Doing business in South Africa

A Q&A guide to doing business in South Africa.

This Q&A gives an overview of key recent developments affecting doing business in South Africa as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.

To compare answers across multiple jurisdictions, visit the Doing business in... Country Q&A Tool.

This article is part of the multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-mjg.

Yaniv Kleitman, Cliffe Dekker Hofmeyr Inc
Contents

Overview

1. What are the key recent developments affecting doing business in your jurisdiction?

There are important amendments to the Broad-Based Black Economic Empowerment Act (BEE Act) that are due to be in force in the near future. The BEE Act was gazetted on 27 January 2014. The Amendment Act came into operation on 24 October 2014, except for section 3 that will come into effect on 24 October 2015. The following are some important amendments by the Amendment Act:

  • An offence and penalty regime for persons found guilty of BEE fronting is being introduced. Currently, the implications for committing BEE fronting are just that the entity's BEE scorecard is disqualified and the entity, therefore, no longer has the BEE level attributed to it by that BEE scorecard. The disqualification of an entity's scorecard and the loss of a particular BEE status do not have criminal consequences but may have commercial or contractual consequences. The entity losing its BEE status may have warranted to various contractual counterparties that it has a particular BEE status or have been awarded a licence on the basis of having a particular BEE status and so is obliged to maintain that status or risk losing the contract or licence.

  • A Broad-Based Black Economic Empowerment Commission is to be established under the Amendment Act. One of the functions of the Commission is to oversee, supervise and promote adherence with the BEE Act in the interest of the public. The Commission is also responsible for investigating any BEE initiatives either on a pro-active basis or in response to a complaint.

  • The Amendment Act introduces reporting obligations for South African companies. One of the functions of the Commission is to maintain a register of major BEE transactions above a threshold determined by government.

The BEE Codes of Good Practice promulgated under the BEE Act have also been amended so that the achievement of certain BEE scores and levels in terms of the BEE scorecards will be more difficult for companies and other entities. The purpose of the amendments is to further promote and facilitate BEE in the South African economy.

The Promotion and Protection of Investment Bill 2013 (Bill) was released for public comment in November 2013. The intention of the Bill is to incorporate international investment protection principles usually found in bilateral investment treaties into South Africa's domestic legislation to ensure that all investors (whether foreign or national) are treated equally in all aspects of investment in South Africa. It is proposed that the Bill will have retrospective application for commercial investments made before the Bill is proclaimed as law. The Bill incorporates the following principles of investor protection:

  • National treatment. South Africa must give effect to national treatment and treat foreign investors, their foreign investments and returns no less favourably than it treats South African investors in their business operations that are in similar circumstances.

  • Security of investment. South Africa must give foreign investors and their investments and returns an equal level of security as is generally given to other investors, subject to available resources and capacity.

  • Expropriation. An investment in South Africa cannot be expropriated except where all the following apply:

    • in accordance with the Constitution of the Republic of South Africa 1996 (Constitution);

    • in terms of a law of general application for public purposes or public interest;

    • under due process; or

    • against just and equitable compensation effected in a timely manner.

  • Transfer of funds. A foreign investor can transfer funds for any investment, subject to taxation and other applicable legislation.

  • Dispute resolution. A foreign investor that raises a dispute about its investment against the government of South Africa can resolve the dispute by means of:

    • a mediation with Department of Trade and Industry;

    • an independent tribunal or statutory body for the resolution of a dispute relating to investment;

    • a court action or application; or

    • a domestic arbitration in terms of the Arbitration Act 1965.

There are proposed amendments to mining regulatory legislation in South Africa that will have the effect of exerting greater regulatory control and restrictions on the acquisition of interests in mining entities. The government has also broadly articulated a high-level policy of restricting foreign ownership of land in South Africa in the near future. However this has been limited to agricultural land and there have not as yet been concrete legislative developments or proposals in this respect.

 

Legal system

2. What is the legal system based on (for example, civil law, common law or a mixture of both)?

The legal system in South Africa is based on:

  • Common law, which is Roman-Dutch in its origin.

  • Statute.

  • Case law, where the courts apply South African statutory and common law but also often refer to foreign jurisdictions, such as the US, the UK, Canada and Australia for guidance (particularly in cases of new questions or res nova).

  • Customary law.

There are three "tiers" of executive and legislative authority:

  • National.

  • Provincial.

  • Local government.

Each tier of government has legislative and executive authority in its own sphere and is defined in the Constitution as being distinctive, interdependent and interrelated.

 

Foreign investment

3. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

Foreign investment is actively encouraged in all sectors of the economy and generally there are few restrictions on investment. Recent changes to Broad-Based Black Economic Empowerment law will have an impact on the ability of foreign investors to conduct business and conclude contracts and tenders in South Africa (see Question 1). There are also certain ownership and control restrictions on foreign shareholders and specific authorisations can be required in regulated sectors such as:

  • Broadcasting.

  • Telecommunications.

  • Banking.

  • Insurance.

  • Defence.

  • Mining.

 
4. Are there any restrictions on doing business with certain countries or jurisdictions?

Generally, resolutions and treaties at international level (for instance relating to dealings with certain countries or economic sanctions) are binding in South African domestic law only once they are incorporated into domestic law by way of legislation.

There are no sanctions or restrictions presently contained in South African domestic legislation. Therefore, local companies and other entities are not bound by law to any restrictions on dealings, as treaties and resolutions at international level are not binding on private persons.

To the extent that South Africa is bound by any treaties or resolutions that contain such restrictions, whether through resolutions of the UN Security Council or the African Union, it would, as a State (and from a public law perspective) be bound to comply with such restrictions.

 
5. Are there any exchange control or currency regulations?

South Africa is subject to exchange control regulations that imply that foreign investments and the repatriation of funds are regulated and require the approval of the South African Reserve Bank (SARB). The regime is set out in, and regulated in terms of, the Currency and Exchanges Act 1933 and the Exchange Control Regulations promulgated under this. There is also a non-binding Exchange Control Manual that deals with practices and guidelines in applying or implementing the Regulations. SARB has delegated much of its power and authority to "authorised dealers" (essentially banks and other institutions licensed to undertake exchange control functions and grant approvals under exchange control).

The exchange control authorities have a wide discretion that is exercised in accordance with the Exchange Control Regulations (including the various orders and rules issued under these Regulations) and the Exchange Control Rulings in line with the policy guidelines laid down by the Minister of Finance. All applications for exchange control approval must be made through an authorised dealer.

The exchange control system has been gradually liberalised over the past few years in South Africa and it is the stated intention of the National Treasury that the gradual liberalisation and deregulation of exchange control will continue. Most (but not all) of the exchange control policies and regulations are focussed on the exchange control transactions of South African residents (that is, outward transactions). The interpretation of the Exchange Control Regulations and rulings, on which the exchange control system is based, is largely subject to the policies of the SARB and the National Treasury.

 
6. What grants or incentives are available to investors?

Industrial development zones (IDZs) are designated by the Minister of Trade and Industry in terms of the Manufacturing Development Act 1993. There are a number of other statutes that cross-reference to, and give benefits, in respect of IDZs. These include legislation on:

  • Tax.

  • Customs and excise.

  • Environmental.

The key benefit relates to value added tax (VAT). Under the Value Added Tax Act 1991, zero-rating for VAT is a major benefit. A supply of goods is charged with tax at the rate of 0% where:

  • Goods are supplied to a lessee or other person under a rental agreement, charter party or agreement for chartering, if the goods are used exclusively in an export country or by an "IDZ operator" (that is, the person operating the IDZ enterprise) in a "customs controlled area" (that is an area designated as such in terms of the Customs and Excise Act 1964).

  • A vendor supplies movable goods in terms of a sale or installment credit agreement to an IDZ operator. The goods are physically delivered to that IDZ operator in a customs controlled area either by:

    • the supplier; or

    • a VAT registered cartage contractor, whose main activity is transporting goods and who is engaged by the supplier to deliver the goods and the supplier is liable for the full cost relating to that delivery.

  • A vendor supplies fixed property situated in a customs controlled area to an IDZ operator under any agreement of sale or letting or any other agreement under which the use or permission to use such fixed property is granted.

  • The services are physically rendered elsewhere than in South Africa or to an IDZ operator in a customs controlled area.

The Income Tax Act 1962 (as amended) allows for certain deductions in relation to "brownfield" and "greenfield" projects. There will in the future be a whole new regime on this when "special economic zones" are introduced in terms of the Special Economic Zones Act 2014, which is to commence on a date yet to be proclaimed, with associated changes to income tax legislation.

 

Business vehicles

7. What are the most common forms of business vehicle used in your jurisdiction?

There are a number of different investment methods and vehicles available in South Africa. These are:

  • A company (either a local profit or non-profit company or a "branch" of an external company).

  • A close corporation (although new close corporations cannot be formed as of 1 May 2011).

  • A partnership (either limited or unlimited).

  • A business trust.

  • A sole proprietorship.

The company is by far the most popular and recommended form of legal entity in South Africa. Companies are separate legal entities. South African companies, and South African company law in general, are modelled largely on the Commonwealth jurisdictions, although there is also a degree of influence from US corporate law. A company has:

  • Shareholders (its "owners") that contribute share capital (equity) or debt finance to the company.

  • A board of directors that manages the company and its resources. The board is ultimately accountable to the shareholders.

Companies can be private companies or public companies. A private company must have a restriction in its memorandum of incorporation (MOI) (which is its constitution or "articles") on the transferability of its securities, and it is also prohibited from offering its securities to the public. It is the recommended category of company for closely-held ventures with a small number of shareholders or just one shareholder.

 
8. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, what are the main registration and reporting requirements?

Registration and formation

There are two ways of procuring a company:

  • A company may be registered and incorporated "from scratch" by preparing a memorandum of incorporation (MOI) and a notice of incorporation, and filing this at the Companies and Intellectual Property Commission (CIPC). The CIPC is the body or agency that fulfils the role of a registrar and regulator in respect of companies in South Africa, among other things. The MOI is the constitution or contract that regulates the relationship between the company, its shareholders and its directors. There are relatively "standard form" MOIs that can be used for this purpose, or a customised MOI can be drafted that provides for the shareholders' particular needs. Prior to the MOI being filed, the proposed name for the company must be reserved at the CIPC. The company is registered and incorporated once the CIPC issues a certificate of incorporation.

  • Another method is to make use of "shelf" companies. Shelf companies are already incorporated and registered private companies with no assets or liabilities, and such companies can essentially be "transferred" into the name and control of a client that needs a company in a short space of time. The benefit of shelf companies is that it removes the need to wait for the CIPC to register a newly formed company as the company is already formed and the shareholding and directorship of the company simply has to be amended. Shelf companies are registered with stock standard MOIs. Accordingly, if the investor wishes to have a customised MOI that suits its particular needs, an amendment to the MOI must be effected (or a new MOI adopted) and filed at the CIPC.

It is not a general requirement in South Africa for a company to register with any other regulator or agency, or to obtain any particular licences or permits. Once it is registered and incorporated with the CIPC the company can operate and carry on business. However, if the company is to operate in a sector or industry that is regulated (such as, banking, insurance or mining), then it must apply for licences or permits to conduct that type of business at the appropriate juncture.

The company can be required to register with the South African Revenue Service (SARS) for value-added tax (VAT), depending on its turnover.

Reporting requirements

Every company must file annual returns at the CIPC at a small filing fee. These are returns that set out certain corporate and company secretarial information about the company, such as its registered address and up-to-date list of directors. The filing of the annual return is very important as failure to do so may result in the company being deregistered by the CIPC. If the company is required to be audited, it must also lodge its audited annual financial statements together with its annual return.

Every company must prepare annual financial statements and have these approved by its board. Only public and state-owned companies are automatically required to have their annual financial statements audited. Private companies as a general rule do not need to have their annual financial statements audited, however if they achieve a public interest score of 350 or more they must have their annual financial statements audited by a registered auditor. If their public interest score is at least 100 and their annual financial statements were internally compiled, they will require an audit. Even in the case of private companies that are not required to be audited, an "independent review" of the annual financial statements is nevertheless required. This is less rigorous and extensive than an audit and does not need to be done by a registered auditor but may be done by an accountant or other suitably skilled independent third party.

The "public interest score" is determined with reference to:

  • The number of the company's shareholders.

  • The number of its employees.

  • Its turnover.

  • Quantum of third party debt.

Points are allocated to each aspect and then aggregated.

Where there is a change in the composition of the board of directors of a company it must file certain returns at the CIPC so that the CIPC can update its records.

The other general maintenance and filing obligations are under tax law in terms of which companies must pay income tax and provide VAT returns to SARS.

Certain companies, depending on their size and number of employees, need to file employment equity reports under the Employment Equity Act 1998.

Share capital

The Companies Act distinguishes between authorised and issued shares.

Authorised shares resemble the share capital of the company in that they are the maximum number of shares that the company can issue as provided for in its memorandum of incorporation.

Issued shares are the actual amount of shares in circulation that have been authorised and issued to shareholders.

There is no limit to the maximum amount of authorised shares that a company can have, and a company must authorise a minimum of one share.

The Companies Act does not provide for the sub-division of shares as the previous Act did. The company's memorandum of incorporation must therefore either provide for a large amount of authorised shares, or for a sub-division procedure to avoid the need to amend the company's memorandum of incorporation to increase the company's authorised shares.

Non-cash consideration

Shares can be issued in exchange for cash or non-cash consideration.

Section 40 of the Companies Act provides that a company's board of directors can issue shares for adequate consideration to the company, as determined by the board. The board is given a wide discretion in this respect, as section 40(3) provides that, "the adequacy of consideration for any shares may not be challenged on any basis other than in terms of section 76, read with section 77(2)."

Section 1 of the Companies Act defines consideration to mean anything of value given and accepted in exchange for any property, service, act, omission or forbearance or any other item of value, including any:

  • Money, property, negotiable instrument, securities, investment credit facility, token or ticket.

  • Labour, barter or similar exchange of one thing for another.

  • Other item, undertaking, promise, agreement or assurance, irrespective of its apparent or intrinsic value, or whether it is transferred directly or indirectly.

Section 40 does place certain restrictions in cases where consideration is not provided immediately. The shares will in such instance be transferred into trust and the subscriber will generally only be able to enjoy the benefits attached to the shares only to the extent that the consideration for the shares has actually been received by the company, however this position can be amended in the trust agreement.

Rights attaching to shares

The basic presumption is that all shares have equal rights. However, it is possible for a company to have shares with different rights, preferences, limitations, and terms, in which case the company has 'classes' of shares. Every share has a statutory minimum right to vote on any proposal to amend the preferences, rights or limitations attached to that share.

A company is free to create the capital structure it chooses by structuring the rights of each of its various classes of shares. In general, rights that are restricted or promoted are those regarding dividends and voting rights.

All shares of a particular class authorised by a company have the preferences, limitations, and other terms that are identical to those of other shares of the same class, except to the extent the company's memorandum of incorporation provides otherwise.

By operation of law, shares confer a bundle of rights on the holder including full participation regarding dividends, capital of the company, voting rights, and surplus assets on the winding-up of the company.

 
9. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, outline the management structure and key liability issues.

Management structure

Every company must have a board of directors. A private company must have at least one director but may be required to have more if it falls within the category of companies required to have a social and ethics committee. The Companies Act 2008 allows for alternate directors who are then subject to the same duties and responsibilities of directors.

The board can in its discretion establish sub-committees with such terms of reference and delegated powers as it may deem fit. A common committee found in practice is the executive or management committee, which is charged with executive control and management of the company. Non-directors may be members of such committees but will not have a vote. The delegation of powers to a sub-committee does not absolve the board of ultimate responsibility.

Public companies must have audit committees comprised of at least three independent, non-executive directors elected by the company's shareholders. Private companies do not have to have audit committees unless they voluntarily opt to do so, in their memorandums of incorporation (MOIs). A private company must have a social and ethics committee if the company has a certain "public interest score" as calculated under the Companies Regulations. A private company must have a social and ethics committee if it reaches at least 500 on its public interest score in any two of its previous five financial years. A social and ethics committee is a committee of the board, and its members are appointed by the board. It monitors and reports on the company's activities and compliance in connection with a host of sustainability, environmental and corporate social responsibility aspects. The committee must comprise at least three directors or "prescribed officers" (senior managers or executives), at least one of whom must be a non-executive director.

There is an extensive corporate governance report or code known as the King Report on Governance for South Africa (King III). King III is not binding law but is a voluntary code setting out numerous corporate governance best practice and principles, dealing considerably with the composition of the board and the various governance structures that a board should put in place.

A company must be managed by, or under the direction of, its board of directors, except to the extent that the Companies Act or the company's MOI provides otherwise (section 66(1), Companies Act). Under the Companies Act, various powers of the board are limited in that shareholder approval is required for certain transactions and matters implemented by the board. However these are not management or operational aspects, but are to do with issues such as:

  • Fundamental transactions.

  • Share capital.

  • Corporate finance.

  • The winding up of the company.

Management restrictions

There is a material difference between a manager and a director of a company. Directors are required by statute; they are essential to a company, and their functions and duties are defined by law. A director is appointed by the shareholders and is vested with the management and control of a company.

A manager is an employee of the company, and his services are engaged by the directors; he is not legally essential to the company.

The Companies Act does not place restrictions on the nationality of directors or managers of the company.

Directors' and officers' liability

The Companies Act imposes high standards for director responsibility and accountability. It also imposes various forms of personal liability on directors, to the company and to third parties, for breaches of fiduciary duties and the duty of care, skill and diligence.

The Companies Act also regulates "prescribed officers" and subjects these officers to the same duties, responsibilities and personal liability as directors. A person is a "prescribed officer" of the company for all purposes of the Companies Act if that person:

  • Exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company.

  • Regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company.

This is irrespective of whether the person is on the board of directors of the company and also irrespective of the title attached to such a person's office or position in the company.

The Companies Act allows (but does not oblige) a company to insure or indemnify its directors and prescribed officers, for breaches of their duties under the Companies Act, within certain confines.

Parent company liability

A company is a separate legal entity, and the relationship between a parent company and its subsidiary will constitute a normal relationship between the shareholder and the company. Cases have indicated that with wholly-owned subsidiaries a court can, under special circumstances, recognise the economic reality of the group structure, but the strict point of departure is that the parent and the subsidiary are entirely separate legal entities in law.

Just as the profits of a company belong to the company itself, so do the debts and liabilities of the company. Except in exceptional circumstances, the shareholders of a company cannot be compelled to pay the debts of the company. If the company is liquidated, this will not generally result in the shareholders' estates being liquidated/sequestrated and vice-versa. However, the shareholders of a company can voluntarily assume liability for the company's debts. This is most commonly done through a contractual agreement taking the form of a guarantee, indemnity, suretyship, or cession and pledge.

Otherwise, the general company law principles of piercing of the corporate veil, or the law of agency, must be employed if a third party, for instance, wishes to hold a parent company liable for its subsidiary's conduct. This will depend on the facts.

 

Employment

Laws, contracts and permits

10. What are the main laws regulating employment relationships?

A series of statutes, strongly influenced by the Bill of Rights contained in the Constitution and international employment standards, have been promulgated to implement employment legislation reform since South Africa became a democracy in 1994.

The Labour Relations Act 1995 (LRA) is the centrepiece of the South African labour legislation model. The LRA aims to:

  • Encourage and facilitate collective bargaining and employee participation in joint decision making.

  • Regulate the organisational rights of trade unions.

  • Provide simple procedures for the settlement of employment disputes through statutory conciliation, mediation and arbitration.

The LRA applies to all employees except for members of the:

  • National Defence Force.

  • National Intelligence Agency.

  • South African Secret Service.

A principle contained in the LRA is that every employee has the right to freedom of association and, in particular, to form and join a trade union and to participate in a trade union and its lawful activities. The LRA affords employees protection against discrimination or victimisation for exercising these rights.

The Basic Conditions of Employment Act 1997 (BCEA) lays down basic minimum standards of employment or a "floor" of rights below which an employer may not contract. It ensures, among other things, that:

  • Working hours are regulated.

  • That employees are granted adequate breaks during working hours.

  • That employees are given prescribed annual and paid sick leave.

  • That certain categories of employees are paid extra for overtime and work performed on Sundays.

  • That they are accorded other basic rights, dependent on factors such as the quantum of remuneration or position within the workplace.

The BCEA requires an employer to maintain certain records and determines the manner in which rates of pay and working hours are to be calculated. An employer and an employee cannot agree to terms that are less favourable than those laid down in the BCEA, unless a bargaining council agreement applies to the sector or area in which the employer conducts business and sets out minimum terms and conditions for the employees in that sector or area that are less favourable to the employees than those set out in the BCEA.

The Employment Equity Act 1998 (EEA) is a further key employment-related statute. Its purpose is to achieve equality in the workplace by promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination and the implementation of affirmative action measures to redress the disadvantages experienced by people from among the designated groups. The EEA defines designated groups as:

  • South African women.

  • Black people.

  • People with disabilities.

Every designated employer must, in order to achieve employment equity, implement affirmative action measures in relation to people from among the designated groups. Designated employers are those employers identified in the EEA on the basis of the number of employees employed or annual turnover thresholds.

 
11. Is a written contract of employment required? If so, what main terms must be included in it? Do any implied terms and/or collective agreements apply to the employment relationship?

Under South African labour law, it is not essential that an employer and employee enter into a written contract of employment. South African courts have considered the substance of the relationship between an employer and an employee to be indicative of an employment relationship, as opposed to the existence of a written contract. An oral agreement contract of employment can therefore be concluded with an employee.

Once an employment relationship exists between an employer and an employee (whether by written or oral contract or substantively in the form of an employment relationship), this relationship will automatically incorporate various principles of South African labour law by operation of law.

While all employees receive certain fundamental protections in terms of the Basic Conditions of Employment Act, other protections apply to those employees who earn below the threshold prescribed by the Minister of Labour, including certain presumptions that they are regarded as an employee.

 
12. Do foreign employees require work permits and/or residency permits?

All employees in South Africa must hold an appropriate work permit if they do not have citizenship. The law provides for corporate work permits for more than one employee. Depending on the country of origin, they may also need a visa to be permitted entry. A local sponsor for a work permit is generally required and it is generally necessary to show that no local person is capable of filling the applicant's position. A person is not permitted to work in South Africa with a work permit pending, therefore, employers should ensure that the application is submitted well in advance of the employee's commencement date.

Termination and redundancy

13. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

The law does not require employees to have nominees on the board of directors or other management structures, but a company's memorandum of incorporation (MOI) can provide for this.

Employees and trade unions have a number of rights to notification and participation in the context of a company going into business rescue proceedings under Chapter 6 of the Companies Act (similar to Chapter 11 "bankruptcy" proceedings in the US). Trade unions can be notified of financial assistance advanced by a company to its directors or to entities related to its directors or to the company (section 45, Companies Act).

The protection of employees' rights is a key feature of South African law, and has an important effect in the context of corporate mergers and acquisitions. If a transfer of a business takes place, unless otherwise agreed (section 197, Labour Relations Act (LRA)):

  • The new employer (purchaser) is automatically substituted in the place of the old employer (seller) for all contracts of employment in existence immediately before the date of transfer.

  • All the rights and obligations between the old employer and an employee at the time of the transfer continue in force as if they had been rights and obligations between the new employer and the employee.

  • Anything done before the transfer by, or in relation to, the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair discrimination, is considered to have been done by, or in relation to, the new employer.

  • The transfer does not interrupt an employee's continuity of employment, and an employee's contract of employment continues with the new employer as if with the old employer.

It is accepted that a sale of shares in a company (and therefore a change in its owners), as opposed to a sale of its business, does not amount to a "transfer of business" under section 197 of the LRA.

The new employer is deemed to have complied with the above if that employer transferred employees on terms and conditions that are, on the whole, not less favourable to the employees than those on which they were employed by the old employer.

An agreement to exclude the application of the automatic transfer of employees must be in writing and concluded between either the old employer, the new employer, or the old and new employers acting jointly, on the one hand, and the appropriate person or body that represents the old employer's employees (for example, a trade union). In any negotiations to conclude such a tripartite agreement, the employers must disclose to the employees or trade union all relevant information that allows it to engage effectively in the negotiations.

 
14. How is the termination of individual employment contracts regulated?

The termination of an employment contract can be brought about in a number of ways, for example, by:

  • Exercising a contractual or statutory right to terminate (for cause).

  • Agreement.

  • Operation of law.

The Labour Relations Act (LRA) recognises three fair reasons for a dismissal:

  • Misconduct.

  • Lack of capacity.

  • The employer's operational requirements.

The LRA requires that a dismissal must be fair, which includes both procedural and substantive fairness. A dismissal may be automatically unfair if the reason for the dismissal is:

  • The employee participated in, or supported a strike.

  • The employee refused to do dangerous work.

  • In order to compel the employee to accept a demand for any matter of mutual interest, related to pregnancy, unfair discrimination by the employer.

  • For any reason related to a transfer of a business or service as a going concern.

  • Because the employee has made a protected disclosure.

  • Because the employee took action against the employer by exercising any right in terms of the LRA.

The employee's remedy for an unfair dismissal is retrospective reinstatement or, under specified circumstances, payment of compensation limited to a maximum of 12 months' remuneration. Where it is an automatically unfair dismissal then the remedy is reinstatement or, where payment of compensation is appropriate, payment of compensation limited to 24 months' remuneration.

In South Africa, both employers and employees can terminate the employment relationship by providing notice, or for the employer, making a payment in lieu of notice. The required length of notice for employment contracts is set out in the Basic Conditions of Employment Act and depends on the term of the contract.

 
15. Are redundancies and mass layoffs regulated?

Redundancies are subject to the same requirements as terminations concerning substantive and procedural fairness (see Question 14). Section 189A of the Labour relations Act (LRA) regulates mass redundancies and additional consultation requirements apply in these circumstances. These apply to dismissals based on operational requirements by employers with more than 50 employees.

 

Tax

Taxes on employment

16. In what circumstances is an employee taxed in your jurisdiction and what criteria are used?

From 2001, South Africa moved from a source-based income tax system to a residence-based income tax system. Residents (juristic and non-juristic) are (subject to certain exclusions) taxed on their worldwide income, irrespective of where the income is earned. However, source-based income continues to be relevant since persons that are not resident in South Africa are subject to tax in South Africa on all income that is from a South African source.

For individuals, two tests apply in order to determine whether or not an individual is a resident in South Africa for tax purposes:

  • The "ordinarily resident" test.

  • The "physical presence" test.

A person is considered to be ordinarily resident in South Africa if that person considers South Africa to be his principal residence, which could be described, in comparison to other countries, as the individual's real home. Persons who are not ordinarily resident in South Africa are only considered resident for South African tax purposes by virtue of their physical presence in South Africa. With the physical presence test, a person is deemed to be a resident for South African tax purposes if they are physically present in South Africa for a period or periods exceeding:

  • 91 days in total in each of the current and previous five tax years.

  • More than 915 days in total during the previous five tax years.

If a person that is deemed to be a resident in terms of the physical presence test leaves South Africa for a continuous period of 330 full days, he or she is deemed to be no longer resident from day one of the 330 day period. However, the term "resident" excludes any person who is deemed to be exclusively a resident of another country by virtue of a double taxation treaty.

 
17. What income tax and social security contributions must be paid by the employee and the employer during the employment relationship?

Tax resident employees

Individuals are subject to income tax at a marginal rate of tax between 18% and 41%, which is based on a progressive tax table, which increases as taxable income increases. It is withheld by the employer in terms of the "pay-as-you-earn" (PAYE) principle. Employers are obliged to deduct tax from an employee's salary and, in addition, have reporting duties to the South African Revenue Service (SARS). Employers are obliged to make contributions to statutory training programmes.

South Africa has a limited social security system (old age pension and social grants under certain circumstances) although this can be provided for contractually as between the employer and employee, as in the case of:

  • Private pension funds. These are regulated by statute, operated by employers and administered by various methods (often by insurance companies). Contributions are generally made by the employee, usually 5% to 7.5% each of the employee's salary.

  • Medical aid schemes. South Africa does not have a national medical insurance system. Private medical aid programmes, operated under the Medical Schemes Act, 1998, cover most medical expenses. The employee and the employer usually contribute equally, although there are certain tax advantages where a scheme is non-contributory from the employee's perspective.

  • Unemployment insurance. Employees contribute 1% of the employee's earnings to the Unemployment Insurance Fund, which provides benefits for people out of work and for the dependants of deceased contributors.

Non-tax resident employees

Income Tax Act is based on the general principle that tax is levied only on income derived from a source within or deemed to be within the Republic for non-tax resident employees.

This general rule applies to both companies and persons other than companies. With the exception of non-resident companies, non-residents (including employees) are taxed at the rates which apply to residents and they are entitled to the deductions and rebates which apply to residents.

Employers

Employers that are corporations are taxed at a flat rate of 28%.

A levy is imposed by the Skills Development Levies Act 1999 to contribute towards the cost of skills development. The levy imposed is 1% of the total of all remuneration paid or payable or deemed to be paid or payable, by the employer to all employees during any month. The levy must be paid to the education and training authority for the sector to which the employer belongs.

Social security contributions by the employer are as follows:

  • Private pension funds. Contributions are generally made by the employer, usually 5% to 7.5% each of the employee's salary. This is not compulsory for employers to establish.

  • Medical aid schemes. The employee and the employer usually contribute equally. It is not compulsory for employers to contribute.

  • Unemployment insurance. Employers contribute 1% of the employee's earnings to the Unemployment Insurance Fund.

Business vehicles

18. When is a business vehicle subject to tax in your jurisdiction?

Tax resident business

Legal entities qualify as tax residents if they are incorporated, established, formed or effectively managed in or from South Africa.

Non-tax resident business

Non-resident business vehicles are only taxed on South African-sourced income. If the entity's country of residence has a double taxation treaty with South Africa, the vehicle is only taxed on its income in South Africa if it has a permanent establishment in South Africa, and only on income or profits that are attributable to that establishment's operations.

 
19. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?

Tax resident companies pay the following taxes in South Africa (subject to special rules that apply to certain gold-mining companies and long-term insurers):

  • Normal income tax on their worldwide income at 28%.

  • Capital gains tax (CGT) on their worldwide capital gains at 18.6%.

There have been changes to the tax rate applicable to small business corporations. These rates are far lower than those applicable to other companies.

Non-resident companies pay the following taxes in South Africa:

  • Normal income tax on their South African sourced income at 28%.

  • CGT on some capital gains at 18.6%.

Dividends, interest and IP royalties

20. How are the following taxed:
  • Dividends paid to foreign corporate shareholders?

  • Dividends received from foreign companies?

  • Interest paid to foreign corporate shareholders?

  • Intellectual property (IP) royalties paid to foreign corporate shareholders?

Dividends paid

Generally dividends (other than foreign dividends) received by or accrued to any South African resident, whether a company or an individual, are exempt from income tax. Accordingly, the receipt of local dividends would not be subject to income tax. From 1 April 2012, dividends tax applies at the rate of 15%. It is a withholding tax. Dividends tax applies to non-residents except where a relevant double taxation agreement (DTA) applies.

Dividends received

The general exemption from income tax that applies to dividends distributed by resident companies does not apply to foreign dividends. However, in order to align the effective rate of tax payable by recipients of foreign dividends with the effective rate payable on domestic dividends under the dividend tax rules, a special reduction of the taxable amount is allowed. Therefore, the amount brought to account when a foreign dividend that is not otherwise exempt, is received by or accrued to a South African resident, is the gross amount distributed by the foreign company (ignoring any withholding tax that may be imposed in that company's country of residence), reduced by a factor of:

  • 62.5% for individuals, special trusts and deceased or insolvent estates.

  • 50% for individual policyholder funds of a life assurer.

  • 46.42% for other persons (primarily companies and the company policyholder and corporate funds of a life assurer).

Interest paid

From 1 March 2015, withholding tax on interest paid by a South African resident to a non-South African resident is subject to a withholding tax of 15% unless reduced by the provisions of a DTA. This is regulated in terms of the newly introduced sections 50A to 50G of the Income Tax Act.

IP royalties paid

From 1 January 2015, royalties paid by a South African resident to a non-resident is subject to royalty withholding tax of 15% unless reduced by the provisions of a DTA (section 49B, Income Tax Act).

Groups, affiliates and related parties

21. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

South Africa's thin capitalisation rules have been incorporated into the transfer pricing rules (see Question 23). This means that where the transaction involves the granting of financial assistance, any tax benefit is negated by the requirement that a person's tax liability must be calculated based on the "arm's length" principle. Excessive interest deductions on foreign debt will therefore be denied. These rules also extend to the use of intellectual property.

 
22. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

There are "controlled foreign company" rules in section 9D of the Income Tax Act. A controlled foreign company (CFC) is any foreign company where either:

  • More than 50% of the total participation rights are held, directly or indirectly, by one or more South African residents other than a headquarter company.

  • More than 50% of the voting rights are directly or indirectly exercisable by one or more residents other than a headquarter company. In determining whether and to what extent voting rights are exercisable in relation to indirectly held companies, if a South African company can indirectly exercise the votes of an underlying company, then it is deemed to directly hold the same proportion of votes that the subject company's direct shareholder holds.

"Participation rights" are essentially equity or voting rights. They are defined as:

  • The right to participate in all or part of the benefits of the rights attaching to a share (other than voting rights) or any similar interest in a company.

  • Where no person has such rights or they cannot be determined for any person, the voting rights.

Any resident (other than a headquarter company) holding (whether alone or together with a resident or non-resident connected person, and whether directly or indirectly through other companies) 10% or more of the participation rights or voting rights in a CFC must include a proportionate amount of the net income of that CFC for the foreign tax year concerned, unless an exemption exists. This is all as calculated and determined under section 9D of the Income Tax Act.

 
23. Are there any transfer pricing rules?

Transfer pricing rules are contained in the income tax regime of South Africa. Where certain persons enter into a transaction and:

  • A term or condition of that transaction is different from what it would have been had they been independent persons dealing at arm's length.

  • It results, or will result, in a tax benefit to any party to that transaction.

  • Then that party's tax liability must be calculated as if the transaction was entered into on terms and conditions that would have existed had the persons been independent and dealing at arm's length.

The above applies where, among others, the transaction is between a resident and a non-resident who are connected persons. The amount of the benefit will be also be deemed to be a loan granted by the person receiving the benefit, to which the transfer pricing rules also equally apply.

Customs duties

24. How are imports and exports taxed?

Goods imported into, or exported from, South Africa are liable for VAT and customs duty, subject to the availability of rebates and refunds. Direct exports (where the South African seller supplies the goods) are subject to VAT at 0% and indirect exports (where, for example, a client of a South African seller arranges for the delivery of the goods to the client's customer in the country to which the goods are exported) are subject to VAT at 14%.

If goods are imported from one of these countries falling within the Common Customs Area then they are exempt from customs duty but not VAT:

  • Namibia.

  • Botswana.

  • Lesotho.

  • Swaziland.

Double tax treaties

25. Is there a wide network of double tax treaties?

South Africa is currently party to approximately 80 double tax treaties, including those with the US and the UK, and is currently in the process of re-negotiating and ratifying a number of other treaties.

 

Competition

26. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?

Competition authority

The Competition Act, No. 89 1998 establishes three independent competition regulatory authorities, the:

  • Competition Commission of South Africa.

  • Competition Tribunal.

  • Competition Appeal Court.

The Commission is the investigative and enforcement agency, the Tribunal is the adjudicative body and the Competition Appeal Court considers appeals against the decisions of the Tribunal. The Competition authorities are functionally-independent institutions, but are administratively accountable to the Department of Economic Development.

Restrictive agreements and practices

The Competition Act 1998 regulates mergers having an effect in South Africa, and prohibits restrictive vertical practices, restrictive horizontal practices and abuses of dominance. The Competition Act prohibits agreements or practices between competitors that substantially prevent or lessen competition in a market, unless a party to the agreement or practice can prove that technological, efficiency or other pro-competitive gains outweigh the anti-competitive effect. The onus is on the firm engaging in the relevant practice to prove that the gains outweigh the anti-competitive effect. The Competition Act prohibits outright, without permitting the use of justification or defence, agreements or practices between competitors that involve:

  • Directly or indirectly fixing a purchase or selling price or any other trading condition.

  • Dividing markets by allocating customers, suppliers, territories or specific types of goods or services.

  • Collusive tendering.

Unilateral conduct

The Competition Act prohibits the abuse of dominance. A firm is considered to be "dominant" if it has a market share of 45% or greater. A firm with a market share of 35% or more is presumed dominant unless it can show an absence of market power. A firm with a market share of less than 35% is considered dominant if it has market power. Market power is defined as the power of a firm to control prices, or to exclude competition, or to act to an appreciable extent independently of its competitors, customers or suppliers.

It is prohibited for a dominant firm to:

  • Charge an excessive price to the detriment of consumers.

  • Refuse to give a competitor access to an essential facility when it is economically feasible to do so.

  • Engage in an exclusionary act (one that impedes or prevents a firm from entering into or expanding within a market), if the anti-competitive effect of that act outweighs the technological, efficiency or other pro-competitive gains.

It is also prohibited for a dominant firm to engage in price discrimination. An action by a dominant firm is prohibited price discrimination if:

  • It is likely to have the effect of substantially preventing or lessening competition.

  • It relates to the sale, in equivalent transactions, of goods or services of a similar grade and quality to different purchasers.

  • It involves discriminating between those purchasers in terms of:

    • the price charged for the goods or services;

    • any discount, allowance, rebate or credit given or allowed in relation to the supply of goods or services,;

    • the provision of services for the goods or services; and

    • payment for services provided for the goods or services.

 
27. Are mergers and acquisitions subject to merger control?

The parties to a merger which has an effect in South Africa and which exceeds certain combined asset and/or turnover thresholds established by the Competition Act, may not implement the transaction without first obtaining the approval of the competition authorities. A "merger", for purposes of merger control, occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. The term "firm" includes a person, partnership or trust. The Competition Appeal Court has given the term "control" the widest possible meaning so as to allow the relevant competition authorities to examine a wide range of transactions which could result in an alteration of the market structure and in particular, which may reduce the level of competition in the relevant market.

The Competition Act establishes three categories of mergers which are determined with reference to the turnover or assets (whichever is the higher) of the acquiring firm and the target firm. A small merger occurs where the combined assets or turnover of the acquiring firm and the target firm are below ZAR560 million or the target firm's assets or turnover are below ZAR80 million. An intermediate merger occurs where the combined assets or turnover of the acquiring firm and the target firm equal or exceed ZAR560 million and the target firm's assets or turnover equal or exceed ZAR80 million. A large merger occurs where the combined assets or turnover of the acquiring firm and the target firm equal or exceed ZAR6.6 billion and the target firm's assets or turnover equal or exceed ZAR190 million. For purposes of calculating the thresholds, the entire acquirer group is taken into account. In relation to the target firm, the firm over which control is transferred, together with all firms controlled by such transferred firm, is taken into account.

The parties to a small merger may voluntarily notify the competition authorities prior to implementation. The parties to an intermediate or large merger may not implement the merger without the approval of the competition authorities.

 

Intellectual property

28. Outline the main IP rights in your jurisdiction.

South Africa is party to various international agreements and conventions relating to the protection of intellectual property including patents, trade marks, designs and copyright. Being a party to the World Trade Organisation Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), South Africa must comply with the minimum standards set by that agreement for the protection of intellectual property.

Patents

Definition and legal requirements. The Patents Act 1978 states that a patent can be granted for any new invention that involves an inventive step and that is capable of being used or applied in trade, industry or agriculture. International applications under the Patent Co-operation Treaty (PCT) are provided for in Chapter VA of the Patents Act.

The following are not regarded as an invention:

  • A discovery.

  • A scientific theory.

  • A mathematical method.

  • A literary, musical or artistic work or any other aesthetic creation.

  • A scheme, rule or method for performing a mental act, playing a game or doing business.

  • A program for a computer.

  • The presentation of information.

Registration. The Companies and Intellectual Property Commission is responsible for the registration of intellectual property rights (trade-marks, patents, designs and copyright) and maintenance thereof.

Information is available on the CIPC website regarding the application procedure at http://www.cipc.co.za/index.php/trade-marks-patents-designs-copyright/patents/how-app/.

Enforcement and remedies. The private entity that holds a patent must monitor the activities of competitors as well as developments in the marketplace, and take action to stop any infringement of rights or obtain recovery of losses. There is no dedicated regulatory authority that serves to monitor and enforce that patents are not infringed.

Statutory remedies to enforce a patent exist under the Patent Act, No. 57 of 1978. These remedies include an interdict; delivery up of any infringing product or any article or product of which the infringing product forms an inseparable part; and damages. If the appropriate circumstances exist, a holder can also obtain redress in terms of remedies under South African common-law regarding unlawful competition.

Length of protection. The duration of a patent is 20 years from the date of its application. This is subject to the payment of the prescribed renewal fees by the patentee concerned or an agent. Payment must be made on or before the expiry of the third year after the date of application for a patent and annually after that, failing which the patent will lapse.

Trade marks

Definition and legal requirements. A mark is defined in section 2 of the Trade Marks Act as "any sign capable of being represented graphically, including a device, name, signature, word, letter, numeral, shape, configuration, pattern, ornamentation, colour or container for goods or any combination of the aforementioned". Use of a mark in relation to goods is to be construed as reference to its use on, or in relation to such goods. South Africa also recognises service marks. The use of a mark in relation to services is to be construed as reference to its use in relation to the performance of such services.

South Africa follows the 9th Edition of the Nice International Classification, which provides for 45 classes or categories within which a trade mark can be registered:

  • 34 for goods.

  • 11 for services.

No multiple class application procedure is provided for and a separate application needs to be filed for a trade mark for each class that the proprietor of the trade mark has an interest. It currently takes approximately 18 to 24 months for a trade mark application to proceed to registration, calculated from the date on which the application was filed.

Protection. Registration and protection of trade marks is governed by the Trade Marks Act 1993. Trade marks are examined on both absolute and relative grounds by the Registrar of Trade Marks.

The CIPC website describes the procedure for applying for a trademark at www.cipc.co.za/index.php/trade-marks-patents-designs-copyright/trade-marks/ho/.

At common law, a trademark holder is entitled to various rights in respect of an unregistered trade mark. These rights include the remedy of "passing off", which provides protection if a right has acquired a reputation in respect of the goods and services it represents.

Enforcement and remedies. The proprietor of a trade mark, whether registered or unregistered can enforce their rights through the standard dispute resolution measures under South African law (including, mediation, arbitration and litigation).

The holder of a registered mark is entitled to rely on the remedies under the Trade Marks Act, No. 194 of 1993. Remedies available include:

  • Approaching a High Court for an interdict; an order for removal of the infringing mark from all material and, where the infringing mark is inseparable or incapable of being removed from the material, an order that all such material be delivered up to the proprietor.

  • Damages, including those arising from acts performed after advertisement of the acceptance of an application for registration which, if performed after registration, would amount to infringement of the rights acquired by registration.

  • A reasonable royalty which would have been payable by a licencee for the use of the trade mark concerned, including any use which took place after advertisement of the acceptance of an application for registration and which, if taking place after registration, would amount to infringement of the rights acquired by registration (in lieu of damages, at the option of the proprietor).

These remedies are not available to the holder of an unregistered mark, who must rely on the common law remedy of "passing off".

Length of protection and renewability. A registered trade mark can be protected forever, provided it is renewed every ten years on payment of the prescribed renewal fee.

Registered designs

Definition. The Designs Act 1993 provides for the registration of both aesthetic and functional designs.

Design relates to the shape, form, pattern, ornamentation and configuration of a product or article and is generally dictated by aesthetic features. Two types of designs can be registered:

  • Aesthetic designs, which must be:

    • new and original;

    • beautiful is in its shape, configuration or ornamentation; or

    • able to be produced by an industrial process.

  • Functional designs, which must:

    • be new and not commonplace;

    • have its shape or configuration necessitated by the function; or

    • be able to be produced by an industrial process.

Registration. The Companies and Intellectual Property Commission registers designs. Information regarding the application procedure can be found at www.cipc.co.za/index.php/trade-marks-patents-designs-copyright/designs/344/

Enforcement and remedies. The Designs Act, No. 195 of 1993 allows the holder of a design right to obtain relief by way of:

  • An interdict.

  • Surrender of any infringing product or any article or product of which the infringing product forms an inseparable part.

  • Damages.

  • An amount calculated on the basis of a reasonable royalty which would have been payable by a licensee or sub-licensee in respect of the registered design concerned (in lieu of damages, at the option of the plaintiff).

Length of protection and renewability. The duration of the registration of an aesthetic design is 15 years and for a functional design is ten years, calculated from the date of registration or from the release date, whichever date is earlier. It is also subject to payment of the prescribed renewal fee on an annual basis from, or before, the expiration of the third year from the date of application or the release date, whichever date is earlier.

Unregistered designs

Definition and legal requirements. South African design law makes no provision for the protection of unregistered designs. A design that is applied to an article for which no design application has been filed enjoys no protection under the Designs Act.

Enforcement and remedies. Not applicable.

Length of protection. Not applicable.

Copyright

Definition and legal requirements. Copyright is governed by the Copyright Act 1978. No registration is required to establish copyright in a work in South Africa. South Africa is a member of the Berne Convention for the Protection of Literary and Artistic Work and so extends its copyright protection to any work eligible for copyright protection emanating from a convention country designated as such by proclamation in the South African Government Gazette.

The following works are eligible for copyright protection in South Africa:

  • Literary works.

  • Musical works.

  • Artistic works.

  • Cinematograph films.

  • Sound recordings.

  • Broadcasts.

  • Programme carrying signals.

  • Published editions.

  • Computer program.

Protection. The Companies and Intellectual Property Commission registers copyright.

Enforcement and remedies. The rights-holder can enforce remedies under the Copyright Act, No 98 of 1978. Remedies available include damages and obtaining an interdict.

Length of protection and renewability. The copyright of:

  • Literacy works are protected for 50 years after the death of the author.

  • Computer programmes are protected for 50 years after the first copies were made available to the public.

  • Sound recordings are protected for 50 years from the day the work was first broadcast.

  • Films are protected for 50 years from the date the film was shown.

 

Marketing agreements

29. Are marketing agreements regulated?

Agency

Marketing agreements are regulated by general principles of the law of contract (in South Africa this is based on Roman-Dutch common law with influences from English law). Sub-categories of contract law that may be particularly relevant in the context of marketing agreements are the law of agency, mandate and representation.

Distribution

Distribution agreements are to some extent regulated by the Consumer Protection Act 2008, which provides requirements that agreements should comply with (including providing certain disclosure documents). Otherwise, the ordinary principles of the law of contract apply.

Franchising

Franchise agreements are to some extent regulated by the Consumer Protection Act 2008, particularly since certain disclosures must be made by the franchisor to the franschisee, and the franchise agreement must include certain information and clauses.

 

E-commerce

30. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

The general principles of the law of contract and international trade law apply for the most part, together with the Electronic Communications and Transactions Act 2002 (ECTA) that deals with e-commerce and related issues and covers a broad spectrum of legal issues related to e-commerce. The most important sections of ECTA are those dealing with the facilitation of electronic transactions. With this legislation, formal recognition is granted in South African law to data messages.

The ECTA states that data messages are not without force and effect in law merely because they take the form of a data message. Similarly, legal requirements for documents or information to be in writing are met if the document or information is contained in the form of a data message, subject to certain requirements.

An electronic signature is data that is intended by the user to serve as a signature and either:

  • Attached to with other data.

  • Incorporated in with other data.

  • Logically associated with other data.

With recognition of electronic signatures, an electronic signature has legal force and effect. However, ECTA differentiates between two classes of electronic signatures and it is only an "advanced electronic signature", as opposed to an ordinary electronic signature, which satisfies the requirements for the use of a signature when a signature is required by law. The law does not specify the type of signature required (an advanced electronic signature is one that has been accredited by an Accrediting Authority established in terms of the Act). Normally, where there is no formal legal requirement for a signature, an ordinary electronic signature will suffice.

The Consumer Protection Act also regulates electronic transactions to some extent. If circumstances dictate that the provisions of the Consumer Protection Act and ECTA are to be applied jointly, the provision that extends the greater protection to a consumer prevail over the alternative provision.

 

Advertising

31. Outline the regulation of advertising in your jurisdiction.

The Consumer Protection Act contains extensive provisions concerning fair and responsible marketing to consumers. Part E of Chapter 1 of the Consumer Protection Act contains provisions regulating:

  • General standards for marketing of goods or services.

  • Bait marketing.

  • Negative option marketing.

  • Direct marketing to consumers.

  • Catalogue marketing.

  • Trade coupons and similar promotions.

  • Customer loyalty programmes.

  • Promotional competitions.

  • Alternative work schemes.

  • Referral selling.

  • Agreements with persons lacking legal capacity.

The Advertising Standards Authority (ASA) is a self-regulatory body that has been established to regulate advertising in South Africa. All advertising companies, advertising media suppliers and industry bodies that are members of the ASA are bound by the provisions of the Advertising Code of Practice, which is based on the International Code of Advertising Practice compiled by the International Chamber of Commerce. There are also individual codes determined by the various member organisations of the ASA. Advertising on electronic broadcast media is subject to the Electronic Communications Act 2005, which provides that broadcasters must adhere to the Advertising Code as determined and administered by the ASA. Outdoor advertising is regulated at a local government level in terms of by-laws adopted by each municipality.

 

Data protection

32. Are there specific statutory data protection laws? If not, are there laws providing equivalent protection?

As a base, the common law relating to privacy, defamation and the right to human dignity applies and persons whose private information is, for example, unlawfully disclosed or published may have rights to damages under the common law of delict (tort). The common law protections are bolstered by certain statutes as described below.

The Electronic Communications and Transactions Act has for some time provided a voluntary code that sets out the principles to be adhered to by subscribers for personal information obtained through electronic means.

The recently enacted Protection of Personal Information Act 2013 (POPI) is a legislative initiative aimed at giving effect to the constitutional right to privacy (as enshrined in section 14 of the Constitution) by safeguarding personal information when processed (that is, any operation or activity or any set of operations, whether or not by automatic means, concerning personal information) by responsible parties. POPI sets out various provisions that regulate the manner that personal information can be processed by both natural and juristic person (including employers). "Personal information" in terms of POPI is information that relates to an identifiable, living, natural person and where it is applicable, an identifiable, existing juristic person (for example, companies or trusts) and includes:

  • Information on the race, gender, sex, pregnancy, marital status, national, ethnic or social origin, colour, sexual orientation, age, physical or mental health, well-being, disability, religion, conscience, belief, culture, language and birth of the person.

  • Information on the education or the medical, financial, criminal or employment history of the person.

  • Any identifying number, symbol, email address, physical address, telephone number, location information, online identifier or other particular assignment to the person.

  • Blood type or any other biometric information of the person.

  • Personal opinions, views or preferences of the person.

  • Correspondence sent by the person that is implicitly or explicitly of a private or confidential nature or further correspondence that would reveal the contents of the original correspondence.

  • The name of the person if it appears with other personal information relating to the person or if the disclosure of the name itself would reveal information about the person.

The responsible party holding personal information must ensure compliance with all the conditions for the lawful processing of personal information under POPI. If personal information is collected, a responsible party must take reasonably practicable steps to ensure that the person to whom it relates is aware of factors such as the following:

  • The information being collected and the source from which it is collected.

  • The purpose for which the information is being collected.

  • Whether or not the supply of the information is voluntary or mandatory.

  • The consequences of failure to provide the information.

  • Any particular law authorising or requiring the collection of the information.

  • The fact that, where applicable, the collector intends to transfer information to any other party or country or international organisation. Also the level of protection given to the information by that third country or international organisation.

  • Any further information that is necessary, taking into account the specific circumstances in which the information is and is not to be processed, to enable processing in respect of the person to be reasonable.

 

Product liability

33. How is product liability and product safety regulated?

South African common law states that a manufacturer or supplier of a product may be held liable for the loss or damage sustained by a consumer as a result of the use of its defective product, either on a contractual privy or on the basis of delict (tort). Product liability can arise when the product manufactured or supplied is defective for whatever reason and that causes loss or damage to either person or property. Liability on the basis of a contractual relationship is established when the:

  • Consumer can prove the existence of a contractual relationship between the consumer and the manufacturer or supplier.

  • Manufacturer or supplier has breached a material term of the contractual relationship in relation to the quality of the goods.

With contracts of purchase and sale, the common law provides certain protections and remedies to the purchaser in relation to latent defects.

Product liability under the common law of delict (tort) requires proof of negligence of the party being sued, as well as (factual and legal) causation, which may be difficult to prove in certain circumstances. Therefore, the common law of product liability is supplemented and bolstered largely by certain provisions of the Consumer Protection Act. This imposes strict liability (that is, without the requirement to prove fault) on manufacturers, suppliers and distributors of products for damage caused wholly or partly to a consumer either as a consequence of a product failure, or a defect or hazard in the good, or as a result of inadequate instructions or warnings provided.

 

Main business organisations

The Department of Trade and Industry of the Government of the Republic of South Africa (DTI)

W. www.thedti.gov.za

Main activities. Focuses on industrial development, trade, export and investment, broadening participation in the South African economy through broad-based black economic empowerment and on the development and implementation of a coherent, predictable and transparent legislative and regulatory framework.

Companies and Intellectual Property Commission (CIPC)

W. www.cipc.co.za

Main activities. Established under the Companies Act 2008, its main activity is to register and maintain the registration of companies and intellectual property rights. It also has a monitoring and investigative role in relation to companies.

Takeover Regulation Panel (TRP)

W. www.trpanel.co.za

Main activities. A regulatory body established in terms of the Companies Act 2008, its main activities are to regulate affected transactions and takeovers in terms of the Companies Act and to investigate complaints with respect to affected transactions. It assumes a role that is similar to the Panel on Takeovers and Mergers in the UK.

South African Revenue Service (SARS)

W. www.sars.gov.za

Main activities. Established in terms of the Income Tax Act 1962 to collect revenue and ensure compliance with tax law.

Financial Services Board (FSB)

W. www.fsb.co.za

Main activities. An independent institution established under the Financial Services Board Act 1990 to oversee the South African non-banking financial services industry in the public interest.



Online resources

South African Government Online

W. www.gov.za

Description. Developed and maintained by Government Communication Services. The purpose of the website is to be the official entry point to South African Government. It provides information on government structures and documents such as the Constitution, Acts, Bills, Regulations, Notices, policy documents, reports, the Government Tender Bulletin, annual reports and the SA Yearbook. Access is also provided to documents that are available on provincial government websites and to international reports referring to South Africa. The website is updated on a daily basis but the accuracy of the information is not guaranteed.

South African Revenue Service

W. www.sars.gov.za

Description. A Government maintained websites. The information contained on the website is regularly maintained, however, the legislation uploaded is sometimes out of date.

Companies and Intellectual Property Commission

W. www.cipc.co.za

Description. A Government maintained websites. The information contained on the website is regularly maintained, however, the legislation uploaded is sometimes out of date.

The Department of Trade and Industry

W. www.thedti.gov.za

Description. A Government maintained websites. The information contained on the website is regularly maintained, however, the legislation uploaded is sometimes out of date.

The Financial Services Board

W. www.fsb.co.za

Description. A Government maintained websites. The information contained on the website is regularly maintained, however, the legislation uploaded is sometimes out of date.

The Southern African Legal Information Institute

W. www.saflii.org

Description. The Southern African Legal Information Institute publishes legal information for free public access that consists mainly of case law and legislation from South Africa. SAFLII also hosts legal materials from other countries in the region that are obtained through partnerships, collaborative efforts and more recently through linking to other Legal Information Institutes established in these regions.



Contributor profiles

Yaniv Kleitman, Director of corporate and commercial

Cliffe Dekker Hofmeyr Inc

T +27 11 562 1219
F +27 11 562 1419
EYaniv.Kleitman@dlacdh.com
W www.cliffedekkerhofmeyr.com

Professional qualifications. Attorney, 2009

Areas of practice. Mergers and acquisitions; BEE transactions, mining law and debt and equity finance transactions.

Non-professional qualifications. LLB cum laude, University of Johannesburg;

LLM (Commercial Law) cum laude, University of Johannesburg


{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247285054284", "objName" : "Doing business in South Africa", "userID" : "2", "objUrl" : "http://us.practicallaw.com/cs/Satellite/us/resource/1-500-3762?null", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "25e8a493e:15afa15e479:-1eae", "analyticsSessionCookie" : "25e8a493e:15afa15e479:-1ead", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }