Doing Business

Tips for Investors

South Africa continues to receive highly favourable rankings among developing countries for competitiveness and ease of doing business. Ironically, however, the country has become a victim of its own success.

Regulatory Framework

Mediation and arbitration are regularly used to resolve disputes and court damages are compensatory, not punitive. Freehold ownership of property by foreigners is allowed and dividends are freely remittable.

Government Policy

Government seeks to create a positive environment for doing business. Effective fiscal and monetary policy has brought a decade of continuous economic growth while substantially lowering taxes, inflation, interest rates, government debt and the budget deficit, although sustained growth and increased spending forced up inflation and interest rates in 2007. The currency has been relatively stable for the past few years but increased by nearly 15% in the wake of a higher current account deficit and the energy crisis. Labour laws have been amended to provide more flexibility in hiring and firing practices and foreign exchange controls have been all but eliminated.

Black Economic Empowerment (BEE)

The Codes of Good Practice address concerns expressed by corporate South Africa, foreign investors and small businesses and are now the guidelines for measuring BEE. They are simpler and less restrictive than previous guidelines, especially for small and medium size enterprises:

• Small enterprises with a turnover of R5 million or less are completely exempted from participation;
• Medium size enterprises with a turnover of between R5 and R35 million may choose four out of the seven elements for calculating their empowerment scores;
• Foreign multinationals may ignore the ownership element if head office policy prohibits surrendering equity and may make up the deficit through other BEE initiatives.

Taxes

Government revenue is derived primarily from a residence-based income tax on businesses, individuals and trusts and a 14% value added tax (VAT) on nearly all goods and services. There is a capital gains tax (CGT) which taxes individuals at a maximum of 10% of the gain and companies at the corporate tax rate of 28% of the gain. Small and medium enterprises meeting certain criteria pay a reduced tax rate on the first R300,000 of profit and 28% on profits in excess of R300,000.