South Africa 28pp

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					          P R E FA C E

This profile on Doing Business in South Africa has been prepared by
Baker Tilly South Africa Incorporated, the independent member of Baker
Tilly International in South Africa. The booklet is designed to provide
information on a number of subjects important to those contemplating
investing or doing business in South Africa.

Baker Tilly International is the 8th largest network in the world by fee
income and is represented by 122 firms in 75 countries, with 18,600
staff worldwide. Its member firms are high quality, independent
accountancy and business services firms, all of whom are committed to
providing their clients with the best possible service, both in their own
marketplace and across the world.

This guide is one of a series of country profiles compiled for use by
Baker Tilly International’s member firms’ clients and professional staff,
which may be obtained from any of our international offices, or from
within South Africa from Baker Tilly South Africa Incorporated.

Doing Business in South Africa has been designed for the information of
readers. Whilst every effort has been made to ensure accuracy,
information contained in this booklet may not be comprehensive and
recipients should not act upon it without seeking professional advice.

Up-to-date advice and general assistance on South African matters can
be obtained from Baker Tilly International’s South African based member
firms. Please see their details in the back cover of this booklet.

June 2005

    Doing business in South Africa


      1      Introduction                                     4   5      Taxation                                     15

      1.1    Geography                                        4   5.1    Companies and close corporations tax rates   15
      1.2    Climate                                          5   5.2    Trusts - other than special trusts           15
      1.3    Time zone                                        5   5.3    Special Trusts                               16
      1.4    Population and languages                         5   5.4    Individuals tax tables                       16
      1.5    Currency                                         6   5.5    Rebates                                      16
      1.6    Political system                                 6   5.6    Tax Thresholds                               16
      1.7    Economy (2003 statistics)                        7   5.7    Exempt Income                                16
      1.8    Legal system                                     8   5.8    Deductions                                   17
                                                                  5.9    Minor Children                               17
      2      Business Entities                               9    5.10   Ring Fencing of Assessed Losses              18
                                                                  5.11   Capital Allowances                           18
      2.1    Establishing a business in South Africa/Types        5.12   Non-residents                                21
             of business                                      9   5.13   Value Added Tax (VAT)                        21
                                                                  5.14   Capital Gains Tax (CGT)                      21
      3      Finances                                        11   5.15   Donations Tax                                22
                                                                  5.16   Estate Duty                                  22
      3.1    Exchange Control                                11   5.17   Stamp and Transfer Duties                    22
      3.2    Trade and investment incentives                 12   5.18   Residential property company                 23
                                                                  5.19   Shares and listed debentures                 23
      4      Employment Regulations                          14   5.20   Immigrants                                   24
                                                                  5.21   Restrictions on local borrowings             24
                                                                  5.22   Foreign investment in South Africa           25

                                                                  6      Auditing and Accounting Regulations          26
                                                                         and Practices

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    Doing business in South Africa

                                                                                          1.2      Climate
        1       INTRODUCTION
                                                                                          South Africa is renowned for its sunshine. Despite regional differences,
                                                                                          the climate is generally mild throughout the year, with occasional
      1.1       Geography                                                                 snowfall limited to the highest mountain peaks. Its location within the
                                                                                          subtropical belt of high pressure accounts for the typical warm
      South Africa is situated at the southernmost tip of the African continent,          temperate condition, making it dry, but with an abundance of sunshine.
      and covers an area of 1,219,090 km2. It measures 1,600 km from
      north to south and approximately the same from east to west. South                  The wide expanse of ocean on three sides also has a moderating effect.
      Africa is five times the size of Britain, twice as large as France and              The warm Mozambique-Agulhas and the cold Benguela sea currents
      nearly equal in size to Germany, France and Italy combined.                         strongly influence the costal regional weather systems and also account
                                                                                          for differences in the fauna of these regions.
      South Africa has common boundaries with Namibia, Botswana and
      Zimbabwe, while Mozambique and Swaziland lie to the northeast.                      The hottest months are usually February and March. KwaZulu-Natal has
      Completely enclosed by SA territory in the south east is Lesotho. To the            a subtropical climate with high humidity in summer. Southern Gauteng
      west, south and east the country borders on the Atlantic and Indian                 has hot summers with thundershowers and frosty winters. Eastern
      oceans. The lengthy coastline is swept by two major ocean currents -                Gauteng, the Cape Interior and the Free State have a temperate climate
      the warm south flowing Agulhas and the cold north-flowing Benguela                  with mild winters. The Western Cape region has a Mediterranean
      systems respectively.                                                               climate, with warm dry summers and cold wet winters.

      The administrative capital is Pretoria (Gauteng), the legislative capital is Cape   Approx. seasonal temperature ranges:
      Town (Western Cape) and the judicial capital is Bloemfontein (Free State).          Summer: October to March 15°C - 35°C (60°F - 96°F)
                                                                                          Winter: April - September 0°C - 20°C (32°F - 68°F)
      The Republic of South Africa comprises nine provinces (capital city
      noted in brackets), each with its own legislature, premier and provincial           1.3      Time zone
      members of executive councils:
                                                                                          There is only one time zone - GMT +2 and no daylight saving.
      Eastern Cape (Bisho)
      Free State (Bloemfontein)                                                           1.4      Population and languages
      Gauteng (Johannesburg)
      Kwazulu Natal (Pietermaritzburg)                                                    South Africa is a dynamic country and diverse country, with a combination
      Mpumalanga (Nelspruit)                                                              of first and third world cultures and a plurality of languages, cultures,
      Northern Cape (Kimberley)                                                           incomes, ages, literacy and education levels. Both a sizable informal and
      Northwest Province (Mmabatho)                                                       sophisticated formal business sector exist.
      Western Cape (Cape Town)
      Limpopo (Polokwane)                                                                 The estimated population is more than 44.8 million (estimates based on
                                                                                          2001 census figures) consisting of 79% black, 9.6% white, 8.9% coloured
                                                                                          and 2.5% Asian or Indian. There are 11 official languages: Afrikaans,
                                                                                          English, Ndebele, Xhosa, Zulu, Sepedi, Sotho, Tswana, Swati, Venda and
                                                                                          Tsonga. English is widely spoken and is the main language of business.

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    Doing business in South Africa

      1.5       Currency                                                              1.7      Economy (2003 statistics)

      The currency unit of South Africa is the Rand (100 cents = R1).                  Economy at a glance (continued)
                                                                                       $1 = R6.00
      1.6       Political system                                                       GDP                                    R1,209,495 million
                                                                                       GDP per capita                         R26,998
      The South African Constitution provides for a Government of National             GDP growth                             1.9% (2003); 2.9% (2004)
      Unity, structured at national, provincial and local levels. The government       Inflation CPI                          5.8% (annual average)
      has a three-tier system, operating at these three levels.                                  CPIX                         6.0%
                                                                                                 PPI                          1.79%
      Parliament is the legislative authority of government with the power to          Budget Deficit                         2.6% of GDP (2003); 3.1% (2004)
      make laws for the country in accordance with the Constitution.                   Gold and foreign exchange reserves     R55.86bn
      Parliament consists of the National Assembly and the National Council            Exports (2003)                         R274.6 bn
      of Provinces (NCOP).                                                             Imports                                R257.3 bn
                                                                                       Trade balance                          R17.3 bn
      The National Assembly consists of no less than 350 and no more than              Main trading partners                  USA, UK, Germany, China,
      400 members, elected through a proportional representation system.                                                      Japan, and France
      The Assembly, elected for a period of five years, is presided over by a          Main exports                           Minerals, precious metals,
      Speaker. The NCOP has 54 permanent members and 36 special                                                               machinery, vehicles and
      delegates and represents local and municipal governments.                                                               automotive components
                                                                                       Target sectors                         Manufacturing (including
      The State President is elected by the National Assembly from among its                                                  automobile parts and full
      members and leads the Cabinet, consisting of a President, Deputy President                                              assembly), tourism, finance,
      and ministers. Ministers are largely selected by the President from among the                                           transport and communications
      National Assembly with no more than two ministers permitted from outside
      the Assembly. There are 27 ministers in the South Africa (SA) government.
                                                                                      The reduction of consumer inflation has been at the forefront of
      National elections are held every five years, with the first democratic         economic policy and this has slowed to the lowest rate in 40 years.
      elections having being held in April 1994.                                      Producer inflation hit a 58-year low; Prime interest rate dropped by 5.5%
                                                                                      to 11.5% the lowest level since 1986 and the rand has strengthened.

                                                                                      South Africa is the dominant economy in Africa with its GDP accounting
                                                                                      for nearly one half of that of the entire continent. The port of Durban is
                                                                                      the busiest in Africa and daily electricity generated equals that of the
                                                                                      rest of Africa.

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    Doing business in South Africa

      1.8      Legal system
                                                                                      2      BUSINESS ENTITIES
      The present legal system is referred to as Modern Roman-Dutch law.

      In terms of the Constitution of the Republic of South Africa, the judicial
      authority of SA is vested in the courts, which are independent and subject    2.1      Establishing a business in South Africa/Types
      only to the constitution and the law. The transformation of the justice                of business
      system is an ongoing process, as the government shifts towards a human
      rights based rule of law that is representative of all South Africans.        The Companies Act, administered by the Department of Trade and
                                                                                    Industries’ (DTI) Registrar of Companies and Close Corporations,
      The Department of Justice (DoJ) is responsible for the administration of      regulates the formation, conduct of affairs and liquidation of all
      the courts, together with judges, magistrates, the National Director of       companies. While no distinction is made between locally-and foreign-
      Public Prosecutions (NDPP) and Directors of Prosecution (formerly             owned companies, companies may either be private or public. Business
      Attorney General) who are independent bodies. The State Attorney acts         may also be conducted by close corporations, (a less formal entity that
      on behalf of the state in a wide variety of matters.                          does not require to be audited), individuals, partnerships (including
      The legal profession is divided into advocates and attorneys. In terms of     limited partnerships) and trusts.
      the Right of Appearance in Courts Act, advocates may appear in any
      court while attorneys may be heard in all of the country’s lower courts and   Private companies are commonly used by foreign investors, owing to
      can acquire the right of appearance in the superior courts. Advocates are     the minimal annual formalities required, and are generally identified by
      organised into Bar associations, while the Law Society of SA co-ordinates     the term “Proprietary Limited” or “(Pty) Ltd” in their titles. Private
      various independent law societies for attorneys operating in each             companies must have at least one director and shareholder, while
      province. Legal professionals employed by the state, including judges,        membership is restricted to a maximum of 50. It may not offer shares
      magistrates, state advocates and prosecutors, have generally been             to the public. A director does not need to be a SA resident or national.
      separated from public service in order to ensure independence.                Companies are registered with the DTI’s office which maintains records
                                                                                    regarding the structure and Directors of companies, but not
      The Constitutional Court is the highest court in SA for cases involving       shareholding, and this information may be accessed by the public.
      interpretation, protection and enforcement of the constitution and deals
      exclusively with constitutional matters. The Supreme Court of Appeal,         Public companies (Ltd) are formed to raise funds by offering shares to
      situated in Bloemfontein, is the highest court in respect of all other        the public, and there is no limitation to the number of shareholders. A
      matters. The Supreme Court of Appeal has jurisdiction to hear and             minimum of seven shareholders is needed to form a public company
      determine an appeal against any decision of a High Court. Its decisions       and there must be at least two directors. Public companies are required
      are binding on all courts of a lower order.                                   to file annual financial statements and reports with the Registrar.

      Decisions of the High Court are binding on magistrate’s courts within         Foreign companies wishing to establish a local branch office in SA must
      their jurisdiction. The Land Claims Court and the Labour Court have the       register the branch as an external company with the Registrar within 21
      same status as the High Court, but only adjudicate relevant matters –         days of establishing an office. Government approval is not required, and
      i.e. land restitution and labour matters.                                     there is no condition that a percentage of shares be held locally.
                                                                                    External companies are required to submit annual financial statements
                                                                                    to the Registrar within six months of their financial year-end. Legal
                                                                                    liabilities are not limited to the extent of local assets.

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     Doing business in South Africa

       Close corporations (cc) are a form of business organisation unique to
       SA. Only natural persons can be members of a corporation and no                   3       FINANCE
       juristic person or trustee of an inter vivos trust can directly or indirectly
       hold a member’s interest in a Close Corporation. At incorporation, a
       Close Corporation can have one or more members, but at no time shall
       the number of members exceed ten. Close Corporations have fewer
                                                                                       3.1      Exchange control
       registration and operating regulations than companies, but are not
       usually suitable for foreign investors.
                                                                                       Exchange controls were first introduced into SA with the outbreak of
                                                                                       World War II and have been maintained ever since, in various forms, to
       A new South African Companies Act is due for release in 2006. It is
                                                                                       prevent or neutralise adverse fluctuations in foreign exchange reserves.
       anticipated that this Act will have an impact on the future of Close
                                                                                       Exchange control is governed by the Exchange Control Regulations,
       Corporations and may relax the need for audits of smaller private companies.
                                                                                       Orders and Rules Act of 1961, which has been modified and amended
                                                                                       in recent years. The current exchange control rules are largely
       In order to establish a business in SA, a business licence, which is valid
                                                                                       procedural and affect SA resident companies and individuals.
       indefinitely, must be obtained from the local authority (municipality).
       Businesses handling foodstuff and those where people congregate
                                                                                       Since 1994, the policy of the government has been to steadily reduce
       (entertainment or amusement places) require renewable annual licenses.
                                                                                       the level of controls consistent with the financial capacity of the country
                                                                                       to accommodate capital outflows. Exchange regulations are
       The DTI maintains the Business Referral and Information Network
                                                                                       administered by the Exchange Control Department of the SA Reserve
       (BRAIN) as a resource for establishing and developing small to medium
                                                                                       Bank (Excon) through the SA banking system. Banks authorised to trade
       and micro-sized enterprises (SMMEs). The BRAIN website contains
                                                                                       in foreign currencies (authorised dealers), have considerable flexibility
       information and contact for doing business in SA for all types of
                                                                                       and discretion in administering the Exchange Control Rulings and are
       business enterprises.
                                                                                       obliged to submit matters outside their ambit to Excon for approval.
                                                                                       Parties wishing to approach Excon are obliged to do so through an
       Employment in South African companies is regulated by the Basic
                                                                                       authorised dealer.
       Conditions of Employment Act, which provides a framework for the
       employment contract and the employment relationship. In addition, the
                                                                                       SA corporate entities are allowed to invest abroad up to R2bn of their
       Employment Equity Act provides for the eradication of discrimination in
                                                                                       local funds, for each new and approved investment elsewhere in Africa
       employment practises and the implementation of affirmative action
                                                                                       and up to R1bn elsewhere in the world, provided a long term benefit to
       policies. In order to promote the training of employees, employers are
                                                                                       SA can be demonstrated.
       obliged to pay a skills development levy of 1% of their payroll, as
       stipulated by the Skills Development Act.
                                                                                       There is currently a dispensation available to entities to acquire foreign
                                                                                       portfolio assets. Income from these portfolios may be reinvested
                                                                                       overseas subject to the limitation on institutional foreign assets being
                                                                                       not more than 15% of total assets in the case of long term insurers and
                                                                                       pension funds, 15% of assets under management for fund managers
                                                                                       and 20% of total assets under management for unit trusts through unit
                                                                                       trust management companies. However, since May 2003, institutional
                                                                                       investors have been allowed to invest, on application, up to the existing
                                                                                       foreign asset limits as outlined above.

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     Doing business in South Africa

       Equity investment from abroad in a SA company is subject only to the          All in all, the DTI has designed more than 90 different incentives, loans
       procedural requirement that the relative share certificates are endorsed      and rebates which are mainly tax exempt in the hands of the recipients.
       “non-resident”, indicating the funding source and preserving the
       transferability of their sale proceeds.                                       The incentives on offer can be broadly classified into the following ten
       There are restrictions on the ability of companies with a foreign
       shareholding or control of 75% or more to utilise local financial             •   development finance
       assistance. Borrowing limits are based on a set formula related to total      •   empowerment
       shareholders’ funds employed.                                                 •   export facilitation
                                                                                     •   human resources and skills development
       There may be tax implications if the amount of loan finance utilised in a     •   investment incentives
       foreign owned company is more than three times the issued capital of          •   matching grants
       the company, or the rate of interest payable is considered excessive.         •   sectoral
       Dividend transfers and shareholders loan repayments may be transferred        •   SMME’s
       abroad, provided the company meets the formula requirements after the         •   technology (research and development)
       payment.                                                                      •   tourism

       SA companies may freely import goods and services (subject to                 To encourage investment in manufacturing and expansion of existing
       documentary evidence being presented to an authorised dealer).                plants, the taxation laws permit accelerated depreciation allowances on
       Procedures are in place to ensure that the foreign currency proceeds of       the cost of plant or machinery, implements, utensils and other articles
       exports are repatriated to the country within acceptable timeframes.          used by taxpayers for the purpose of their trade.

       Local residents are restricted in terms of capital invested abroad,           SMMEs are assisted through a number of incentives. The DTI’s unique
       although limits have relaxed considerably over the last few years.            Business Referral and Information Network (BRAIN), which provides the
       Private individuals who are taxpayers in good standing over the age of        resources, information and referral services to SMMEs can be found on
       18 years may transfer up to a maximum of R750,000 abroad for                  the Internet. Specific schemes include the Competitiveness Fund (CF),
       investment purposes.                                                          which encourages smaller local firms to be competitive (funding is
                                                                                     supplemented by free consulting services).
       3.2      Trade and Investment Incentives

       The South African government offers a comprehensive range of incentives
       to both domestic and foreign investors, through the Department of Trade
       and Industry (DTI) and various other supporting bodies.

       In this regard, the DTI sees its primary role as being to facilitate access
       to sustainable economic activity, with the key objectives of promoting
       the development of small, medium and micro enterprises (SMME’s),
       increasing Black Economic Empowerment (BEE), reducing inequality and
       poverty, developing the SADC region and strengthening the international
       competitiveness of SA business.

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     Doing business in South Africa

         4      E M P L O Y M E N T R E G U L AT I O N S                             5       TA X AT I O N

                                                                                    The South African Revenue Services (SARS), is the primary taxing
       South Africa’s labour market has undergone a transformation since            authority in South Africa. The main sources of revenue are income tax
       1994, with an emphasis being placed on strategies that eliminate the         (levied on individuals and companies), VAT (Value Added Tax), customs
       labour inequalities of the past and improve general working conditions       and excise duties, transfer duties (levied on the purchase considerations
       for all South Africans. The introduction of new labour legislation has had   of fixed property), stamp duties and estate duties (levied on estates of
       a profound impact on the SA labour market, notably the Labour                deceased persons). Other taxes include marketable securities tax,
       Relations Act (LRA), Basic Conditions of Employment Act (BCEA), the          uncertified securities tax, the skills development levy, air passenger
       Employment Equity Act and the Skills Development Act (SDA).                  departure tax and capital gains tax.

       The Employment Equity Act requires designated employers to compile           Income from trade is taxed in South Africa, regardless of where the
       and implement and Employment Equity Act plan aimed at promoting              taxpayer resides or is registered. There are agreements with many
       equal opportunities and affirmative action, while eliminating unfair         countries to prevent double taxation on the same income.
       discrimination. Designated employers (DE) include those who employ
       more than 50 people or have an annual turnover of a certain amount.          Local residents are subject to tax on their foreign earned income.
       The Act is intended to redress the employment disadvantages of black
                                                                                    5.1      Companies and close corporations tax rates
       people, women and those with disabilities (“designated groups”).
                                                                                     Normal tax 2005 budget
                                                                                     Small business corporations
                                                                                       First R35,000                                   0%
                                                                                       R35,000 to R250,000                             15%
                                                                                       Thereafter                                      29%
                                                                                     Employment companies                              34%
                                                                                     Companies with effective management
                                                                                     outside South Africa and who carry on trade
                                                                                     through branches or agencies in South Africa      34%
                                                                                     Other companies                                   30%
                                                                                     Secondary tax on companies
                                                                                     A tax payable by a Company on all
                                                                                     Dividend distributions after 14 March 1996        12.5%

                                                                                    5.2      Trusts - other than special trusts

                                                                                     40% of taxable income
                                                                                     No primary rebate
                                                                                     No interest exemption

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     Doing business in South Africa

       5.3      Special Trusts                                                       5.8       Deductions
                                                                                     Pension fund contributions
       • Taxed at the same rate as individuals                                       Greater of:
       • No rebate or interest exemption                                             7.5% of taxable income from retirement funding employment, or R1,750.
       • Defined as one created solely for the benefit of a person suffering
         from a severe mental illness or physical disability, or a testamentary
         trust established solely for the benefit of minor children related to the   Retirement annuity fund contributions
         deceased.                                                                   Limited to the greater of:
                                                                                     - 15% of taxable income, excluding income from retirement funding
                                                                                     - employment, or
       5.4       Individuals tax tables                                              - R3,500 less current pension contributions, or
                                                                                     - R1,750
       For the year ended 28 February 2006                                           Excess contributions may be carried forward to the following year.
       Taxable income Rates of Tax

        R                       R                                                     Medical and physical disability expenses
        0-80,000                18% of each R1                                        Over 65                 All expenses
        80,000 - 130,000        14,400 + 25% of    the   amount   over   80,000       Below 65                Non-handicapped family member
        130,000 - 180,000       26,900 + 30% of    the   amount   over   130,000                              Expenses in excess of 5% of taxable income
        180,000 - 230,000       41,900 + 35% of    the   amount   over   180,000                              Handicapped family member
        230,000 - 300,000       59,400 + 38% of    the   amount   over   230,000                              Expenses in excess of R500
        300,000 and over        86,000 + 40% of    the   amount   over   300,000      Qualifying expenses     Medical aid contributions
                                                                                                              Payments to
                                                                                                              - medical practitioners, dentists, etc
       5.5       Rebates                                                                                      - hospitals and nursing homes
                                                                                                              - pharmacists for prescribed medicines
       • Primary                      R6,300                                                                  - not recovered from medical aid including
       • 65 and over - additional     R4,500                                                                  - those on behalf of spouse or child
                                                                                                              Any necessary expenditure incurred for
                                                                                                              disability of a family member.
       5.6       Tax Thresholds
       • Below 65                     R35,000
       • 65 and over                  R60,000                                        5.9      Minor Children

                                                                                     Under 21 years
       5.7       Exempt Income                                                       Separately taxed, except on income resulting from donation by a parent
                                                                                     which is taxed in donor’s hands.
       1. Interest
       Below 65                             R15,000
       65 and over                          R22,000
       2. Dividends and distributions from close corporations
       3. Lump sum gratuities
       On retirement                        R30,000
       Redundancy in specific circumstances R30,000
       4. War and certain disability pensions
       5. Unemployment insurance benefits.
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     Doing business in South Africa

       5.10     Ring Fencing of Assessed Losses                                       Small business corporations
                                                                                      Write off is 100% in the first year the asset is brought into use on:
       Applies                                                                        - Plant and machinery brought into use on or after 1 April 2001 for
       - natural person whose income before assessed loss from trade is                 purposes of trade in process of manufacture or similar process.
         greater than R270,000 (2004 – R255,000)
       - taxpayer incurred a loss in trade in 3 of 5 preceding years, or              Industrial buildings
       - trade relates to:                                                            Buildings must be used wholly or mainly in the process of manufacture
       - sport practices, dealing in collectibles, animal showing, performing or      or similar processes:
         creative arts, any form of betting or gambling by the taxpayer or relative   - Buildings and improvements erected on or after 1 October 1999 - 5%
       - rental of residential accommodation, vehicles or aircraft unless 80%           of the cost of the building
         used by persons not relative for at least 6 months                           - Purchased buildings for years ending on or after 1 January 2002:
                                                                                        - Entitled to allowance provided seller was entitled to allowance
       May be prevented if the trade constitutes a business and “facts and                 - 2% if seller’s allowance was 2% or 5% if seller’s allowance was
       circumstances” are presented for consideration except where there are               either 5% or 10%
       losses in 6 out of 10 years commencing 1 March 2004.                             - Entitled to 5% allowance if building has never been used.

       5.11     Capital Allowances                                                    Residential buildings
                                                                                      Must consist of at least 5 residential units erected under a housing project:
       Urban development zones                                                        - To be let at a profit, or
       Refurbishment of buildings - 20% straight line                                 - To be occupied by full-time employees
       New commercial or residential buildings
       - 20% in year 1                                                                Allowance
       - 5% per year thereafter.                                                      - Initial allowance of 10% of cost
                                                                                      - Annual allowance of 2% of cost.
       New manufacturing assets
       - 40% in year 1                                                                Farming equipment
       - 20% per year thereafter.                                                     Machinery, implement, utensil or article used for farming
                                                                                      - 50% in year 1
       Five year write off                                                            - 30% in year 2
       Straight-line                                                                  - 20% in year 3.
       - Used plant and new plant not qualifying for 4 year allowance
       - New and used machinery, utensils and articles used by a hotelkeeper          Asset reinvestment relief
         in the hotel for purposes of his trade (except vehicles and equipment        Sale proceeds of movable depreciable assets re-invested in movable
         for offices, managers’ or servants’ rooms)                                   business assets within 18 months will defer taxable income or capital
       - Aircraft used for purposes of trade.                                         gain over the depreciation period of the new asset.

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     Doing business in South Africa

       Wear and Tear                                                            5.12       Non-residents
       The following write off periods may be used, provided:
       - Adequate records are maintained                                        Interest
       - Consistent application to assets of same class
       - Reduced proportionally if the asset acquired and brought into use      Exempt where:
         during the year                                                        - non-resident does not carry on business in South Africa
       - Assets written off in full must be at R1                               - natural person absent for a total of 183 days during year
       - Records maintained so that asset value can be determined at any        - non-resident not a resident of common monetary area
         point in time.                                                         Unit portfolio dividends derived from interest are deemed to be interest.

       On disposal tax return to include for each asset disposed of:            Dividends
       - Date of acquisition and original cost                                  Exempt.
       - Income tax value at the end of the preceding year
       - Price realised on disposal and the tax profit or loss.                 Royalties
                                                                                Withholding tax of 12% levied on gross amount of royalties paid for use
                                                                                of patent, design, trademark, copyright, model, etc, or know how Royalty
        General categories of write off periods            No. of years         income subject to withholding tax is excluded from gross income.
        Farming equipment and machinery                    4-6
        Dental, doctors’ and medical equipment             5                    Business income, remuneration, rental income
        Construction equipment and vehicles                3-4                  Taxed in the normal course if the source of the income is South Africa.
        Passenger vehicles                                 5
        Trucks, delivery vehicles, motor cycles            4                    5.13       Value Added Tax (VAT)
        Office equipment                                   3-6
        Computer hardware and software                     2-5                  Basic rate - 14%.
        Furniture, fittings, carpets and curtains          6
        Lift installations                                 12                   5.14       Capital Gains Tax (CGT)
        Air conditioners                                   6
        Aircraft                                           4                    Effective date 1 October 2001.
        Industrial equipment and machinery                 4-6
        Demountable partitions                             6                    Basic framework
        Fire extinguishers (loose units)                   5                    Aggregate gain will be included in taxable income
        Valuable paintings                                 25                   - South African resident taxable on disposal of worldwide assets
        Pallets                                            4                    - Non-resident on disposal of immovable property in South Africa or
        Patterns, tooling and dies                         3                       of assets of a permanent establishment in South Africa
        Special patterns and tools                         2                    Gain or loss must be determined for each asset taking base cost into
        Television, radio, recording and film equipment    6                    account
        Heavy duty trucks                                  3                    Losses are set off against gains, any excess loss carried forward to
        Vending and dispensing machines                    6                    following year.
        Reference books                                    3
                                                                                Taxable portion
       Small items (assets in its own right) with a cost not exceeding R2,000   Companies, close corporations and trusts on 50% of gain.
       may be written off in full in the first year.                            Natural persons and special trusts on 25% of gain in excess of R10,000
                                                                                exclusion per annum.

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       5.15     Donations Tax                                                   5.18      Residential property company

       Rate on donations after 1 October 2001 - 20%                             Defined as a company holding any dwelling-house, holiday home, land
       Principal exemptions:                                                    zoned for residential use other than apartment complexes, hotels
       - By natural persons up to R30,000 per tax year                          consisting of 5 or more rental units or fixed property of a VAT
       - To spouse not separated                                                registered enterprise where fair value of property is more than 50% of
       - To recognised institutions for the advancement of science, art or of   total fair value of all other assets (other than financial instruments)
         charitable, educational or religious nature                            Transfer duty is based on “fair value” of the residential property without
       - “death bed” donations                                                  taking into account liabilities relative to the property.
       - casual gifts by other than natural person not exceeding R10,000
       - by public companies                                                    The rates are as for immovable property above.

       5.16     Estate Duty                                                     Transfer duty on shares falls away.

       Rate on estates of persons dying after 1 October 2001 - 20%              Lease of immovable property
       Dutiable amount reduced by R1.5 million
       Net value of resident’s estate includes worldwide assets and deemed      For every R100 or part thereof of aggregate rent and other
       assets:                                                                  consideration
       - life insurance policies payable on death of insured
       - pension and other funds payable on death of insured                    Period   0 to 5 years                                      25   cents
                                                                                Period   5 to 10 years                                     40   cents
       Deductions include:                                                      Period   10 to 20 years                                    55   cents
       - Funeral, tombstone and deathbed expenses                               Period   exceeds 20 years                                  70   cents
       - Costs of administering and liquidating estate
       - Liabilities                                                            5.19       Shares and listed debentures
       - Claims by spouse under accrual system
       - Bequests to surviving spouse.                                          Original issue
                                                                                - For every R20 or part thereof of the nominal
       5.17     Stamp and Transfer Duties                                         value and any premium payable thereon                    5 cents
                                                                                Increase in authorised share capital
       Immovable property rate                                                  - For every R1,000 or part thereof of the nominal value R5
                                                                                Registration of transfer (other than through stockbrokers)
       Transfer duty (if purchased by natural persons after 1 March 2004)       For every R10 or part thereof of the consideration         2.5 cents
       - On first R190,000                                     0%
       - On R190,001 – R330,000                                5%
       Thereafter:                                             8%
       Transfer duty (if purchased by non-natural person)
       - On purchase consideration                             10%
       Transfer duty (if subject to VAT)                       Nil

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     Doing business in South Africa

       5.20     Immigrants                                                        5.22     Foreign investment in South Africa

       On arrival, immigrants are required to declare to the registered dealer:   Non-residents may:
       - Whether they possess foreign assets                                      - Invest in South African listed or unlisted shares. Proceeds on sale are
       - Give undertaking that their foreign assets will not be placed at           fully remittable
         disposal of third party South African resident                           - Introduce loan capital with Exchange Control approval
       May freely deal with their foreign assets and income.                      - Loan may be repatriated in original foreign currency or Rand
                                                                                  - Interest may be remitted at the appropriate rates applicable to
       Assets introduced into South Africa may be retransferred together with       repatriation currency
       normal growth during first 5 years.                                        - Have interest paid on portion of loan in excess of loan: capital ratio of
                                                                                    3:1 disallowed by SARS
       After 5 years the immigrant will be classified as South African resident   - Have after-tax profits and dividends remitted
       and qualifies for foreign investment and emigration allowances.            - but subject to local borrowings limits being met
                                                                                  - in the form of loans subject to Exchange Control approval
       5.21     Restrictions on local borrowings

       Local borrowings of “affected persons” limited to 300% of total
       shareholders’ investment
       “Affected persons” include:
       - Companies, close corporations, foundations, trusts, partnerships with:
       - 75% foreign control or beneficial interest

       Local borrowings include the aggregate of:
       - Overdrafts
       - Mortgage Bonds
       - Local Acceptance Credits
       - Guarantees
       - Instalment sales or leases
       - Discounting
       - Factoring
       - Suretyships
       - Buy backs
       - Lease backs.

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     Doing business in South Africa

         6       AUDITING AND ACCOUNTING                                               NOTES
                 R E G U L AT I O N S A N D P R A C T I C E S

       South Africa has a well-established accounting profession which
       complies with strict international standards.

       All SA companies are required to keep accounting records in one of the
       eleven official languages. For all practical purposes, English dominates with
       Afrikaans, the other major language playing a role. Records must include:
       the assets and liabilities of a company, a fixed assets register, cash
       receipts and payments, details of goods purchased and sold, and annual
       inventory statements. Company directors are responsible for issuing
       financial statements which fairly represents the company’s state of affairs.

       Financial statements of both public and private companies are subject
       to an annual audit under the Companies Act. Government institutions are
       investigated and evaluated by the office of the Auditor General on a
       national and provincial level. Close Corporations are not subject to a
       compulsory audit. An accounting officer, recognised in terms of the
       Close Corporations Act must be appointed to review the accounting
       policies and report on whether the financial statements agree with the
       accounting records.

       The public auditing arm of the profession is regulated in terms of the
       Public Accountants and Auditor’s Act of 1991. Only individuals
       registered with the Public Accountants & Auditors’ Board (PAAB) are
       entitled to accept appointments as auditors. Registration with PAAB
       requires certain entry and continuing practice requirements.

       The SA Institute of Chartered Accounting (SAICA) has over 21,000 CA
       Members and 2,000 associates (general accountants and technicians),
       the majority of whom are employed in commerce and industry.

       The Public Accountants and Auditors Board has approximately 4,500
       members, all qualified as Chartered Accountants, who are licensed to
       perform the audit function and are subject to quality control by the Board.

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     Doing business in South Africa

                   MEMBER FIRM
                   C O N TA C T D E TA I L S

       Baker Tilly South Africa Inc   Postal Address:   Contact: Oscar de Vries
       Greenwoods                     P.O.Box 3311      Tel: +27 21 410 8500
       21st Floor, ABSA Centre        Cape Town 8000    Fax: +27 21 419 6705
       2 Riebeeck Street                      
       Cape Town                                        Email:

       Baker Tilly South Africa Inc   Postal Address:   Contact: Neil Gerber
       Morrison Murray                P.O.Box 1098      Tel: +27 31 267 5300
       20 Westville Road              Westville 3630    Fax: +27 31 267 1838
       Westville, 3629                Durban  
       Durban                                           Email:

       Baker Tilly South Africa Inc   Postal Address:   Contact: Errol Steyn
       Charles Orbach & Company       P.O.Box 821       Tel: +27 11 880 3883
       Ground Floor, Orbach Place     Northlands 2116   Fax: +27 11 880 2117
       261 Oxford Road                Johannesburg      Website:
       Illovo 2196                                      Email:

       Baker Tilly International World Headquarters
       2 Bloomsbury Street
       London WC1B 3ST
       United Kingdom

       Tel: +44 (0)20 7314 6875
       Fax: +44 (0)20 7314 6876


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