A 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.

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; and
• Entering into contracts of employment.

Foreign branch compliance & tax implications

There are specific criteria that a foreign branch must fulfil in order to operate with absolute compliance in South Africa.

The branch must obtain a South African registration number and a locally registered address. Moreover, a South African resident must be appointed and registered with CIPC. They will be deemed responsible for the day to day operations and overall compliance of the South African branch. This includes a local auditor who will mainly focus on income tax and a resident public officer who will accept documentation on the company’s behalf.

It is important to know the tax treatment of your foreign branch in order to mitigate tax risk and ensure full compliance.

Business bank accounts

If you are considering the possibility of carrying out business in South Africa using a company which is incorporated elsewhere, you will be required to open a local business bank account. This is a crucial step and needs to be carefully considered as banking structures, fees and documentation needed to open the account often differ and will be based largely on the type of business structure you have.

Both residents and non-residents can open bank accounts in South Africa. However, to open a business bank account, the most important detail will be the positive registration of your business in South Africa. It is important to note that some banks will require documents to be translated if they are not already in one of the South African official languages.

Take away

South Africa provides a wealth of potential for foreign businesses especially wishing to use the country as a base to expand further into Africa. With the right business structure, external companies can build a solid foundation for continued success over time.

However, the decision to open a foreign branch is not one that should be taken with little thought. A great deal of research, proper planning and a team that is well established to guide the process is imperative to ensuring absolute compliance of your foreign entity in South Africa.

Our multidisciplinary team boasts over 100 Professionals and is now 17 years strong. We have successfully helped companies establish and grow their business operations in South Africa.

Should you require our assistance to open a Foreign Branch, contact us on contact@foreigncompany.co.za or call 011 467 0810.