Multiplier Logo
Loading Animation Image
South Africa

Sole Proprietorship in South Africa: A Complete Guide

As the magnificent Republic of South Africa flourishes, its position as the continent’s second-largest powerhouse in nominal GDP showcases the nation’s impressive economic prowess. In the dynamic landscape of South Africa’s economy, small micro and medium enterprises (SMMEs) astonishingly contribute to a substantial 80% share, showing the nation’s dedication to fostering entrepreneurship and innovation.

Embarking on setting up a sole proprietorship in South Africa may seem alluring. Still, there are certain mundane aspects one cannot escape, mainly involving lots of documentation. To start a business or freelance in South Africa, one must promptly register as a sole trader with the South African Revenue Service (SARS).

Now, how to register a sole proprietorship in South Africa?  Let’s learn!

Who can be a Sole Proprietor in South Africa?

The sole proprietorship is the most straightforward and uncomplicated business structure in the country.  In this setup, the business owner and entity are the same, legally inseparable. Anyone wanting to start a sole proprietorship in South Africa should know the basics. 

The owner, known as the proprietor, reports all earnings on their personal income tax and is in charge of required payments. When operating with either the proprietor’s name or a unique trade name, all decision-making power lies solely in their hands, but so does the responsibility for any risks the business may face, which could impact their entire asset portfolio.

When starting a sole proprietorship in South Africa, one doesn’t need to specifically register their business with the Companies and Intellectual Property Commission (CIPC). Although, there might be some exceptions where an owner might be required to file as a sole proprietor. Sole proprietorships that operate under fictitious names or trade names must file a “trade name certificate” in their city or province.

While the person can hire employees for their business, it is mandatory to register the permanent employees at the Department of Labour for Unemployment Insurance Fund (UIF) and the Compensation Fund.

Benefits of Sole Proprietorship in South Africa

In opening itself up to the global markets, South Africa offers numerous benefits to sole proprietors. Below are some benefits to consider before setting up a sole proprietorship in South Africa.

  • It is comparatively easy to start a sole proprietorship in South Africa. It is simple to set up and does not incur the same operating costs as other types of businesses.
  • As it is not mandatory to register at the CIPC, thus legal requirements are very few or not required at all.
  • If the owner doesn’t wish to continue or the company becomes insolvent, it is easier to shut down without additional hiccups.
  • Decision-making is faster as the owner is the only one in charge.

Documents Required for Registering Your Business in South Africa

Now that the basics of setting up a sole proprietorship in South Africa have been covered, let’s answer the most sought question, how to register a sole proprietorship in South Africa. 

To successfully register as a sole proprietorship, one must follow one of the two following methods:

  • Filing with the revenue service
  • Notifying the master of the trade name

The following are the documents needed:

  • Form 1, 2, or 9 (declaration)
  • Personal Identification Number (PIN) 
  • Comptroller of Stamps
  • Memorandum and Articles of Association

Other Criteria for Registering a Sole Proprietorship in South Africa

Even though a sole proprietorship doesn’t qualify as a legal entity, it does not need to register, aside from fulfilling the standard legal and tax requirements. For tax purposes, one must register the business with the South African Revenue Service (SARS).

To start, one needs the documents mentioned below:

  • Authorization to Sign All Relevant Documents via Power of Attorney
  • ID or passport of the applicant 

The SARS eFiling service provides Registered Taxpayers with many benefits, such as filing tax returns, making payments, requesting a tax clearance certificate, and more.

Taxation System in South Africa

A sole proprietorship may be an attractive option for conducting business activities in South Africa. Taxation is essential to understand before setting up a sole proprietorship in South Africa. In South Africa, sole traders pay lower taxes than medium and large companies.

The breakdown of tax rates is as follows:

  • 0%  for an annual income under R 83,000
  • 7% for an annual income between R 83,000 and R 365.000.

Compared to the 28% tax rate paid by medium and large companies, these rates are substantially lower.

How to Register a Sole Proprietorship Business in South Africa? 

Before registering as a sole proprietorship in South Africa, one must prepare for many processes, including documentation, etc. 

Step 1 – Registering the business name

In South Africa, there are several methods available for registering a business name. The first step is registering online with the companies and Intellectual Property Commission (CIPC). The First National Bank and Nedbank are also options for registering through a bank.

Step 2 – Register for statutory requirements

The sole proprietorship South African Law requires a new business to follow some basic statutory requirements. 

  • With CIPC: A part of the South African Department of Trade and Industry, CIPC provides the groundwork for registration and intellectual property rights. 
  • With SARS: No matter the scale of the venture, joining the South African Revenue Service (SARS) is essential for fulfilling statutory and regulatory obligations. Interestingly, SARS registration occurs automatically when someone enlists their business name with CIPC.

Any businesses crossing the coveted R 1 million revenue mark within a year must prepare to join the esteemed VAT league. For those with a slightly modest record exceeding R 50,000, voluntary enrollment provides an option to partake in this tax system. With a 15% standard rate, registered vendors navigate the seas of transactions involving goods and services, contributing towards economic growth.

The sole proprietorship in South African law entails some of its fair share of responsibilities. For instance, if the employees earn over R40,000 annually, register the company for the Pay As You Earn (PAYE) system. Moreover, if the payroll surpasses the R500,000 mark yearly, it’s time to secure a Skills Development Levy (SDL). 

People looking to start or expand a sole proprietorship in South Africa should be well aware of the SARS rules and regulations for a compact idea of the tax and legal requirements for the business. 

Step 4 – Insurance

While setting up a sole proprietorship in South Africa, safeguarding the venture with business insurance is crucial. Explore comprehensive policies encompassing protection against natural calamities, theft, and fire, including legal liability coverage. One must take necessary steps to shield their business further by considering options that address both product and public liability, ensuring maximum security against potential legal disputes.

Step 5 – Opening a bank account

To open a sole proprietorship South Africa bank account, one needs to check for the following requirements:

  • Valid ID of the business and business owner
  • Proof of address
  • Three months of business statements
  • Proof of CIPC registration

Step 6 – Obtaining a license with compliance

The final step is obtaining a license complying with South African business laws. Once they obtain the SARS permits, they are liable to conduct commercial activities in the country.

Conclusion

Embarking on a new entrepreneurial journey can be a thrilling experience, especially if one has been nurturing a brilliant idea for a long time. Whether someone is forging ahead as an independent professional or teaming up with a trusted ally, it’s essential to understand the requirements for navigating various business domains and structures successfully.

However, one must appoint an external auditor for ventures like a sole proprietorship in South Africa. Furthermore, unlimited autonomy also comes with total liability. Multiplier is an industry-leading EOR with local business entities in over 150 countries including APAC, Europe, and America.

Multiplier onboard makes it easy for you to stay connected with payroll and personnel needs worldwide. Our unified system of record seamlessly connects even your most far-reaching entities so that managing permanent and contingent workers is hassle-free – regardless of geographic distance.

Experience seamless collaboration and support for your global workforce with our unified platform that tackles international employment, payroll, compliance, and benefits, easily conquering all cross-border challenges.

Frequently Asked Questions

To register with SARS quickly, visit the eFiling website and click “Register Now.” For an even speedier signing-up experience, download MobiApp from the Play Store or App Store. Once SARS processes the information, they will issue the company a tax reference number so that filing the end-of-year return can be done quickly and confidently.

Typically, no minimum capital requirement is required to establish a sole proprietorship in South Africa.

Absolutely, in South Africa, sole proprietors must adhere to VAT registration protocols, provided their enterprise meets the requisite criteria. Intriguingly, VAT enrollment for small-scale businesses hinges on their revenue, dismissing the need for considering the company’s framework.

Need Reliable Help In Obtaining A Work Visa?

Table of Contents

World’s Preferred EOR/PEO Platform for a Global Workforce