Post by miriammuraba on Apr 3, 2019 20:39:20 GMT 4
source:
28 March 2019 Article by Ian Jacobsberg Hogan Lovells
I INTRODUCTION
South Africa's franchise industry is represented by the Franchise Association of South Africa (FASA), a voluntary association, which aims to develop and safeguard the business environment for ethical franchising.
According to an independent survey commissioned by FASA in 2018, the industry contributed approximately 15.7 per cent of the total South African gross domestic product, up from the previous year's contribution of 13.3 per cent. According to the survey, South Africa currently has 865 franchise brands with approximately 45,000 outlets, which provide employment to 369,573 people (an increase of around 26,000 jobs from the previous year).
Fast-food outlets and restaurants account for 23 per cent of the industry, followed closely by the retail sector at 18 per cent, and building, office and home services at 12 per cent. Other sectors that also feature in the market include childcare, education and training, which make up 9 per cent of the industry, and automotive products and services, accounting for another 8 per cent. The number of international franchise brands in South Africa has increased in the past year from approximately 12 per cent to 27 per cent.
The government has historically not taken an active interest in the franchise industry. However, following sustained lobbying by FASA, there is growing recognition that franchising can effectively address job creation, poverty alleviation, economic growth and black economic empowerment. As a result, the government has allocated a portion of its 'Jobs Fund' to franchising, providing subsidies to franchisors who are committed to promoting new entrepreneurs and developing skills.
II MARKET ENTRY
i Restrictions
Franchisors are not distinguished from other market entrants in South Africa as regards compliance requirements.
ii Foreign exchange and tax
A foreign franchisor may hold an interest in a South African franchise either directly or through a South African registered company.
Where control of the business is based outside South Africa, any transaction with a branch, business or subsidiary in South Africa is treated as if that branch, business or subsidiary were a separate person.
Should a foreign investor acquire equity in a South African company, the relevant share certificate must be endorsed 'non-resident', against evidence that the shareholding was acquired at a fair and market-related value, and paid for through the introduction of foreign currency.
Any loans by a foreign franchisor to a South African branch or subsidiary, or to a South African franchisee, requires prior exchange control permission.
While there is no restriction on a foreign franchisor acquiring real estate, any local borrowing to acquire securities or residential property is restricted to a 1:1 ratio between capital contribution and local borrowing.
South Africa has a residence-based taxation system under which residents, as defined in the Income Tax Act,1 are taxed on their worldwide income, while non-residents are taxed solely on income from a South African source.
www.hoganlovells.com/~/media/franchise-law-review-south-africa.pdf
Footnote
1. Act No. 58 of 1962.
28 March 2019 Article by Ian Jacobsberg Hogan Lovells
I INTRODUCTION
South Africa's franchise industry is represented by the Franchise Association of South Africa (FASA), a voluntary association, which aims to develop and safeguard the business environment for ethical franchising.
According to an independent survey commissioned by FASA in 2018, the industry contributed approximately 15.7 per cent of the total South African gross domestic product, up from the previous year's contribution of 13.3 per cent. According to the survey, South Africa currently has 865 franchise brands with approximately 45,000 outlets, which provide employment to 369,573 people (an increase of around 26,000 jobs from the previous year).
Fast-food outlets and restaurants account for 23 per cent of the industry, followed closely by the retail sector at 18 per cent, and building, office and home services at 12 per cent. Other sectors that also feature in the market include childcare, education and training, which make up 9 per cent of the industry, and automotive products and services, accounting for another 8 per cent. The number of international franchise brands in South Africa has increased in the past year from approximately 12 per cent to 27 per cent.
The government has historically not taken an active interest in the franchise industry. However, following sustained lobbying by FASA, there is growing recognition that franchising can effectively address job creation, poverty alleviation, economic growth and black economic empowerment. As a result, the government has allocated a portion of its 'Jobs Fund' to franchising, providing subsidies to franchisors who are committed to promoting new entrepreneurs and developing skills.
II MARKET ENTRY
i Restrictions
Franchisors are not distinguished from other market entrants in South Africa as regards compliance requirements.
ii Foreign exchange and tax
A foreign franchisor may hold an interest in a South African franchise either directly or through a South African registered company.
Where control of the business is based outside South Africa, any transaction with a branch, business or subsidiary in South Africa is treated as if that branch, business or subsidiary were a separate person.
Should a foreign investor acquire equity in a South African company, the relevant share certificate must be endorsed 'non-resident', against evidence that the shareholding was acquired at a fair and market-related value, and paid for through the introduction of foreign currency.
Any loans by a foreign franchisor to a South African branch or subsidiary, or to a South African franchisee, requires prior exchange control permission.
While there is no restriction on a foreign franchisor acquiring real estate, any local borrowing to acquire securities or residential property is restricted to a 1:1 ratio between capital contribution and local borrowing.
South Africa has a residence-based taxation system under which residents, as defined in the Income Tax Act,1 are taxed on their worldwide income, while non-residents are taxed solely on income from a South African source.
www.hoganlovells.com/~/media/franchise-law-review-south-africa.pdf
Footnote
1. Act No. 58 of 1962.