Set up a Foreign Branch in South Africa


A foreign company may conduct business in South Africa in its own name through establishing a branch office registered as an “external company” or may instead elect to incorporate a wholly-owned subsidiary of the foreign company.

Foreign Branch

The Companies Act, 2008, defines a company that is incorporated outside of South Africa as a “foreign company”. A foreign company is required to register as an “external company” if the foreign company has entered one or more employment contracts within South Africa, or if the foreign company engages in a pattern of activities that would lead to reasonable conclusion of continuous business conduct in South Africa.


A foreign company or “branch” is registered within the jurisdiction of South Africa although the shareholders and/or directors are situated in the country of origin. It is important to note that an external company registered in South Africa is not a new legal entity but rather the foreign company remains one and the same legal entity which is merely registered in two countries.

  • The branch must obtain a South African registration number

  • The branch must have a locally registered address in South Africa

  • A South African resident must be appointed and registered with the CIPC and is responsible for the operations and compliance of the South African branch

  • A local auditor must be appointed for the branch. The audit is mainly for income tax purposes and can be used by the international company’s auditors

  • The branch must appoint a resident public officer who will accept documentation on the company’s behalf

Chapter 2, Section 23 of the Companies Act, 2008, lists a series of activities which will be regarded as conducting business. This list includes:

  • Holding a meeting(s) of shareholders or board of the foreign company, or otherwise conducting the internal affairs of the company

  • Establishing or maintaining any bank or other financial account

  • Establishing or maintaining offices or agencies for the transfer, exchange, or registration of the foreign company’s own securities

  • Creating or acquiring any debts, mortgages, or security interests in any property

  • Acquiring any interest in intellectual property

  • Entering into contracts of employment

It is important to know the difference between foreign branch and subsidiary, as this informs the tax treatment of your foreign entity and allows you to mitigate tax risk and ensure full compliance thereof.


FOREIGN SUBSIDIARY

ENTITY

Operates in the form of a private company – shares issued by this company and taken by international company

RESPONSIBLE PERSON

South African resident (CIPC)

STATUTORY REQUIREMENTS

Regular shareholder/director meetings – don’t have to be in South Africa

AUDITOR

Local auditor – scope is unlimited and is mainly for income tax and shareholder purposes

INCOME TAX

28% on nett profit

DIVIDENDS WITHHOLDING TAX

15% after declaration of dividend

EXCHANGE CONTROL

All taxes paid > dividends paid and repatriated


FOREIGN BRANCH

ENTITY

Registered in South Africa but shareholders and directors are situated in country of origin – requires SA registration number

RESPONSIBLE PERSON

South African resident (CIPC) – responsible for operations and compliance

STATUTORY REQUIREMENTS

No need for shareholder/director meetings

AUDITOR

Local auditor – scope is limited to the income statement and is mainly for income tax purposes

INCOME TAX

28% on nett profit

DIVIDENDS WITHHOLDING TAX

Circumstance dependent

EXCHANGE CONTROL

Taxes on profit paid > profit to international company



For further information contact African Venture Group.


African Venture Group

1 Nollsworth Crescent, Umhlanga, Durban, 4051

 

National:

078 115 6607

International:

+27 78 115 6607

Email: info@africanventuregroup.co.za

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