How to Start a Successful Business in South Africa as a Foreigner

Table of Contents

Starting a business in South Africa presents a unique opportunity for foreign entrepreneurs: This guide will help you navigate the legal, financial, and regulatory tight-ropes necessary to establish a successful business.

The Growing Need for Foreign Talent

South Africa faces a significant skills shortage, particularly in the tech and professional sectors. Foreign workers offer a tangible solution to this crisis. But the complex visa application process has historically posed challenges for businesses and people looking to establish themselves in South Africa.

To help solve this problem, the Department of Home Affairs (DHA) has introduced the Trusted Employer Scheme (TES). This initiative aims to make the visa application process easier and faster for companies that qualify – reducing the time and hassle of bringing in foreign employees.

The Operation Vulindlela Work Visa Review Report (2022) highlighted some issues with South Africa’s current work visa policies. Although these policies are generally good, unpredictable visa decisions have made it harder for businesses to get the talent they need. 

The TES is designed to fix this by creating a more reliable and efficient way to bring foreign workers into the country.

Under the TES, companies are vetted in advance to ensure they comply with tax rules and labour regulations. Once approved, these “trusted employers” can use a simpler process to hire skilled foreign workers. This means fewer requirements for each visa application, making it quicker and easier to bring in the necessary expertise.

But before we discuss the legal and regulatory requirements for you and your soon-to-be business, let’s first look at the two options you have to decide on when starting your business.

Option 1: Registering a Business in South Africa

Starting a business in South Africa involves several key steps. First, you’ll need to choose the right business structure, such as a private company, public company, partnership, or sole proprietorship. 

Next, register your business with the Companies and Intellectual Property Commission (CIPC). Then, obtain a tax number from the South African Revenue Service (SARS). If your annual turnover exceeds the threshold, you’ll also need to register for VAT. 

Keep in mind, that you’ll need to comply with labour laws like the Basic Conditions of Employment Act and apply for any necessary business permits specific to your industry.

For a detailed guide on registering a business in South Africa, you can refer to our guide ‘Register a company and start a business in South Africa in 2024.’

What Are The Benefits of Registering a Business In South Africa?

Registering a business in South Africa offers several benefits. You gain full control over your business operations and decision-making processes, establish a credible local presence, and access local networks and opportunities. 

Additionally, you can directly hire employees, including foreign workers under the Trusted Employer Scheme (TES).

However, there are also challenges to consider. The initial setup costs can be quite high, and ongoing regulatory compliance can be complex and time-consuming. And even with the TES, obtaining work visas for foreign employees can still be a challenging process.

Option 2: Using an Employer of Record (EOR)

Firstly, what is an EOR? An Employer of Record (EOR) is a third-party organisation that manages payroll, taxes, and compliance with local labour laws for your employees. This allows your business to employ workers in a foreign country without needing to establish a regional entity.

How Does an EOR Work?

An EOR takes care of several critical functions. They handle the hiring and onboarding process, ensuring compliance with local labour laws. They also manage payroll processing, tax withholding, and benefits administration. 

Additionally, the EOR ensures compliance with all local employment regulations, helping to reduce legal and financial risks for your company.

For more information on EOR services, you can read all about the Employer of Record and the important functions they handle.

What Are There Benefits and Challenges of Using an EOR?

Using an EOR comes with several advantages. It can lead to significant cost savings, since the initial setup and operational costs are lower compared to registering a business. 

An EOR also offers you speed and flexibility, allowing for a faster hiring process and the ability to scale operations up or down as needed. 

Moreover, an EOR ensures compliance with local labour laws, reducing the risk of non-compliance for your business. However, there are some challenges to consider. Using an EOR means you have less direct control over your employees and business operations.

Comparing the Two Options: Finding What’s Right For Your Business

When deciding between registering a business and using an Employer of Record (EOR), understanding the initial setup costs is incredibly important. 

Registering a business in South Africa involves much higher upfront expenses, including registration fees, legal fees, and the initial capital investment needed to get your business off the ground. On the other hand, using an EOR comes with lower initial costs, since there’s no need to establish a local entity. 

Another important consideration is that maintaining a local business requires ongoing compliance and administrative costs. These include regular interactions with government agencies, maintaining proper records, and ensuring adherence to all relevant laws and regulations. 

An EOR, however, manages these tasks on your behalf, potentially reducing overall operational expenses. By handling payroll, taxes, and compliance, an EOR can help streamline your operations and reduce the administrative burden on your team – and also prevent any errors that can cause severe repercussions for you and your business.

One of the significant advantages of using an EOR is the speed at which you can enter the South African market. Since the EOR already has the necessary infrastructure and legal standing in place, you can start operations much quicker compared to registering a business, which can take several weeks to months. This faster time to market can be critical for companies looking to capitalise on immediate opportunities.

An EOR also offers greater flexibility to scale operations up or down based on your business needs. This means you can adjust your workforce more easily in response to market demands without the constraints of a more rigid business structure. Registering a business, however, involves more long-term commitments and less flexibility to make rapid changes, which can be a disadvantage if your business needs to evolve or adapt quickly.

However, one of the most important considerations is the limited control vs the direct control you will have. Registering a business in South Africa gives you full control over your business operations and decision-making processes. 

You can directly manage your employees, tailor your business strategies, and build your company culture without external interference. This level of control is not always necessary – especially in the initial phases of your budding business.

Using an EOR, while offering many conveniences, means you have less direct control over employees and day-to-day operations. The EOR manages compliance, payroll, and other HR functions, which can limit how much influence you have over certain aspects of your business. 

What Are The Legal Requirements for Starting a Business In South Africa As A Foreigner?

If you’re considering starting a business in South Africa as a foreigner, there are several legal requirements to keep in mind. Depending on your industry, you may need to obtain specific permits and licences to operate legally in South Africa. 

It’s essential to research and comply with all regulatory requirements relevant to your business activities.

The first step is to decide on the most suitable corporate structure for your business. Options for your business include a Sole Proprietorship, Private Company, etc.

Once you’ve chosen your corporate entity, you’ll need to register your business with the Companies and Intellectual Property Commission (CIPC). This can be done online through the CIPC website, where you’ll find the necessary forms and guidelines for registration.

For a detailed step-by-step guide on registering a business in South Africa, we’ve detailed a full blueprint for anyone looking to make the process easier.

Alternatively, if you prefer a more streamlined approach to hiring staff in South Africa without establishing a legal entity, you can opt for an Employer of Record (EOR) service, as discussed earlier.

The Different Business Visa Requirements

As a foreign entrepreneur looking to operate in South Africa, it’s crucial to understand the visa requirements. And there are two primary options available:

  1. Business Visa: The Business Visa is designed for those who intend to invest in South Africa. It requires a minimum investment of R5 million and is processed through the Department of Home Affairs. This visa allows you to establish and run a business in the country.
  1. Independent Financial Permit: For entrepreneurs who may not meet the investment threshold for a Business Visa, the Independent Financial Permit provides an alternative. This permit allows you to conduct business activities in South Africa based on your financial independence and contribution to the economy.

Suffice to say: It’s critical to stay updated with the latest visa regulations and requirements — Changes in visa policies and criteria may impact your eligibility and application process. 

Your Ongoing Legal Obligations

There are several ongoing legal obligations that you must fulfil to ensure compliance with local laws and regulations as a foreign business owner in South Africa. Without an EOR, you will personally need to meet certain obligations, including:

  1. Filing annual returns with the CIPC: Compliance includes maintaining accurate financial records and meeting tax obligations.
  2. Financial Statements and Audits: Prepare and file financial statements annually. Larger companies may require independent audits.
  3. Tax Obligations: Register with SARS for income tax, VAT, and PAYE – and stay compliant with tax filings to avoid penalties.
  4. Employment and Labor Laws: Comply with local labour laws, including minimum wage regulations, working hours, and employee benefits. Register for unemployment insurance, skills development levy, and compensation for occupational injuries.
  5. Broad-Based Black Economic Empowerment (BEE): BEE policies aim to increase the participation of black South Africans in the economy. Understanding BEE requirements can influence your business operations and eligibility for government contracts.

Overall, as with any economy and country, adherence to the local laws and regulations is what will either make or break your business.

Recent Economic Developments In South Africa

According to the African Development Bank Group’s Economic Outlook, inflation rose to 6.9% in 2022, driven by higher food and fuel prices – resulting in the Reserve Bank of South Africa raising the base interest rate. 

This has implications for businesses planning their financial strategies, especially regarding “borrowing costs and investment decisions”. The GDP growth rate dropped, primarily due to electricity shortages, flooding, and transport sector constraints, as highlighted in the World Bank’s overview of South Africa

This slowdown impacts various sectors, “influencing market conditions and consumer behaviour”, which businesses need to consider while planning their business strategies. 

But despite these challenges, certain sectors like trade, tourism, mining, and manufacturing are projected to contribute to economic growth in the coming years, as mentioned in the Economic Growth report by Statistics South Africa

However, “structural constraints” such as ongoing power shortages and “logistical bottlenecks” continue to bring challenges for businesses in South Africa, as noted in the report. 

And it’s up to businesses to understand these economic dynamics, to rise, and to adapt to any changes on the horizon — Knowledge is power, after all.

FAQs

What are the requirements for starting a business in South Africa as a foreigner?

If you’re a foreigner looking to start a business in South Africa, you’ll need to go through specific steps. As mentioned above, these include choosing the right business type, registering with the CIPC, obtaining necessary permits and licences, and meeting other regulatory requirements.

Can a foreigner open a business bank account in South Africa?

Yes, as a foreigner, you can open a business bank account in South Africa. You’ll likely need to provide documents such as proof of identification, proof of address, and legal papers related to your business.

Can a foreigner get a tax number in South Africa?

Foreigners planning to do business in South Africa must get a tax number from the South African Revenue Service (SARS). This number is essential for tax compliance and handling financial matters related to your business.

How much does it cost to register a small business in SA?

The cost of registering a small business can vary. It typically includes registration fees, legal fees, and an initial investment. The exact amount depends on factors like your chosen business structure and the aspects we mentioned above.

Can a foreigner get a business loan in South Africa?

Foreigners can apply for business loans in South Africa. However, eligibility factors may differ. Lenders usually ask for business registration proof, financial statements, a solid business plan, and sometimes collateral, depending on the loan terms and amount.

And That’s a Wrap.

Starting a business in South Africa as a foreigner involves negotiating a complex maze of regulations and business decisions. Whether you choose to register a business or use an Employer of Record, understanding the benefits and challenges of each option is crucial. 

And when you leverage recent changes and developments in business regulation, such as the Trusted Employer Scheme, you can capitalise on investment opportunities in the tech sector – and your business can become a force to be reckoned with.

To stay updated with the latest news and financial insights that will give your business an edge in the economic terrain of South Africa – keep an eye on our News & articles for leading advice and knowledge from some of the best accounting specialists in South Africa.

References/Authoritative Sources

Information about the authors, publication, and publisher

Picture of Author - Arnaud Brunel

Author - Arnaud Brunel

After a 15 year long career in International Banking and Compliance, Arnaud launched multiple businesses in Cape town. He still heads 2 of these businesses today in the Digital Marketing Industry with Brunel Studios and in the Financial Industry with Thryv.

Picture of Publication & Publisher - Thryv Accountants

Publication & Publisher - Thryv Accountants

Thryv accountants is a private accounting company that focuses on outsourcing of the financial functions of small and medium companies in Cape Town and other regions of South Africa.

The publications on this website are for information purposes only. They are based on our professional opinion.

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