Foreign companies expanding international operations beyond their borders and shores can open a subsidiary overseas to establish a foothold for testing the market. This can be a risky move – costly both in time and money – with no guarantee of success from all that effort and financial investment.

South Africa is a prime target for such expansion, with its highly-developed business and financial services sector adding to the nation’s attraction as a ‘Gateway to Africa’. Opening a subsidiary is the first step for incoming companies that intend to hire staff and operate their payroll. The most straightforward and popular choice is a private company, with registration overseen by the Companies and Intellectual Property Commission (CIPC). It operates under the Companies Act of 2008 and according to its own Memorandum of Incorporation.

Beware! Expanding overseas is a significant step. If the move fails, companies face the added costs and bureaucracy of closing their operation, selling property and paying off employees. These are unwanted distractions while you also concentrate on building a business in your home country. The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to find the best local talent and administer your payroll in South Africa. Your company will be up-and-running in days rather than weeks or even months without running any risks.

How to Set Up a South African Subsidiary?

Are you planning your move into the South African market? Then the first decision is which business structure best suits those plans. Companies intending to hire staff and run their payroll must set up subsidiaries. The most popular choice is to open a private company, which offers protection against liability for its shareholders and the parent corporation.

As with all South African entities, registration is through the Companies, and Intellectual Property Commission (CIPC) and the Companies Act governs it. Incorporation procedures include:

  • Registering the company name with the CIPC, which in the case of a private company carries the suffix ‘Proprietary’ or ‘Pty.’
  • Registering the Memorandum of Incorporation and Articles of Association with the CIPC.
  • Obtaining the company’s Registration Certificate (Cor14.3) from the CIPC.
  • Registering with the South African Revenue Service (SARS) for paying all categories of taxes and remitting employees’ deductions from payroll.
  • Registering with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases (COIDA) Act fund. Note: there is no comprehensive social insurance system or national health program, and therefore, no significant levies for social insurance taxes.
  • Registering foreign shareholders as ‘non-resident’ with the CIPC to comply with exchange control regulations and register at least one shareholder and one director with the CIPC.
  • Open a corporate bank account. There is no minimum share capital requirement generally, although sectors such as insurance and banking impose minimum limits. Foreign investment must comply with exchange control requirements.

Once incorporated, the company must follow other procedures before they can operate payroll for the staff of their subsidiary, including:

  • Registering employees with the South African Revenue Service (SARS) through the ‘eFiling’ system within 21 days of starting business operations.
  • Use ‘eFiling’ to obtain their Tax Reference Number (TRN) and the Notice of Registration (IT150) from SARS, which shows the TRN and South Africa ID or passport number.
  • In the formal economy, employees must be registered with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act fund (COIDA).
  • Non-South Africans must have a valid work visa before starting work and must have an employment contract from the employer to apply for the visa.

Benefits of Setting Up a South African Subsidiary

The foreign-owned subsidiary in South Africa operates under the Companies Act as a separate legal entity, entirely independent from the parent company. As such, all liabilities are the responsibility of the subsidiary and not the parent company. Shareholders and directors are similarly free of obligations, except in the circumstances specified by the Companies Act or by the subsidiary’s own Memorandum of Incorporation.

South Africa is viewed as the continent’s most sophisticated economy in business, insurance and financial services, adding to the attraction for companies looking for a ‘Gateway to Africa’. Additionally, the subsidiary can ‘test the market’ by following its business ideas and entering into different areas of operation for the owning company. The subsidiary can also draw up its contracts and agreements with clients.

Other benefits for a subsidiary include the following:

  • Easier to obtain potential benefits and incentives and enter into contracts with other South African and African companies.
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches.
  • Employees feel there is more stability and job security than from being with a branch, which in South Africa is known as an ‘external company.’

However, there is a more straightforward option to the risks and costs of setting up a subsidiary in South Africa working with Bradford Jacobs. Using our global PEO networks means staff can be sourced, placed in their roles and be up and running within days, not the months it could take to open a subsidiary. All the difficulties of payroll, taxation and compliance are under control thanks to our Employer of Record (EOR) services. Meanwhile, your employees are totally under your control.

Subsidiary Laws in South Africa

Subsidiaries in South Africa operate under the Companies Act (2008) and are registered and monitored through the Companies Intellectual Property Commission (CIPC). The Companies Act was amended by the Financial Sector Laws Amendment Act (2021) and the Financial Markets Act.

Registration and Documentation:

  • Register a unique company name with the Companies Intellectual Property Commission (CIPC). The word for a private company carries the suffix ‘Proprietary’ or ‘Pty.’
  • Register the Memorandum of Incorporation (MOI) and the Articles of Association with the CIPC. The MOI must comply with all measures of the Companies Act
  • Register certified ID documents (or passports of non-South Africans) with the CIPC
  • Register an office with the CIPC or principal office if more than one, which must be continuously maintained
  • Up-to-date accounts must be held at the registered office
  • Register with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act (COIDA) fund

Accounts and Taxation:

  • Register for paying, deducting and remitting all categories of taxes with the South African Revenue Service (SARS), as set out by the Income Tax Act
  • Companies incorporated or effectively managed in South Africa are tax residents
  • Resident companies are liable for Corporation Tax at the prevailing rate, 28%, until February 28 2023, when it is due to be cut to 27% from March 1 of that year
  • Taxes must be paid as per notices issued by SARS.
  • Up-to-date accounts must be maintained at the registered office, with returns filed to the CIPC every year
  • Open a corporate bank account


  • Register foreign shareholders as ‘non-resident’ with the CIPC to comply with exchange control regulations
  • Register at least one shareholder and one director with the CIPC. There are no residency requirements
  • Shareholders and directors are not generally responsible for liabilities or obligations of the private company
  • Unless specified in the MOI, a private company need not hold an annual general meeting (AGM)
  • Shareholders’ meetings must be held if required under the Companies Act or when one or more shareholders make a written request.
  • Board meetings can be called by a single director or 25% of directors in companies with more than 12 directors.


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