Startup worried about angel tax

Questions: If I were to start a small website company – and a foreign investor wanted to provide me with a R2.5 million cash investment – what would the tax be on this investment amount in South Africa? And what would be the best way of getting this money into the country? An offshore bank account?

For now, I just need an estimated value for my business plan. Can you advise how I should handle this?

Answer: The amount of tax payable on the investment of R2 500 000 will depend on the company’s performance during the relevant year of assessment. If the company makes a loss during the first year of more than this amount, there may not be any tax payable.

The anticipated amount of the tax liability can be calculated on the basis of the projected budget in the business plan as follows: 1. Taxable income = gross projected income less exemptions, less anticipated deductions (expenses such a rental, salaries etc.); and 2. Tax liability = taxable income x tax rate (currently 28% companies).

The funds could be held offshore in a foreign bank account. However, the company would have to disclose this to the South African Revenue Service (Sars) and declare any interest earned thereon.

Moreover, when structuring a loan between a non-South African resident and a South African for company, one must obtain prior exchange control approval for the loan. This typically entails the submission of a completed application form to an authorised dealer (a bank) and a simple loan agreement entered into between the company and the foreign lender.

If the lender will be subscribing for shares in the South African company, the certificates in respect of the shares subscribed for will be required to be submitted to an authorised dealer and endorsed non-resident (this is a stamp applied to the shares).

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