Establishing a business is no walk in the park. You start full of beans and experience your mojo receding as you go through the red tape involved in registering and making the business officially recognized. Nonetheless, the vigor and energy may come back when you finally have it in your hand, a running business.
Have you been planning to locate your business in South Africa? You are at the right place, then. South Africa offers tremendous opportunities for new enterprises thanks to being the third-largest economy on the whole continent. The country is highly developed, modern, industrialized, and advanced. It is a middle-income country with a diversified economy that grew sizably within 20 years of ending apartheid. The natural resource extraction industry contributes chiefly to South Africa’s economy. In 2016, the country posed five main challenges to running a business here, namely, red tape, dearth of skilled workers for high-tech industries, restive labor laws, corruption, and political instability. However, South Africa has improved greatly and now offers an environment conducing to start-uppers and businesspeople.
The process of starting a business is anything but easy. There’s a lot that must be looked after. At every step, you need to ensure that you are not going against the laws, fulfilling the criteria, etc. Here’s a detailed account of the process of establishing a business in Africa, with all things you need to know. Let’s dive in!
Your foremost consideration when it comes to starting a business must be in-depth research on the business idea to gauge its viability and marketability and prepare an elaborate business plan. After that, choose the legal structure of your company. In South Africa, you may select a legal form of the company from a branch, a company, a partnership, a business trust, a sole proprietor, etc.
Now you need to commit yourself to get your business registered with the CIPC (Companies and Intellectual Property Commission). You may even register your company through a bank as well. You may even outsource a business admin who owns expertise in the company registration matters and related stuff such as registration with CIDB, SARS, tax authorities, etc.
The company registration process will take about 7 to 21 days. If you are a foreigner seeking to set up a business in South Africa, you must have an RSA ID document, a residential address in the country, and a valid passport. If your business’s turnover goes over R1 million per annum, it has gained the eligibility to pay taxes like VAT, employees’ tax, and turnover tax. Thus, you will need to register it now with tax authorities.
Starting a business in South Africa has been elaborated further in the sections that follow. Know the nuances it entails.
Process of setting up a business in South Africa
How to start a small business in South Africa? When setting up a company anywhere in the world, one must start by researching and discovering the potential of the business idea. If you are planning to establish a venture in a foreign country, you also need to understand its business culture, such as things that downgrade the professional image or entity, details that can highlight your work ethics, etc. If you look to operate in South Africa, you need to go through specific procedures and formalities and fulfill certain requirements. Here, let’s look at the process of starting a company in South Africa with all things you need to consider. Read on!
- Come up with a solid business idea: Before you go forth with your pep and vigor to confront the legal formalities, make sure your business idea is marketable and profitable. You can do this by performing deep research on it, analyzing the competitors, knowing the demand and supply factors for your products/ services, etc.
- Prepare a business plan: The research you performed when checking the profitability of a business idea must be used to prepare a solid business plan. A good business plan will act as a roadmap for you. You will be able to navigate better and identify the weaknesses and deficits in your plan. That directly facilitates in improving the reality. Furthermore, investors need a business plan to gauge the potential of your business before they can extend funding for your business.
- Choose a legal structure: Now, select the legal structure of the business. You can choose from a business trust, sole proprietor, close corporation, branch office, private or public company, etc., in South Africa. The step must be followed carefully as it has many consequences. For instance, it will directly influence the liabilities your will face, taxes you will pay, etc.
- Register your business: Nowadays, it is possible to register your business in South Africa through online mode. Visit the website of the Companies and Intellectual Property Commission. You may also avail yourself of the registration and other related services on the platform.
Hiring Employees in South Africa
Once you have got your business recognized officially, it is time to hire people. Yes, you need to look for talented ones to get a good bang for your buck. However, you also need to familiarize yourself with the employment and labor regulations of a country, such as those related to a probation period, annual holidays, sick leave, pension, social security, maternity leave, etc. Knowing these laws is necessary to come across as a responsible employer. With the help of experienced HR consultants from Zimyo, you can rest assured regarding all your human resources-related requirements.
See what these rules are in South Africa.
- Trial Period/Probation Period: Probationary period is established to assess the competency of the employee for a particular job role and to the workplace culture. At the end of the probationary period, the employer has the liberty to consider the dismissal or retention of the employee. The probation period must be reasonable and in accordance with the role and circumstances of the job. In certain cases, the employer may extend the probationary period as well. The Code of Good Conduct in the LRA mentions that after the termination of the probationary period, employers cannot be dismissed unless a reasonable improvement period has been allowed to the employee and he/she has failed and given appropriate remedial treatment.
- Leave and Holidays: BCEA establishes an entitlement of an employee to a leave of 21 days in a row per year of employment on full pay. Public holidays are not included in the annual leave and cannot be encashed, neither can annual leave be accrued from one year to the following one. An employee is entitled to a day’s leave due to sickness every 26 days during the first four months for which the employee has been with the company. An employer allows a sick leave of over two days only if two or more absences have transpired within a period of eight weeks, given that the employee produces a valid medical certificate.
- Maternity Leave: Female employees in South Africa are entitled to a maternity leave of up to 4 months, which begins 4 weeks before the expected date of childbirth and continues 6 weeks after the childbirth. Unless agreed mutually by the parties involved in the contract, maternity leave is unpaid. Strict provisions govern the nature of work that can be meted out to pregnant or nursing employees, such as doing any work that poses a danger to her or the wellbeing of her child is prohibited.
- Termination of Services: The employment contract in South Africa can be terminated due to reasons mentioned below:
- By collective agreement
- By repudiation
- Either party notifies in advance.
- A specific task reached its completion.
- The employment contract expires.
- Either party dies
- Employer’s insolvency
- Due to material breach by either party involved in the employment contract.
In absence of any strong reason, the employment contract cannot be terminated. According to LRA, the employment contract can be terminated on the following grounds:
- Employee’s misconduct
- Incompetency or poor work performance of the employee
- Employer’s operational needs
- Pension: The pension system in South Africa is constituted by a means-tested, non-contributory benefit program. Under pillar 1, the old-age grant offered by the government is the prime source of 75% of the elderly income of the retired populations. Contributions reimbursed to provident funds, and approved pension schemes are tax-deductible up to 19 percent of remuneration received by the employees.
Lump-sum payments of pension are partially taxable and partially tax-free. The retirement age of men and women in South Africa is fixed at 60 years.
- Work Hour Norms: As per BCEA, working hours in South Africa are limited to 45 hours per week and 9 hours per day. Employees who work on a six-day week must not work for more than 8 hours per day. Any extra hours would be counted as overtime for which an employer has to reimburse extra pay. To work overtime, both employer and employee need to agree. The overtime hour limit in the country is set to 10 hours per week, and it cannot surpass 3 hours of overtime in a day.
Overtime work payment is made with an addition of 1.5 times the regular hourly rate, or employer and employee may agree to partial payment and partial rest. Employees who work for over 5 hours in a row must get a break of at least one hour which can be reduced to 30 minutes by mentioning it in the contract. Between finishing a workday and restarting it, the employee must be allowed 12 hours of uninterrupted rest. A weekly rest period of 36 hours is compulsory and needs to include a Sunday.
How easy is it to conduct business in South Africa?
According to the Doing Business report 2020, South Africa was ranked at 84th position and scored 67 out of 100 among 190 economies in the EODB index. Let’s understand what this amounts to. The Doing Business is a catalog that holds economy profiles of 190 countries and compares and ranks them on many indicators. The indicators are chosen carefully and are those that render a critical role in enabling business. By perusing the countries against these factors like getting electricity, trading across borders, getting credit, resolving insolvency, etc., the Doing Business prepares sub-indices. After assessing the position of an economy on these sub-indices, the overall Ease of Doing Business rank of an economy is measured. So, let’s see where South Africa lies. Read on!
- Starting a Business: Starting a business is not an easy job. There are tons of things that demand your consideration, such as obligations one has to follow when registering a name, property, formalities one has to endure, etc. Thus, the Doing Business positions an economy in this sub-index by measuring and comparing the time, cost, and procedures involved in starting a business. According to the Doing Business report 2020, South Africa came at the 139th position among 190 countries and scored 81.2 out of 100. In 2009, the country eliminated the need for lawyers and reduced the cost and time to establish a business, thereby simplifying the process.
- Managing Permits: If you want to base a venture anywhere globally, you will need to have official permission to establish and run it. The kind of license and permit an entity demands on the activity it would undertake. For instance, a restaurant requires different permits than a business operating in the alcohol and beverage sector. The Doing Business measures the amount of time, cost, and procedures it takes to procure permits, as well as it also assesses the quality of safety control mechanisms in the construction permitting system. According to the Doing Business report 2020, South Africa came at the 90th position and scored 68.3 out of 100.
- Getting Electricity: Electricity is another indicator studied and compared by the Doing Business for 190 economies. It looks into the time, formalities, and cost of the process of procuring a connection to the electricity grid in a particular country involves. Furthermore, the reliability of electricity supply and tariff transparency is also evaluated. According to the Doing Business report 2020, South Africa came at 114th position among 190 countries and scored 68.8 out of 100. In 2019, the country initiated the recording of data for the system average interruption frequency index (SAIFI) and the annual system average interruption duration index (SAIDI). This was done to enhance the tracking and regulation of power outages in South Africa.
- Getting Credit: Getting credit is another factor that qualifies as a potential indicator considered by the Doing Business, where it measures the efficiency of credit information systems and how easily new businesses can procure loans. In this sub-index, South Africa came at the 80th position among 190 economies and scored 60 out of 100. In 2008, the country adopted a requirement where lenders evaluate the overall customer debt before allowing them a loan and entitling the borrowers to challenge and access their credit records. This was done to improve the credit information system of the country.
- Managing Payroll: A growing business poses more responsibilities such as recruiting more employees and staff to leverage the entity, managing their payroll, abiding by the tax laws, etc. In companies that have mushroomed to a considerable size, the integration of an efficient payroll management system is a necessary thing to accomplish. It not only facilitates making the management of employee payroll easier but also helps you reimburse taxes and social security contributions while obeying the laws. Several payroll management services are offered by Zimyo to help you manage your payroll requirements efficciently.
- Paying Taxes: Paying taxes is another responsibility that businesses must observe to operate a business legally. The process of filing and paying taxes requires a person to go through certain formalities and meet certain requirements, rendering the process either a hassle or a breeze. The more challenging it is to make tax payments in a country, the lower its rank gets in the sub-index. South Africa came at the 54th position among 190 countries and scored 81.2 out of 100, according to the Doing Business report 2020. In 2008, the country eliminated the stamp duty, making the tax payments process less costly.
- Enforcing Contracts: South Africa was ranked at the 102nd position among 190 economies and made a score of 56.9 out of 100, as the Doing Business report 2020 indicates. In 2015, the country amended the monetary jurisdiction of the lower courts and adopted voluntary mediation to ease the process of enforcing contracts. To measure the power of this indicator, the Doing Business looks at the outcome, time, and cost of the process of settling a commercial dispute. It also evaluates the effectiveness of the laws that regulate this domain.
- Resolving Insolvency: Insolvency in a business can be credited to many causes, where poor finance management sits at the top. Now insolvency laws of a country may either facilitate a business in overcoming this dire strait or render it hassling to get back on track. Thus, it makes a potential Doing Business indicator, where time, outcome, recovery, and procedures involved in the process are assessed. It also checks the effectiveness of court systems and insolvency regulations in resolving insolvency. According to the Doing Business report 2020, South Africa came at the 68th position among 190 countries and scored 54.6 out of 100. In 2012, the country adopted a new reorganization process to support financially distressed companies in their rehabilitation.
South Africa’s modern, board-based economy with highly developed infrastructure excites investors and start-uppers alike. Although the country offers tremendous possibilities to new ventures, it does come at the cost of going through a fair amount of bureaucracy, and that too without the proper level of support. Some small business ideas that you may consider starting in the country are virtual assistance, professional make-up business, tutoring, pet training, hairdressing, interior designing, electronics repair business, gardening, lawn care, etc.
Zimyo is a leading HR and Payroll management services provider in South Africa with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.