As a result of the increasing number of regulations and need for operational transparency, small businesses are increasingly required to adopt compliance controls and meet all necessary legal requirements.
This guide provides an overview of the legislative landscape as it relates to small businesses in South Africa.
A Guide to Business Compliance and Legislation in South Africa
Registration boards, professional associations and industry organisations exist to promote professionalism in various industry sectors. In general, these bodies set professional standards; encourage continuing professional development; engage in national and global initiatives; consult with business, government and educational institutions; and offer education and training.
Depending on the sector you are in, you may be required by law to register with an industry association. The benefits of doing so are several: you gain increased customer confidence; you contribute to uplifting standards; and you adhere to a specific set of standards set by the body in your own work.
For more information on complying with industry registration, visit the South African Chamber of Commerce and Industry website www.sacci.org.za.
Zoning Laws in South Africa
Property zoning is set out in town planning schemes which determine possible land use, floor area, coverage, building lines, and parking provisions.
Let’s say you decide to operate your business from home. If you are operating a one-person business, don’t employ staff and don’t have clients calling regularly at your premises, you don’t have to apply for business rezoning.
However, if you are going to have clients, suppliers and staff arriving regularly, then you will probably have to submit a rezoning application because your house is in a residential area and therefore not zoned for business purposes. The application may be legally and technically complex, so it’s advisable to consult a lawyer.
Obtaining a decision on an application may take as long as 12 months. After the application is submitted it is circulated to relevant Council departments and agencies for comment. The application is then processed by a planning officer who makes a recommendation as to whether the zoning application should be approved or not.
If the official's recommendation opposes the application and where interested parties have lodged objections, a Tribunal Hearing is scheduled and the applicant, objectors and Council officials are given the opportunity to argue the case. If any party is dissatisfied with the Tribunal's decision, they may appeal to the Provincial authority (currently known as the Townships Board), thereby delaying the process further.
For more information on zoning, visit Provincial and Local Government directory to find the contact details for your local municipality: www.gcis.gov.za/gcis/directory.jsp?dir=15
Another aspect for you to consider is whether you’ll require a business licence. Click here for more information on businesses licences.
HR Legislation in South Africa
Unemployment Insurance Fund (UIF)
There are different ways in which you can register with the UIF in order to comply with HR legislation in SA.
- Registering by e-mail:
- complete forms UI-8 (details of employer or employer representative)
- the UIF will create a unique reference number and it will be forwarded to you
- you must e-mail the forms to the UIF at [email protected]
- Registering by telephone:
- you must have a household physical address and the ID numbers of all your employees before phoning the UIF
- phone the UIF at (012) 337 1680 and follow the instructions from the voice prompt.
- Sending forms through mail:
- You can mail completed forms to the UIF at: The UIF, 94 Church Street, Pretoria, 0052 or PO Box 1851, Pretoria, 0001
- Registering at a labour centre:
- go to your nearest labour centre
- complete forms UI-8, UI-19 and UI-8D (if applicable)
- bring ID numbers of your employees and the physical address of the business/household
- the UIF will create a unique reference number and it will be forwarded to you.
It takes 48 hours to register a business with the UIF and the service is free. Click here to download the relevant forms on the Department of Labour website.
The South African government has set up a special fund to compensate employees for injuries or diseases resulting from work. All employers must register with the Workmen’s Compensation Fund so that their workers can claim compensation for occupational injuries and diseases. The Compensation Fund covers permanent and casual workers, trainees and apprentices who are injured or contract a disease in the course of their work and lose income as a result.
All registered employers pay an annual assessment fee based on their workers’ earnings and work related risks. Employers who register for and pay their annual Workers Compensation fees are protected from being sued by employees who are injured at work. Employees are protected from financial loss if they are injured at work.
How to Register for Workmen’s Compensation
To register, fill in and submit the annual return of earnings form to the Compensation Fund. After receiving your return of earnings form, the Compensation Commissioner will determine the assessment fee you should pay.
The Compensation Fund will generate a notice of assessment and send it to you, indicating how much you should pay. The annual assessment fee is calculated on your workers’ earnings and the risks associated with the type of work they do.
You must pay the assessment fee within 30 days of receiving your notice of assessment or you will be charged interest and penalties. The payment date is printed on your notice of assessment. It is your responsibility to contact the Compensation Fund if you have not received a notice of assessment.
Visit the Department of Labour’s site for more details on how to register for Workmen’s Compensation.
The Compensation for Occupational Injuries and Diseases Act (COIDA)
The Compensation for Occupational Injuries and Diseases Act (COIDA) provides compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment, or for death resulting from such injuries or diseases.
COIDA applies to all employers, and casual and full-time workers who, as a result of a workplace accident or work-related disease, are injured, disabled, or killed or become ill. When a worker becomes ill, the employer needs to make a notice of this event to the Department of Labour. The employee may then fill in follow up forms, and make a statement to start the claim process from this fund. Forms are available from the Department of Labour www.labour.gov.za/documents
Here are some additional guides to starting your journey as an employer and how to protect yourself.
Skills Development Levy
Employers must pay 1% of their workers’ pay to the skills development levy every month. The money goes to Sector Education and Training Authorities (SETAs) and the Skills Development Fund to pay for training. Employers who are required to pay the skills development levy must register with the South African Revenue Services (SARS).
The levy may not be deducted from workers’ pay. Employers who do not pay will have to pay interest on the money they owe and may also have to pay a penalty.
Click here to find out more about the steps involved with registering for SDL.
- An employer, as an agent of government, is required to deduct employees’ tax from the earnings of employees and pay the amounts deducted over to SARS on a monthly basis.
- This employees’ tax is not a separate tax but forms part of the Pay-As-You-Earn (PAYE) system. The employees’ tax deducted serves as an income tax credit that is set off against the final income tax liability of an employee, calculated on an annual basis to determine the employee’s final income tax liability for the year of assessment.
- Every employer who pays remuneration to an employee must register as an employer for employees’ tax purposes. That means that any business that pays a salary or a wage of any value to any person who qualifies under the definition of ‘employee’ must register with SARS for employees’ tax purposes within 14 days after becoming an employer.
- This is done by completing an EMP 101 form and submitting it to SARS. The EMP 101 is available at all SARS offices and on the SARS website. Once registered, the employer will receive a monthly return (EMP 201) that must be completed and submitted together with the payment of employees’ tax and UIF contributions (if applicable) within seven days of the month following the month for which the tax was deducted.
Click here for more information on employees’ tax.
Health and Safety Policy South Africa
The Occupational Health and Safety Act requires the employer to provide a work environment that is safe and without risk to the health of employees. It’s not compulsory for all organisations to have a health and safety policy but as an employer, you are duty-bound to inform employees of work related risks and dangers.
A health and safety policy is therefore a valuable tool. Policy documents also provide direction for all company activities, as well as criteria to measure and evaluate efficiency.
Developing a Health and Safety Policy
The primary objective of a health and safety policy is to prevent or reduce work-related accidents and occupational diseases. There are no hard and fast rules about what to include in a policy, but a good one will indicate how the organisation protects those who could be affected by its activities and be broad enough to cover all activities.
Some of the key elements of a workplace health and safety policy include:
- an acknowledgement of the right of every employee to work in a safe and healthy environment
- the organisation's basic health and safety philosophy (statement of health and safety principles and goals)
- the general responsibilities of all employees
- that health and safety shall not be sacrificed for expediency
- that unacceptable performance of health and safety duties will not be tolerated
It must be visibly displayed for all workers to see. Click here to see an example of a basic health and safety policy.
The Companies Act stipulates several rules for the appointment, resignation, removal, obligations and duties of directors. Duties include both a fiduciary duty, and a duty of reasonable care, which operate in addition to existing common law duties.
A director is required to act:
- in good faith and for a proper purpose
- in the best interests of the company
- with the degree of care, skill and diligence that may reasonably be expected of a person
- carrying out the same functions in relation to the company as those carried out by the director
- having the general knowledge, same skill and experience of that director – a reasonable man/women test.
Liability of directors
- The term director includes alternate director, prescribed officer (CEO, MD CFO etc), audit committee or board committee members.
- A director is liable for breach of fiduciary duty, or delictual act, acting without authority, party to supplying false or misleading information about company or making of an untrue statement in a prospectus.
- A director must disclose any personal financial interests in any matter before the company
- A director may not use the position as director or information gained as a director to make a secret profit or gain advantage for themselves or someone else or to cause harm or detriment to the company.
- Directors or related persons must also disclose to the company any financial interest acquired, after the agreement or other matter has been approved by the company.
- A sole director who does not hold all the beneficial interest of securities or related persons to the director, who discloses a personal financial interest in a company agreement, may acquire approval to enter into that agreement by the passing of a ordinary resolution of the shareholders
In addition, directors could be held liable to shareholders for fraudulent acts or acts of gross negligence or to a third party who has suffered damages due to the acts of the directors.
The Act also includes the “business judgment test” which states that if a director has applied reasonable care, skill and diligence, has no material financial interest and has a basis for believing that the decision made was in the best interest of the company, the director will not be held liable for a breach of duty. This is only if a director did not act in bad faith or for improper purpose.
Visit the IODSA website to access a guide to the companies act in South Africa.
Financial Requirements for a Business
a) Compulsory registration
Any person who carries on an enterprise and whose total value of taxable supplies (taxable turnover) exceeds, or is likely to exceed, the compulsory VAT registration threshold, must register for VAT. The threshold is currently R1 million in any consecutive 12-month period.
b) Voluntary registration
A person can register as a vendor if that person carries on an enterprise where the total value of taxable supplies (taxable turnover) exceeds R50 000 (but does not exceed R1 million) in the preceding 12-month period.
c) Refusal of registration
You will not qualify to register as a vendor if you do not fall within these categories. In all other instances, no VAT registration will be allowed if the annual turnover is below the minimum voluntary registration threshold.
How to register for VAT
Application for registration as a vendor must be made, on form VAT101 (obtainable from your local SARS office or on the SARS website), within 21 days of becoming liable to register. The reference guide available on the SARS website will assist you in the completion of the VAT101 form.
Submission of VAT returns
VAT may be submitted manually or electronically and payment can be made manually, electronically or at any one of the four major banks.
For more information on VAT, see the guide, available on the SARS website. Various other guides on specific VAT topics are also available.
The new Companies Act, which came into effect on 1 May 2011, introduced different levels of assurance for different categories of companies. All public and state-owned companies require an audit. Private, personal liability or non-profit companies, however, only require an audit when it’s in the public interest, as indicated by prescribed criteria such as the value of the company’s turnover or assets.
The categories of private, personal liability and non-profit companies that fall outside these criteria are required only to have their annual financial statements independently reviewed. The law further introduces an exemption from the independent review requirement for private, personal liability and non-profit companies which essentially qualify as owner-managed companies, where all shareholders are also directors.
Any company may however voluntarily choose an audit either by including an audit requirement in their memorandum of incorporation, by a shareholders’ resolution or a board decision.
In the case of listed companies, the JSE Limited Listings Requirements clarify that all subsidiaries of listed companies must continue to be audited regardless of their classification within the Act. The memorandum of incorporation of such subsidiaries must be amended to make provision for the audit.
Why should companies be audited?
Many companies, which qualify for a review or even for an exemption, may choose to be audited for governance reasons. Having an audit will assist the directors of the company in discharging their duties and responsibilities to a fuller extent. An audit limits the risk of material misstatement, undetected errors and inaccuracies in a company’s annual financial statements while providing an independent assessment of the business’s internal financial control systems.
It also ensures the quality of financial statements, which provides additional comfort to bankers, credit and capital providers as well as other stakeholders, better enabling the business to secure credit and financing.
To access a directory of accounting and auditing firms in South Africa, visit the Rainbow Nation website here.
Financial Intelligence Centre Act (Fica)
South Africa has adopted money laundering laws to help it comply with its international obligations to fight organised crime and terrorism. The latest and most comprehensive legislation detailing money laundering controls is the Financial Intelligence Centre Act (Fica), the focus of which is on control requirements.
Fica creates money laundering control obligations for banks and other institutions and professionals, such as estate agents, brokers, attorneys and insurance companies.
Customer identification is a crucial element of any effective money laundering control system. The banks have implemented measures for them to know who their customers are and to prevent criminals from using false or stolen identities to gain access to our services.
The banks are required to obtain certain information and supporting documents from new customers before accounts could be opened. Make sure that you are Fica-compliant by supplying your bank with the required documentation.
Click here to stay up to date with FICA requirements and changes.