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Expert view: Doing business in South Africa

Indileni is a tax consultant at Boake Incorporated.  It is his responsibility to ensure compliance and provide timely and accurate tax advice and tax planning for his clients.  Indileni has a degree in Cost and Management Accounting as well as a degree in Taxation. He is currently studying towards a Masters in Taxation and pursuing a professional qualification (CIMA).

Boake Incorporated is a medium-sized audit firm, which strives to deliver professional services that address the needs of our clients. Through our association with BKR International and other sources we service a large number of international clients operating in South Africa.

What makes South Africa an attractive place to do business?

South Africa has long been one of the strongest economies in Africa and remains the strongest economy in Sub-Saharan Africa.

South Africa has an excellent infrastructure, a strong financial system and a highly-regulated banking and financial sector, which includes a world class stock exchange (the Johannesburg Stock Exchange (JSE)) and a globally admired constitution and legal system.

The 2017 Africa Competitiveness Report ranks South Africa as the 2nd most competitive African nation.  Competitiveness incorporates pushing forward structural reforms that boost productivity, create jobs and determine how prosperous a country can become.  This can be anything from affordable housing to clean water, better transport and sharper training initiatives – anything that helps people learn and connect and thrive[1]

From our experience many international companies choose South Africa as their regional headquarters due to the following advantages:

  • Similar time zones to Europe and the Middle East
  • High standard of living offered to ex pat workers
  • The availability of well-educated local staff
  • Good transport connections to the rest of Africa and the world

What consideration should be given when a UK business begins to think about doing business in South Africa?

Consideration must be given to the appropriate legal entity and the choice of funding as this all forms the basis of tax planning. 

South Africa is also subject to Exchange Control which regulates the flow of capital in and out of South Africa.  Many transactions need prior exchange control approval, so it is another important consideration. UK companies do not experience many challenges in establishing operations in South Africa as the legal and tax systems are very similar.

From our experience UK companies setting up in South Africa can do so with relatively few overheads and focus purely on selling their products or services. This allows the UK company to test the local market with a light footprint initially and scale up gradually.

Businesses operating in South Africa are subject to Broad Based Black Economic Empowerment (B-BBEE) once they achieve a certain size. It is important that this is considered in the initial set up of the entity to ensure compliance at a later date once the entity has grown in size and must comply.

Does the South African economy look favourably upon British goods/investment?

According to the Office for National Statistics in the UK, South Africa is traditionally the UK’s biggest trade partner in Africa.  South Africa was also the largest recipient of UK Foreign Direct Investment in Africa, accounting for 29.8% of total UK Foreign Direct Investment in the continent in 2014[2].  This clearly indicates the strong trade ties with the UK.

How would you describe the position of the South African economy right now?

Despite political and economic uncertainty South Africa remains committed to strengthen economic and social transformation.

South Africa’s economic growth has slowed over recent years much like many economies around the globe. Real GDP growth is forecast to be 1.3% in 2017 according to South Africa’s National Treasury, which is below the average growth rate of 4.5% for Sub-Saharan Africa.

South Africa is part of the BRICS countries and is widely considered an attractive emerging market with significant foreign direct investment. Despite slower economic growth, South Africa still represents a great investment and a gateway into the rest of Africa. 

Where do the biggest opportunities lie?

McKinsey Global Institute and Goldman Sachs Southern Africa have amongst others released reports in recent years referring to the opportunities in South Africa, despite the challenges which includes the following:

  • Advanced manufacturing
  • Infrastructure
  • Natural gas and renewable energy (Clean energy)
  • The export of services
  • The agricultural supply chain
  • Investment in the financial technology sector
  • The Africa growth story

What is the most important piece of advice you would give to UK businesses?

To appreciate the diversity and dynamic nature of the South African economy and consulting a local expert to adequately address the legal nature and business structure in South Africa.

Selecting your service providers carefully is important as receiving proper advice and efficient service is imperative to success in the market.

What is the biggest challenge a UK business looking to export to South Africa needs to overcome?

Procuring the services of a reliable handling agent to ensure compliance with all relevant import legislation. It also important to structure your tax affairs efficiently to ensure that all relevant duties and VAT can be claimed where applicable. Due consideration should also be given to adequately addressing the foreign exchange consequences of fluctuations in the Rand.

Do you have any specific examples of where you or your firm helped a UK business overcome any challenges?

Boake Incorporated has assisted many UK businesses in establishing a South African entity and dealing with local regulations and challenges. This involves guidance on the best entity type to select and guidance on how to best optimise the tax structures, including employee salary structuring./

Recently new regulations regarding reportable transactions have been introduced in the context of Base Erosion and Profit Shifting (BEPS).  We assisted a UK firm recently to address these challenges and proactively address the related tax risks.

What is the single biggest challenge facing the accountancy world in your country right now?

Ensuring compliance with the relevant standards and oversight by the local regulator, taking into account that South Africa is often ranked best in the world when it comes to Auditing.  For many years, South Africa’s Audit and Reporting Standards have earned the top ranking by the World Economic Forum.

Which support agencies should UK businesses be speaking to?

The British Chamber of Commerce is a very useful contact in South Africa, which offers bespoke services to UK companies to facilitate and support their business development in Southern Africa.  Boake Incorporated in its association with BKR currently offers structuring, set-up, back-office compliance, tax compliance and general consulting services to various non-resident entities.

How do you see things changing in the next 10 years?

Technology is revolutionising the manner in which business is conducted and disrupting traditional business models.  Businesses will be required to adapt and integrate technology into the traditional business models.  It is difficult to anticipate where this will lead us, but we can only assume it will significantly change the way we run our businesses.

Cassons work in collaboration with Boake Incorporated through BKR International. For more information about setting up in South Africa, please do not hesitate to get in touch.

[1] World Economic Forum, The Africa Competitiveness Report, 2017

[2] Office for National Statistics, The UK’s trade and investment relationship with Africa: 2016

16 Oct 17
Indileni Nambala, Senior Tax Consultant, Boake Incorporated, Johannesburg South Africa