Companies registered outside South Africa may conduct business in South Africa in two ways. Firstly, the company can register a South African subsidiary. Alternatively, the company can register as an “external company” in terms of section 23 of the Companies Act. If none of the incorporators have a South African visa, then registering a South African subsidiary can prove problematic and it may be advisable to opt for an external company structure for the South African operations.
Registering a company in South Africa
The incorporators of external companies do not need South African visas to register the external company. The Companies and Intellectual Property Commission (CIPC) must simply be informed in the prescribed manner of the company’s intention to operate in South Africa within 20 business days after it started to “conduct business”. When is a company deemed to be “conducting business” in South Africa? The Companies Act stipulates that only when the company is a party to an employment contract or when it has acted in such a way as to appear that it will be continually operating in South Africa.
Actions to take prior to conducting business in South Africa
It is further stipulated that the following actions are, on their own, not enough to justify recognition as an external company “conducting business” in South Africa:
- conducting a meeting of the shareholders or board of the foreign company on South African soil, or otherwise conducting any of the company’s internal affairs within the Republic;
- establishing or maintaining a bank account in the Republic;
- establishing or maintaining offices or agencies within the Republic for the transfer, exchange, or registration of the foreign company’s own securities;
- creating or acquiring any debts within the Republic, or any mortgages or security interests in any property within the Republic;
- securing or collecting any debt, or enforcing any mortgage or security interest within the Republic; or
- acquiring any interest in any property within the Republic.
Under the old companies act, the requirement was simply that the foreign-based company must have established a place of business in South Africa. In order to register as an external company, the applicants must provide the CIPC with the following:
- form CoR20.1, duly completed;
- pay the registration fee of R400;
- submit a copy of the entity’s foreign Memorandum of Incorporation and registration certificate (or equivalent documents), together with translations (if applicable).
Once registered, the CIPC will issue a registration certificate to the external company on form CoR 20.2. The external company may continue trading while it waits for its CoR20.2 certificate.
Considerations when expanding business into South Africa
Foreign nationals are advised to seek professional advice when considering external companies, as South Africa does not have dual taxation treaties with all other countries. If the country of origin of the foreign entity is not a party to a dual taxation treaty with South Africa, then the external company may end up pay income tax twice on the same earnings, which will usually be fatal to the entity’s prospects of success.
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