How to Start Up Tax-Savvy in SA

If you’re deliberating company structure or being smart about tax, this week’s How Would You Build It podcast is for you. We spoke to tax advisor and Irhafu founder Andre Bothma about setting up your startup in the SA company and tax landscape.

And he dives straight in with the No 1 biggest mistake most startup founders make…

A few great highlights…

1. Don’t just run to the CIPC to start a company

It’s way easier and cheaper to just test ideas out as a sole proprietor first, especially if you don't have official long-term contracts or lots of sales yet, Andre explains here. Just use revenue share contracts to sort out things with your co-founders and go test your ideas.

Once you grow or land big longer-term contracts, take your time and register your company properly, he says here. Avoid equal share structures (like 50/50 or 33/33/33 splits) and redefine all your business agreements to reflect your new structure. Plus: Remember, the main reason you want a company is for the business benefits and to protect you personally from the credit agreements necessary to grow, so be clear about why you need a specific structure.

2. When and how to register internationally

If you’re targeting international markets or especially if you’re going to raise funds outside of SA, then setting up offshore’s an option – maybe Delaware for the US and Malta for Europe – Andre says here.

Just do it when it’s financially viable, ‘cos it can cost a whole lot more to get done. And be aware of Controlled Foreign Company (CFC) regulations – for example, if the majority of your overseas company is owned by South African residents, you actually pay tax here in SA, not over there. It’s best to get a professional financial advisor to help you set up overseas.

3. South Africa could be set up for business-beneficial tax

With SA’s company tax now down to 27%, it’s a good time to start keeping more cash inside your business (as opposed to spending it all to post a loss just to save tax). Andre even mentions here that he imagines South Africa could lower corporate tax even further, down to maybe 25% sometime in the next decade.

This wouldn’t be a bad move for the country, since lower taxes make it more attractive to post profits, and more profit drives more business, economic growth and employment. This would also make SA more attractive to investors, so keep your eyes on this one.

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