The World Bank measures the ease of launching a business using four criteria: the procedures required to establish a business; the associated time; the associated cost; and the minimum capital requirement. Launching a business in South Africa is a relatively straightforward process.
Entrepreneurs can expect to go through five steps to launch a business in South Africa, taking around 40 days on average. There’s no minimum capital requirement to obtain a business registration number, compared with the Organisation for Economic Co-operation and Development (OECD) average of 10.4% of gross national income.
Compared to India, Brazil and other OECD countries, South Africa has a competitive advantage in its ease of starting a business with low associated costs, equal to 0.2% of the economy’s income per capita, i.e. US$5 430.
Cape Town and the Western Cape
Residents in the Western Cape enjoy an attractive quality of life, beautiful scenery, a mild climate and a comparatively low cost of living. In addition to this, Cape Town ranks favourably globally in terms of the cost of doing business. Mercer’s latest Cost of Living survey indicates that Cape Town is one of the most competitive in the index.
Wesgro’s services to investors include investment recruitment and promotion, business facilitation, aftercare and advocacy. The agency’s Investment Promotion Unit attracts direct investment by positioning Wesgro as the first port of call for potential and existing investors by providing essential knowledge, access and expertise.
Sector-specific relationship managers proactively recruit investors, while the unit’s Business Growth Services division provides dedicated support to businesses already established in the Western Cape.
The unit fosters potential investment by using intelligence generated by the Research team to provide the leads for engaging with foreign embassies, consulates, high commissions and chambers of commerce – locally and abroad.
The unit also operates as a strategic bridge between the government and the private sector, by fostering key relationships with private-sector entities – including financial institutions, professional service providers, policy experts and sector associations – to assist inbound investors in accelerating the investment process.
Costs to consider
Apart from the regular costs associated with setting up a business, renting property and paying salaries, there are various other fees to consider when commencing business in the Western Cape.
South Africa is a signatory country to international treaties pertaining to intellectual property and has legislation recognising and protecting intellectual property. Various fees apply to register patents, designs, trademarks and copyrights.
An environmental impact assessment (EIA) is crucial to determine the impact of proposed projects on the environment, either in the construction or operational phases, or both. The Department of Environmental Affairs and provincial environmental departments are responsible for EIA processes. Environmental consultants’ fees can range from R2 000 for a basic assessment to R10 000 for a full scoping and EIA.
The cost of doing business: the basics
The Western Cape recorded formal and informal employment of 2.52-million people in the fourth quarter of 2018, according to Statistics South Africa figures. Labour costs in Cape Town and the Western Cape are comparatively low when compared with many other global markets.
Below is a breakdown of costs related to taxes and other compulsory contributions:
South Africa has tax treaties with many countries for the avoidance of double taxation. A full list of treaties can be found at www.sars.gov.za.
The country has a residence-based system of taxation for years of assessment commencing on or after 1 January 2001. South African residents are taxed on their worldwide income, subject to a number of exemptions, while non-residents are taxed on income earned from a South African source. Foreign taxes are credited against South African tax payable on foreign income.
For the 2018/19 financial year, the standard rate of corporation tax in South Africa is 28% for both resident and non-resident companies.
Capital gains on the disposal of assets are included in taxable income. Events that trigger a disposal include a sale, donation, exchange, loss, death and emigration.
Value-added tax (VAT) of 15% is levied on goods and services, excluding certain basic foodstuffs. Exports are zero-rated, provided that certain regulations are complied with. At present, it is compulsory for companies with an annual turnover of over R1-million to register for VAT.
Unemployment Insurance Fund
Employers must pay contributions to the government’s Unemployment Insurance Fund (UIF) in order to support workers who may become unemployed due to operational requirements. Companies are obliged to pay UIF contributions of 2% of the value of each worker’s pay per month. Of this, 1% comes from the employer and the other 1% is deducted from the worker’s salary.
The UIF provisions do not apply to workers working less than 24 hours a month for an employer; learners; public servants; foreigners working on contract; workers who get a monthly state pension; and workers who only earn commission.
The Skills Development Levies Act provides for a levy to contribute towards the cost of skills development. The levy is 1% of the total of all remuneration paid or payable or deemed to be paid or payable by the employer to all employees during any month. The levy must be paid to the education and training authority for the sector to which the employer belongs.
The Skills Development Levies Act applies to all employers, except the public service; religious or charity organisations; public entities that get more than 80% of their money from Parliament; and employers whose total pay to all its workers is less than R500 000 a year and do not have to register according to the Income Tax Act.