating all its income in one of the States with which South Africa has made a double taxation agreement will be subject to the following rule:
• if the tax rate in the country where the company generates all its income is no less than 29%, the company is not subject to taxation in South Africa;
• if the tax rate in the country where the company generates all its income is no more than 29%, the company is subject to taxation in South Africa at a rate equal to the difference between 29% and the tax rate of the country where the income is generated.
If the company generates income in countries with which South Africa has not signed double taxation agreements, the company may receive a tax credit in South Africa depending on the effective tax rate in the country where the company or the corporation generates its income.
The law of South Africa has introduced the concept of an International Holding Company which, provided that a number of conditions are met, may provide significant tax benefits to investors. Those conditions are:
1. all company's shares should be held by non-residents of South Africa;
2. at least 90% of the company's assets should be invested outside South Africa in a subsidiary where the company itself holds at least 50% of shares;
3. indirect participation of South African residents in the holding company may not exceed 5%.
International holding company is exempted in South Africa from tax on received dividends.
South Africa is not a tax heaven or offshore jurisdiction, and a concept of South Africa tax exempt company (and/or South Africa offshore company, International Business Company, trust, foundation etc. registration) does not exist in South Africa as such. A company formation in South Africa could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in South Africa. To set up a company in South Africa is possible by correspondence, but to open a bank account in South Africa will, most probably, require a personal visit.
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