I. General Information

South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa and is the 25th-largest country in the world by land area, and with close to 56 million people, is the world’s 24th-most populous nation.

It is a multiethnic society encompassing a wide variety of cultures, languages, and religions. Its pluralistic makeup is reflected in the constitution’s recognition of 11 official languages, which is among the highest number of any country in the world.

South Africa is one of the founding members of the African Union (AU), and has the second largest economy of all the members. It is also a founding member of the AU’s New Partnership for Africa’s Development (NEPAD).

II. Foreign investment

As a largely free-market economy, South Africa encourages foreign investment in both the public and private sectors. Factors attracting FDI into the country include a transparent regulatory framework, a large population, access to raw materials and political stability.

South Africa has great potential for possible foreign investors compared to other countries in the world; however, its record in terms of attracting FDI thus far has been relatively poor. FDI has nonetheless been improving in recent years due to new investments in infrastructure.

It is the third largest FDI recipient in Africa, after Nigeria and Mozambique, and the largest FDI provider. Globally, South Africa ranked 15th among the most attractive economies for transnational companies for 2013-2014. In addition to structural issues in the electricity supply and logistics sectors, industrial strikes, which regularly affect production, can also prove discouraging to investors.

III. Why You Should Choose to Invest in South Africa

Strong Points

South Africa has high market potential, well developed infrastructures and a reasonably competitive domestic economy. The democracy here is also well-established with transparent and contested elections and an appreciation for the rule of law.

The country has put into place economic reforms, which have led to macro-economic stability, as well as tax and customs reductions. It also has a large and active stock exchange.
South Africa has shifted from its traditional industries to production and financial services, which are the main contributors to the GDP. The tourism and retail sectors also have great potential.

Government Measures to Motivate or Restrict FDI

Nearly all business sectors are open to foreign investors. Government approval is not required and there are few restrictions on how or how much foreign entities can invest. Additionally, the Government has put in place various measures to encourage foreign investments, including simple tax rules, investment incentives, a better regulatory policy on competition, protection of intellectual rights. Below are a few examples of these measures:
– The Foreign Investment Grant, a cash grant, which provides up to 15% of the value of new machinery and equipment;
– The Skills Support Program which provides up to 50% of training costs and 30% of workers’ salaries; and
– The Industrial Policy Project Program, which offers tax allowances.

Tax summary

Taxation in South Africa may involve payments to a minimum of two different levels of government: central government through the South African Revenue Service (SARS) or to local government.

Central government revenues come primarily from income tax, value added tax (VAT), corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds and municipal rates.

Direct tax:

Income tax (Normal tax, individual income tax, company, donations, dividends, withholding)

• Estate duty
• Capital gains tax

Indirect tax:

• Value added tax
• Fuel levy

Income tax

• South Africa has a progressiveincome taxation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State than the poor. This means that the more a person earns the higher percentage tax they pay. By law all employers have to register all employees as taxpayers regardless of their tax liability. In terms of individual income tax South Africans pay the 31st highest average income tax rate in the world.
• normal tax
• donations tax
• secondary tax on companies
• withholding tax

Estate duty

Estate duty is similar to donations tax in that it is a tax on the transfer of wealth. The duty is charged on the death of a person and is based on the value of the deceased’s estate at the date of their death. It is 20% on the amount remaining in the deceased’s estate over R3.5 million.

Capital gains tax

First introduced on 1 October 2001, capital gains tax is effectively charged by adding a percentage of the increase in value of an asset that was disposed of for more than its base cost, to the taxpayer’s taxable income (see normal tax).

For individuals, deceased estates and special trusts 40% of the net gain exceeding R 40 000 exclusion for individuals is added to their taxable income.

For companies, close corporations and trusts 80% is added. Net capital losses in any given year cannot be used as a set-off against ordinary income; but can be carried forward to the following years to be used as a set-off against future capital gains.

Sectors of investment:

• Agro-Processing
• Business Process Outsourcing and IT-Enabled Services
• Capital / Transport equipment, metals & electrical machinery and apparatus
• Electro-Technical
• Textile, Clothing and Leather
• Consumer Goods
• Boatbuilding
• Pulp, Paper and Furniture
• Automotives and Components
• Green Economy Industries
• Advanced Manufacturing
• Tourism
• Chemicals, Plastic Fabrication and Pharmaceuticals
• Creative and Design Industry
• Infrastructure Development
• Oil and Gas

For more information about investment opportunities in different countries, please consult our blog section, Business Opportunities.