By establishing a non-profit fund in South Africa one gets a favourable tax regime. Actually, it is almost completely tax free, excluding VAT. Thus, such a structure turns into a separate supplier for tax purposes, which is very attractive for investors.
This blog post provides a quick overview of the types of structures that can be used to create PEF in South Africa. We will also touch on the procedural issues of registering a fund in South Africa and the legal framework for their regulation.
Limited partnerships and trusts
A South African foundation can be established as LP. For this, it is necessary to conclude an agreement between the partners. The main advantage of this structure is that the partner is not fully responsible for the debts of such a company. GP bears unlimited liability.
A trust fund is the second most popular legal structure for establishing a pooled fund in South Africa. Investors' contributions form the initial pool of assets of this structure. To establish a trust in South Africa, the investor and the trustee must first sign an agreement.
If you are looking to establish a non-retail foundation in South Africa as an LLC or limited company, it is worth considering that such structures are subject to common law, and foundations set up as private trusts are also governed by the Trust Control Act.
Registration of a South African non-profit foundation
No licensing required for pooled funds in South Africa at this time. If you are planning to open a non-retail South African foundation, please note that such structures can only be sold to licensed individuals. But the sale of a stake in such funds to the public is prohibited.
Ownership restrictions
A qualified hedge fund can only receive investments from individuals who have the necessary expertise in financial matters to enable them to manage risks effectively. These entities must initially invest about USD 60,500.
Corporate governance
Typically, non-retail structures are audited annually and managed by a licensed manager.
The most important requirements for investing in South African PEFs are as follows:
- The manager must be authorized as a discretionary financial services provider in South Africa.
- The assets of the fund are checked twice a year, and the managers submit financial statements for the audit, drawn up in accordance with international standards.
- Determining the fair value of assets is a mandatory requirement for PEF in South Africa.
Environmental considerations need to be considered when investing in South Africa's PEF. Environmental audits are carried out for projects that have already started.
Final word
PEF is a leader in South Africa's M&A sector, the second largest economy in the Black Continent.
Before opening a non-profit South African foundation, it is highly recommended to first get more information about the legal and tax framework of that jurisdiction. You can find out the details in the course of an individual consultation on investment regulation in South Africa with IQ Decision UK specialists. Reach out to us by filling a quick contact form below.
