Merchandise Trade

• South Africa is a member of the World Trade Organization (WTO). Imports originated from other WTO members, including Hong Kong and the Mainland China, are subject to the country's most-favoured-nation (MFN) tariff rates. In addition to import tariffs, most goods are subject to a VAT, the standard rate of which is currently set at 15%. However, VAT on goods imported for use in manufacturing or resale by registered traders can be claimed as an input tax reduction.
   
• South Africa may initiate anti-dumping or countervailing investigation and impose duties when unfair trade allegations are substantiated. However, there are no anti-dumping measures against Hong Kong products at present.
   
• Customs duties are generally charged on the import of goods into South Africa at rates ranging between 3% and 45%. In addition, import duties may also include anti-dumping and countervailing duties of up to 150%. No customs duties are charged on trade between South Africa and Botswana, Lesotho, Namibia, and Eswatini as these five countries constitute the Southern African Customs Union (SACU).
• In trying to protect the local poultry industry from low-cost United States and European Union (EU) chicken product exports, South African has imposed additional duties and quotas on both the United States and the EU chicken imports into the country.
   
• Excise duty is levied on certain locally manufactured goods as well as their imported equivalents. A specific duty at a pre-determined amount is levied on tobacco and liquor, and an ad valorem duty (calculated as a percentage of price) on certain luxury goods and automobiles. Relief from excise duty is available for exported products and for certain products produced in the course of specified farming, forestry, and (limited) manufacturing activities.
   
• VAT is an indirect tax that is largely directed at the domestic consumption of goods and services and at goods imported into South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. It is levied at two rates, namely a standard rate and a zero rate. With effect from April 1, 2018, the standard rate of VAT is 15% (prior to that date, the standard rate was 14%).
   
• Payments of import duties and VAT can be deferred if the goods are put in bonded warehouses. The South African government has also relaxed some of the country's import taxation rules, such as removing the requirement for a taxpayer to have a tax invoice prior to claiming an input tax credit.
  ​​​​​​​
• Most goods can be imported into South Africa without a permit, except for certain goods such as foodstuffs, petroleum products, chemicals, second-hand goods, finished machinery and gold. Import permits are usually issued by the Department of Trade and Industry, and are used mainly to collect information rather than to limit trade.

Sources: WTO – Trade Policy Review, Fitch Solutions, South African Revenue Service

Trade Updates

The AfCFTA was formally launched on July 7, 2019. This agreement stands out as one of the most ambitious projects of the African Union (AU) as it seeks to create the largest single market in the world, by country membership. The AfCFTA will cover a market of more than 1.3 billion people with combined nominal GDP of USD2.5 trillion. Out of the continent’s 55 states, 54 have signed the agreement, with Eritrea as the only non-signatory. Countries with diversified trade baskets, extensive transport links, strong industrial and services sectors and competitive operational risk profiles, such as South Africa, are likely to benefit the most from tariff reductions and the harmonisation of trade rules.

Multinational Trade Agreements

Active

1. EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA) and the EU-South Africa Trade, Development and Co-operational Agreement: On June 10, 2016, the EU-SADC EPA was signed, with SADC members Botswana, Lesotho, Mozambique, Namibia, South Africa and Eswatini all party to the agreement. This grants improved market access to EU markets for South Africa (in addition to the benefits granted under the EU-South Africa Trade, Development and Cooperation Agreement).
2. SACU: The union consists of South Africa, Botswana, Lesotho, Namibia and Eswatini. Duty-free movement of goods with a common external tariff on goods entering any of the countries from outside the SACU is a key benefit. This has greatly enhanced trade flows between these countries. Namibia and Botswana are two of South Africa's largest regional exporting partners.
    
3. SADC Free Trade Area (12 member states): The SADC free trade area was achieved in August 2008, when a phased programme of tariff reductions that had commenced in 2001 resulted in the attainment of minimum conditions for the free trade area – 85% of intra-regional trade among the partner states attained zero duty. While the minimum conditions were met, maximum tariff liberalisation was only attained by January 2012, when the tariff phase down process for sensitive products was completed. For countries falling under the SACU, this process was completed in January 2007.
    
4. Africa Growth and Opportunity Act (AGOA): This was granted by the United States to 39 Sub-Saharan Africa countries (South Africa included). The United States is South Africa's second largest export partner. Preferential access to the United States market for many South African exports is granted through lower tariffs or no tariffs on some products. Duty-free access to the United States market under the combined AGOA/generalised system of preferences programme stands at approximately 7,000 product tariff lines.
    
5. SACU-Common Market of the South (Mercosur) Preferential Trade Agreement (PTA): In October 2016 the PTA between the SACU and Mercosur entered into force. Mercosuris a full customs union and trading bloc consisting of Argentina, Brazil, Paraguay and Uruguay. This PTA offers reciprocal preferential tariff rates on around 1,000 product lines ranging from 10-100%. This agreement is new; and Latin America currently only accounts for around 1% of South Africa's export revenues and South Africa only imports around 4% of total import products from Latin America as a region.
    
6. AfCFTA: The AfCFTA was formally launched on July 7, 2019. This agreement stands out as one of the most ambitious projects of the AU as it seeks to create the largest single market in the world, by country membership. The AfCFTA will cover a market of more than 1.3 billion people with combined nominal GDP of USD2.5 trillion. Out of the continent’s 55 states, 54 have signed the agreement, with Eritrea as the only non-signatory. The agreement aims to eliminate tariffs on intra-African trade, reduce unemployment, increase infrastructure development and eventually create a more competitive and sustainable environment for cross-border trade. According to the framework agreement, 90% of trade in goods will be liberalised over the course of five to eight years, 7% of goods will be classed as sensitive and liberalised over 10-13 years, and 3% of goods will be exempt from free trade entirely. The allocation of goods to these different categories has yet to be negotiated and regional countries and their respective customs unions are currently preparing offers for their continental counterparts to consider. The 'sensitive items' lists may differ according to each bilateral relationship.

Under Negotiation

Tripartite Free Trade Agreement (FTA): This agreement links the Common Market for Eastern and Southern Africa, the SADC and the East African Community. While most of South Africa's main African trading partners are already within the SADC area, reducing tariffs between South Africa and other African countries will undoubtedly increase trade flows between South Africa and the rest of the continent. South Africa needs to diversify its main export base in order to reduce its exposure to shifts in external demand from its core export base, which mostly consists of Mainland China and other SACU member states.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 15%
• Corporate Income Tax: 28%

Source: South African Revenue Service

Important Updates to Taxation Information

• South Africa’s carbon tax came into effect on June 1, 2019 and will be implemented in phases. The first phase of the tax is from June 1,2019 to December 2022 with a tax rate of ZAR120.0 per tonne of carbon dioxide (CO2) equivalent. Allowable tax breaks will reduce the effective rate to between ZAR6 and ZAR48 per tonne of CO2. The second phase will run from 2023 to 2030. This tax will affect several heavy industries that are significant emitters of CO2 including manufacturing and mining.
   
• The corporate income tax rate applicable for corporate income of both resident and non-resident companies for tax years ending between April 1, 2018 and March 31, 2019 is a flat 28%. Small business corporations (ie, companies with gross income of not more than ZAR20 million) are taxed at the following rates:
   
  • 0% on the first ZAR78,150 of taxable income
  • 7% on taxable income above ZAR78,150 but not exceeding ZAR365,000
  • 21% on taxable income above ZAR365,000 but not exceeding ZAR550,000
  • 28% on taxable income exceeding ZAR550,000

Special tax rates apply in certain industries, such as mining and long-term insurance. Those companies classified as residents are then taxed on their global incomes. However, non-resident companies are not taxed on their non-South African incomes.

• From April 1, 2018, the VAT rate increased from 14% to 15% (the VAT rate was last increased in the early 1990s). It has been proposed that regulations prescribing foreign electronic services subject to VAT be broadened to include cloud computing and other online services.
   
• A tax on sugar-sweetened beverages, in the form of the Health Promotion Levy on Sugary Beverages, was introduced on April 1, 2018. The base on which the levy is applied is the sugar content of the beverage. The rate of the levy is 2.1 cents per gram for sugar content in excess of 4g/100ml. For powder and liquid concentrates, sugar content is calculated on the total volume of the prepared beverage.
• There are targeted tax breaks available under a scheme overseen by the DTI. Seeking to promote new business and encourage trade, the tax breaks of 50% or 100% are available for certain approved investments if they are managed through the Strategic Industrial Project programme of the DTI.

Localisation Requirements

Hiring procedures in South Africa are strictly regulated. Various affirmative action policies have been implemented since 1994 to promote the employment of South Africa's black population.

These resulted in the passing of the Broad-Based Black Economic Empowerment (BBBEE) Act of 2003, for which new codes were introduced in 2015. BBBEE policies are aimed at increasing the participation of previously disadvantaged people in the formal economy in relation to ownership and employee hiring. Companies may undergo a BBBEE audit and obtain a BBBEE score in terms of these codes.

While BBBEE code compliance is voluntary for private companies, these codes are legally binding on state institutions and state-owned enterprises, which are also obliged to use the codes to measure BBBEE compliance when choosing suppliers, granting licences or making concessions.

When companies are participating in a public procurement process, the higher their BBBEE rating, the higher their competitive edge will be in the tendering process.

Obtaining Foreign Worker Permits for Skilled Workers

In 2015, South Africa enacted new immigration laws. There are two types of visas that apply: the critical skills work visa and the general work permit. The South African government has acknowledged that in order to advance national interest, it needs to be easier for foreign workers with critical skills required for South Africa's economy to be granted permits to work in the country. Critical skills visas apply to a wide range of professionals in fields such as engineering, construction, agriculture and financial services.

The critical skills visa can be applied for without a formal job offer and takes three months with minimal paper work. However, for companies wanting to employ foreign workers who do not fall within a critical skill set, the application procedure is particularly onerous. Prior to submitting an application for a general work visa (which can only be applied for from the applicant's country of origin), the prospective employer is required to apply to South Africa's Department of Labour for a certificate which confirms, among many things, that despite having conducted a diligent search, the prospective employer has been unable to find a suitable candidate with qualifications or skills and experience equivalent to those of the applicant.

Once this has been granted the visa is supposed takes two to three months to issue, but delays are regular. It is therefore a highly extensive and costly process required for employers and potential foreign employees to obtain this type of visa.

Visa/Travel Restrictions

Citizens of most North and South American states, European states and African states are not required to obtain a visa for a visit lasting up to 90 days to South Africa. Citizens of most Asian countries are not required to obtain a visa for a visit lasting up to 30 days. Citizens of Mainland China and Russia require visas.

Changes to South Africa's visa regime, which came into force in 2014, included requirements that persons applying for a South African tourism visa must submit biometric data to the South African embassy they applied at, which means that all applications have to be made in person. Any adults travelling with minors needed an unabridged birth certificate for the child in question and proof of consent from both of the child's parents for that child to travel.

These changes have since been amended, so that foreigners who have applied for a South African visa can now do so via postal application or have a travel agency do it for them, and they are no longer required to carry an unabridged birth certificate for minors.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings