Offshore companies and doing business in South Africa - A Companies Act Perspective
08 Dec 2016
According to the most recent statistics released by the South African Revenue Service, South Africa remains a net importer of goods and services. Put differently, one could say that South Africans are more often clients in cross-border transactions than they would be the service provider. Many of our clients operate in this space, including foreign incorporated companies which are doing business in South Africa. This article is aimed at those specific clients of ours: those clients doing business in South Africa through companies incorporated outside of South Africa.
Section 23 of the Companies Act, 71 of 2008, regulates when foreign companies are required to register as “external companies” in South Africa. In terms of that section an external company must register with CIPC within 20 business days after it first begins to conduct business, or non-profit activities, in South Africa. The question is then when will the company in question be considered to be conducting business here?
A foreign company is, by virtue of the provisions of the Companies Act, regarded as conducting business in South Africa if either it is a party to at least one employment contract in South Africa, or if it is conducting such activities for a 6-month period “as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within the Republic.” (section 23(2)(b)) Therefore, having even one employee in South Africa requires a company to register.
Certain exclusions may apply and where the Act is explicit that certain activities should not be considered to establish sufficient enough a presence in South Africa to deem the company to be one conducting business here (and therefore required to register with the relevant authorities). However, these exclusions are illuminating in the sense that it presents a rather low bar of activity (such as having shareholders’ meetings here or maintaining a bank account), therefore potentially hinting that the bar for being considered to conduct business in South Africa and therefore required to register as an external company may not be very high.
In terms of section 23, any foreign company required to register as an external company in South Africa must maintain an office in this country. Moreover, failure to adhere to the requisite registration requirements may ultimately lead to a company being notified that it is no longer allowed to carry on business operations in South Africa. Although this article does not consider the implications of registering as external company, we also wish to alert affected clients thereto that this legislative registration requirement may have certain tax and exchange control related implications inherent to them, and on which advice should be taken to manage these requirements in a sensible and responsible manner.