3. Overview
1. WHAT ARE THE KEY RECENT DEVELOPMENTS
AFFECTING DOING BUSINESS IN YOUR
JURISDICTION?
Nationwide elections are due to be held in 2014, which
the ANC is widely expected to win.
The mining sector is still experiencing significant and
ongoing labour unrest. This will have an impact on
the broader economy as job losses in the sector are
anticipated.
Changes have been made to the Black Economic
Empowerment (BEE) regulations. From October
2014, companies will have to achieve a minimum
score for certain BEE elements in order to be able to
count that score towards its overall BEE rating. The
elements of BEE include, among others, ownership and
management control by black persons, preferential
procurement and enterprise development. Currently,
companies are scored on the overall total achieved for
all BEE elements.
Our labour legislation has been under review since
December 2010 and amendment Bills to the three major
pieces of legislation, namely the Labour Relations Act,
the Basic Conditions Act and the Employment Equity
Act have been published. The amendments are anticipated
to come into effect during the course of 2014.
The Protection of Personal Information Act 2013 will
impose mandatory data protection obligations on
data controllers with regard to the processing and
use of personal data or confidential information. The
Act has been signed into law but has not yet taken
effect. Once it does, there will be a 12 month transition
period before organisations have to comply with the
Act. The Act is similar in many respects to the EU Data
Protection Directive and the UK Data Protection Act.
The Bowman Gilfillan Africa Group
Bowman Gilfillan Africa Group is one
of Africa’s premier corporate law
firms, employing over 400 specialised
lawyers. The Group provides domestic
and cross-border legal services
to the highest international standards
across Africa, through its offices in
South Africa, Botswana, Kenya,
Madagascar, Tanzania and Uganda.
Differences in law, regulation and business culture can
significantly increase the risk and complexity of doing
business in Africa. Our aim is to assist our clients in
achieving their objectives as smoothly and efficiently
as possible while minimising the legal and regulatory risks.
While reliable technical legal advice is always very
important, the ability to deliver that advice in a coherent,
relevant way combined with transaction management,
structuring, negotiating and drafting skills is essential to
the supply of high quality legal services.
The Group has offices in Antananarivo, Cape Town,
Dar es Salaam, Gaborone, Johannesburg, Kampala and
Nairobi. Our office in Madagascar has francophone
African coverage in Benin, Burkina Faso, Burundi,
Cameroon, Chad, Central African Republic, Congo
Republic, Gabon, Guinea, Ivory Coast, Mali, Niger,
Rwanda, Senegal and Togo.
We have a best friends relationship with leading law firm
Udo Udoma & Bela-Osagie, in Nigeria, which has offices
in Lagos, Abuja and Port Harcourt. We also have strong
relationships and work closely with law firms across
the rest of Africa which enables us to provide or source
the advice clients require in any African country, whether
on a single country or multi-jurisdictional basis.
We act for corporations, financial institutions, state owned
enterprises and governments providing clear, relevant
and timely legal advice to assist clients achieve their
objectives and manage their legal risks.
The strength and depth of all the Group’s practice area,
geographical and sector specific teams are utilized to
provide clients with the highest standards of service. In
the cross-border arena the Group has extensive experience
in the resources, energy, infrastructure, financial
institutions and consumer goods sectors.
Bowman Gilfillan Africa Group’s South African, Kenyan and
Ugandan offices are representatives of Lex Mundi, a
global association with more than 160 independent law
firms in all the major centres across the globe. This
association gives access to firms which have been identified
as the best in each jurisdiction represented.
2 3
4. Legal System
2. WHAT IS THE LEGAL SYSTEM BASED ON (FOR
EXAMPLE, CIVIL LAW, COMMON LAW OR A
MIXTURE OF BOTH)?
The legal system in South Africa is based on:
Common law.
Statute.
Case law.
Customary law.
South Africa has a federal system of government
with three tiers comprising national, provincial
and local government. Each tier of government
has legislative and executive authority in its
own sphere, and is defined in the South African
Constitution as being distinctive, interdependent
and interrelated.
Foreign Investment
3. ARE THERE ANY RESTRICTIONS ON FOREIGN
INVESTMENT (INCLUDING AUTHORISATIONS
REQUIRED BY CENTRAL OR LOCAL
GOVERNMENT)?
Foreign investment is actively encouraged in all sectors
of the economy and there are, generally, few restrictions
on investment. There are certain ownership and control
restrictions on foreign shareholders, and specific
authorisations can be required in regulated sectors such
as:
Broadcasting.
Telecommunications.
Banking.
Insurance.
Defence.
Mining.
4. ARE THERE ANY RESTRICTIONS ON DOING
BUSINESS WITH CERTAIN COUNTRIES OR
JURISDICTIONS?
The Application of Resolutions of the Security Council
of the United Nations Act 1993 provides that the
President of the Republic of South Africa (RSA) may by
proclamation declare that any resolution taken by the
Security Council shall apply in South Africa. As yet, no
such proclamations have been published.
South Africa, as a Member State of the United Nations,
is bound to comply with all resolutions passed by the
United Nations Security Council. There are a number of
Security Council resolutions in relation to economic (and
other) sanctions which are both binding and applicable.
(For a catalogue of links to the latest versions of the
Security Council targeted sanctions lists, including the
individuals and entities subject to relevant measures, see
www.un.org/sc/committees/list_compend.shtml.
As a member of the African Union (AU), South Africa
is required to enforce sanctions imposed by the AU. A
list of the countries against which the AU has imposed
sanctions can be found at www.au.int/en/member_
states/countryprofiles
5. ARE THERE ANY EXCHANGE CONTROL OR
CURRENCY REGULATIONS?
The South African Reserve Bank imposes exchange
controls on South African residents. Currency must not
be transferred by a South African resident into, or out
of, South Africa, except in accordance with the terms
of the Exchange Control Regulations 1961. However,
the Exchange Control Regulations are gradually being
liberalised and in practice, for most deals, the process
of obtaining any necessary exchange control approval is
not a major barrier to investment
6. WHAT GRANTS OR INCENTIVES ARE
AVAILABLE TO INVESTORS?
Manufacturing and export incentives exist for investment
within certain areas of South Africa. These apply equally
to foreign and local investors. In addition, there are tax
incentives that have been created through strategic
investment programs to facilitate foreign investment.
Business Vehicles
7. WHAT ARE THE MOST COMMON FORMS
OF BUSINESS VEHICLE USED IN YOUR
JURISDICTION?
The most common form of business vehicle used by
foreign companies in South Africa is a private limited
liability company. Private companies are simple
and cheap to establish and there are no minimum
or maximum share capital requirements. Private
companies can be established with only one director
and that director need not be resident in South Africa.
Private companies have fewer corporate governance
requirements than public companies. For example,
it is not necessary for a private company to appoint
a company secretary or to hold an annual general
meeting. It is also not a requirement that a private
company appoint an auditor unless it passes a public
interest test in terms of regulations to the Companies
Act, 2008. The public interest test is related to the
company’s turnover, debt levels and number of
employees, among other things
8. IN RELATION TO THE MOST COMMON
FORM OF CORPORATE BUSINESS VEHICLE
USED BY FOREIGN COMPANIES IN
YOUR JURISDICTION, WHAT ARE THE
MAIN REGISTRATION AND REPORTING
REQUIREMENTS?
Registration and formation
A private company must register the following with
the Companies and Intellectual Property Commission
(Commission):
Its name.
A notice of incorporation.
Its memorandum of incorporation.
Registration of a new company generally takes between
14 and 21 days from submission of the relevant
documents. It is also possible to buy an off-the-shelf
company (that is, a company that has already been
registered and is ready for sale). To operate through
a branch, the foreign profit or non-profit company
must submit certain information together with its
constitutional documents to the Commission within
20 business days from when it first begins to conduct
business and/or non-profit activities in South Africa.
Reporting requirements
A private company must provide the Commission with
up-to-date information on:
Constitutional documents.
Registered office.
Directors’ details.
Secretary details (if applicable).
Auditor details (if applicable).
Any redemption, reduction or other alteration of
capital.
Accounting reference date.
Certain special resolutions.
Company name.
Any changes to this information must be updated
periodically by submitting an annual return. If a private
company passes the public interest test, it must file its
annual financial statements with the Commission and its
financial statements must be audited. This test takes into
account relevant factors such as the annual turnover of
the company, the size of its workforce, and the nature
and extent of its activities.
Share capital
A private company must have share capital, but there
is no minimum or maximum amount. Shares issued in
accordance with the new Companies Act 2008 do not
have a nominal or par value. Any shares of a pre-existing
company that have been issued with a nominal
or par value under the Companies Act 1973 continue to
have the nominal or par value assigned to them unless
they are converted to non-par value shares.es.
4 5
5. Non-cash consideration
Companies can issue shares for non-cash consideration
(including assets and services rendered). The board
must be satisfied that the shares have been issued for
adequate consideration, but this determination does
not require a formal valuation process.
Rights attaching to shares
Restrictions on rights attaching to shares. There
are no restrictions on the rights that can attach to
shares, provided these are specified in the company’s
constitutional documents.
Automatic rights attaching to shares. Each shareholder
of any class of issued shares in any company has
the right to vote on any proposal to amend the
preferences, rights, limitations and other terms
associated with that share.
Any person who holds a beneficial interest in any
shares issued by any company has the right to inspect
and copy (without charge):
The company’s memorandum of incorporation.
Records relating to a company’s directors.
Reports to annual shareholder meetings.
Annual financial statements.
The notices and minutes of annual shareholder meetings.
The share register of the company.
9. IN RELATION TO THE MOST COMMON FORM
OF CORPORATE BUSINESS VEHICLE USED BY
FOREIGN COMPANIES IN YOUR JURISDICTION,
OUTLINE THE MANAGEMENT STRUCTURE AND
KEY LIABILITY ISSUES.
Management structure
Private companies are managed by a board of directors
consisting of at least one director. The memorandum of
incorporation usually allows directors to delegate their
powers to a managing director or other executive managers.
Management restrictions
There are no restrictions on foreign managers under
the Companies Act 2008. The Companies Act 2008 only
requires that a company’s record of directors includes
each director’s nationality and passport number, if
they are not a South African.
Directors’ and officers’ liability
A director can be held personally liable for any loss,
damage or costs sustained by the company caused
by any of the following (Companies Act 2008):
A breach of fiduciary duty.
A failure to exercise the proper degree of care or
skill reasonably expected of a person carrying out
those functions and who has the knowledge, skill and
experience of the director concerned.
Where the director purports to bind the company
without authority.
The director continues to cause the company to trade
when the director knows, or ought to know, that the
company cannot avoid insolvent liquidation.
The director signs or causes the publication of false or
misleading financial statements or information in a prospectus.
Criminal liability can apply for breaches of health and
safety and environmental laws.
Parent company liability
A parent company is not generally liable for the debts of its
subsidiaries unless it has given a guarantee, indemnity or surety.
Employment
Laws, contracts and permits
10. WHAT ARE THE MAIN LAWS REGULATING
EMPLOYMENT RELATIONSHIPS?
Employment in South Africa is regulated by statute,
common law and contract. In general, South African
employment law applies to all employees working
in South Africa. Although choice of law clauses are
recognised, these are only enforced where the chosen
law is also the law to which the contract is most closely
connected. In most instances, if the employee performs
the work in South Africa and is paid there, South African
law will apply. In certain circumstances, it may also
apply to South African employees working abroad.
The main pieces of legislation regulating the employment
relationship are:
Labour Relations Act 1995 (LRA). This grants employees
protection against unfair dismissal and unfair labour
practices. It also regulates collective bargaining and the
transfer of undertakings as a going concern.
Basic Conditions of Employment Act 1997 (BCEA). This
regulates most contracts of employment in relation to,
among other things:
Working hours.
Leave.
The prohibition of child and forced labour.
The payment of remuneration.
Notice and payments on termination of employment.
Parties can agree different terms to those set out
in the BCEA provided these are not less favourable
to the employee than what the BCEA provides. In
addition, collective agreements, ministerial decrees and
regulations often vary the application of the BCEA.
Employment Equity Act 1998 (EEA). Prohibits unfair
discrimination in any employment policy or practice on
grounds such as:
Race.
Gender.
Sex.
Age.
Religion.
The EEA also regulates the implementation of affirmative
action measures (that is, measures which ensure that
employees from specific demographic groups have
equal employment opportunities and are equitably
represented in the workplace).
Skills Development Act 1998. This aims to develop the
skills of the South African workforce. It establishes
Sector Education and Training Authorities (SETAs) to
develop and implement a skills plan for each economic
sector.
Skills Development Levies Act 1999. This imposes a
compulsory levy on most employers of an amount
equal to 1% of the employer’s total payroll amount, the
proceeds of which are used to fund the various SETAs. In
certain circumstances, employers may claim rebates for
the levies paid to a SETA.
Unemployment Insurance Act 2001. This establishes the
Unemployment Insurance Fund (UIF). The Unemployment
Insurance Contributions Act 2002 requires employers
and their employees to make contributions to the UIF.
Employees are entitled to benefits from the UIF if they
lose their jobs in certain circumstances. The UIF also
provides benefits to employees for illness, maternity
leave, adoption rights and dependants.
Occupational Health and Safety Act 1993. This provides
for the minimum rights and duties of employers and
employees in order to maintain a healthy and safe
working environment.
Compensation for Occupational Injuries and Diseases
Act 1993. Under this Act, employers must pay
contributions to a fund which compensates employees
for occupational injuries or diseases sustained or
contracted in the course of their employment.
Employees in respect of whom relevant contributions
are made, are precluded from instituting civil damages
claims against their employers in respect of occupational
injuries or diseases.
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6. 11. IS A WRITTEN CONTRACT OF EMPLOYMENT
REQUIRED? IF SO, WHAT MAIN TERMS MUST BE
INCLUDED IN IT? DO ANY IMPLIED TERMS AND/
OR COLLECTIVE AGREEMENTS APPLY TO THE
EMPLOYMENT RELATIONSHIP?
Although an oral employment contract is not invalid,
the BCEA requires that certain details of employment
must be set out in writing, such as:
The name and address of the employer.
A description of the work performed.
Working hours.
Employment commencement date.
Details of remuneration.
Written employment contracts are also recommended
for certainty and to avoid disputes.
12. DO FOREIGN EMPLOYEES REQUIRE WORK PERMITS
AND/OR RESIDENCY PERMITS?
Foreign employees must obtain a work permit (which
is regarded as a temporary residence permit) before
starting work in South Africa. There are various
categories of work permits, including:
General work permit. This is issued to specific categories
of employees and is valid for up to five years.
Corporate permit. This is issued to a corporate applicant
employing multiple foreign employees and is valid for up
to five years.
Exceptional skills permit. This is issued to an individual
who has exceptional skills or qualifications and to
members of his immediate family as determined by the
Director-General.
Intra-company transfer permit. This is issued to an
employee employed abroad by a business operating
in South Africa as a branch, subsidiary or affiliate
relationship, and who is required to work in South Africa
for a period not exceeding two years.
The main consideration in issuing work permits is
whether or not a South African citizen or permanent
resident with the appropriate skills is available to
take up the appointment. The cost of applying for a
work permit is about between US$1200 and US$2500
and it takes anywhere from ten days to a month to
obtain, depending on the embassy, high commission or
consulate where the application is submitted.
Termination and
Redundancy
13. ARE EMPLOYEES ENTITLED TO MANAGEMENT
REPRESENTATION AND/OR TO BE CONSULTED IN
RELATION TO CORPORATE TRANSACTIONS (SUCH
AS REDUNDANCIES AND DISPOSALS)?
The extent of consultation with employees in relation
to corporate transactions depends on the nature of the
transaction. For example, employees must be consulted
if redundancies are contemplated (see Question 15).
The employer must consider the views of employees,
or their representatives, in good faith. However,
where a business is transferred as a going concern, no
consultation obligation exists. In mergers (as defined
under the Companies Act 2008), the employer is required
to inform the employees (and their representatives,
including trade unions) in writing, of the anticipated
merger. The Companies Act gives employees significant
rights of participation in the governance of companies,
for example:
During business rescue proceedings trade unions must
be given access to company financial statements.
A trade union must receive written notice if the
company has reasonable grounds to believe that it is
financially distressed but has not adopted a resolution
under the business rescue provisions of the Companies
Act. Written notice must also be delivered to those
employees who are not represented by trade unions or
employees’ representatives.
A registered trade union or other employee
representative of employees may apply to court for
an order declaring a director delinquent in certain
circumstances (for example, if the director grossly
abused his position).
A trade union or other employee representative may
apply to court for an order placing a director under
probation.
Trade unions (and therefore not only individual
employees) are protected when making protected
disclosures (for example that a director has failed to
comply with a statutory obligation), subject to specific
requirements.
If the board authorises the company to provide direct or
indirect financial assistance to a director or prescribed
officer, the trade union must be provided with a copy of
the resolution.
14. HOW IS THE TERMINATION OF INDIVIDUAL
EMPLOYMENT CONTRACTS REGULATED?
Dismissal
Employees have the right not to be unfairly dismissed.
Any dismissal must be both substantively and
procedurally fair.
There are three grounds for dismissal:
Misconduct of the employee.
Incapacity of the employee (for example, poor work
performance or ill health).
The operational requirements of the employer.
On dismissal, an employee is entitled to:
Accrued holiday pay.
Payment in lieu of notice (see below, Notice), unless
summarily dismissed or if required to work the notice
period.
Severance pay of a minimum of one week’s salary for
every completed year of service with the employer, if
the dismissal is as a result of operational requirements.
Any other amount to which the employee is
contractually entitled.
8 9
7. Notice
Notice periods are normally regulated in the employment
contract. However, the BCEA provides for the following
minimum notice periods:
One week, if the employee has been employed for less
than six months.
Two weeks, if the employee has been employed for more
than six months but less than one year.
Four weeks, if the employee has been employed for more
than one year.
Remedies for unfair dismissal
The employee can bring a claim for unfair dismissal.
If the Commission for Conciliation, Mediation and
Arbitration, or the Labour Court finds that a dismissal is
unfair, it can order the employer to:
Reinstate the employee.
Re-employ the employee in other reasonably suitable
work.
Pay compensation to the employee. Compensation is
generally limited to 12 months’ remuneration. In certain
circumstances, such as a discriminatory dismissal,
compensation of up to 24 months’ remuneration may be
ordered.
15. ARE REDUNDANCIES AND MASS LAYOFFS
REGULATED?
Redundancies, whether individual or collective, must
be both substantively and procedurally fair. Substantive
fairness demands that the redundancies are required
for operational reasons such as structural, technological
or economic needs.
Procedural requirements include a consultation
process with the potentially affected employees or
their representatives. An employer must provide the
potentially affected employees, or their representatives,
with all the relevant information in writing. Section
189A of the LRA regulates mass redundancies and
additional consultation requirements apply in these
circumstances.
Tax
Taxes on employment
16. IN WHAT CIRCUMSTANCES IS AN EMPLOYEE
TAXED IN YOUR JURISDICTION AND WHAT
CRITERIA ARE USED?
South Africa has a residence basis of tax, which means
that a South African resident is taxed on any income
sourced from anywhere in the world. A natural person
qualifies as a South African tax resident if he is ordinarily
resident in South Africa or satisfies the requirements of
the physical presence test, that is, if he or she has been
physically present in South Africa for:
More than 91 days in the tax year in question.
More than 91 days in each of the five tax years before
the current tax year.
More than 915 days over the previous five tax years.
A person who qualifies as a South African resident in
terms of the physical presence test ceases to be a South
African resident if he or she is physically outside of
South Africa for a continuous period of 330 full days
immediately after the day on which he or she ceases
to be physically present in South Africa. The person
is deemed not to have been a South African resident
from the day on which he or she ceased to be physically
present in South Africa.
17. WHAT INCOME TAX AND SOCIAL SECURITY
CONTRIBUTIONS MUST BE PAID BY THE EMPLOYEE
AND THE EMPLOYER DURING THE EMPLOYMENT
RELATIONSHIP?
Tax resident employees
Tax resident employees are subject to personal income
tax on their employment income. In respect of income
earned for services rendered in South Africa and for a
South African tax resident employer, the income tax is
deducted by the employer and paid directly to the South
African Revenue Service (SARS). For the 2013/2014 tax
year, the tax thresholds applicable to individuals are as
follows:
For persons under 65 years the tax threshold is
ZAR67,111.
For persons 65 years and older the threshold is
ZAR104,611.
For persons aged 75 years and older the tax threshold is
ZAR117,111.
The personal income tax year of individuals runs from 1
March to 28 February. The rates that apply to individuals
range from 18% for employees whose income does
not exceed ZAR165 600 and 40% for employees whose
income exceeds ZAR638 600 per year.
Tax resident employees also contribute 1% of their
monthly remuneration to the unemployment insurance
fund (a social security equivalent), subject to a
maximum of ZAR148.72. This amount is deducted by the
employer from the employees’ remuneration.
Non-tax resident employees
Generally, non-resident employees are liable for tax
on income derived from a source within South Africa,
subject to the terms of any Double Taxation Treaty (DTT)
concluded between South Africa and the employees’
country of residence. An employee might be subject to
income tax in South Africa depending on the provisions
of the DTT, if any, concluded between South Africa
and the foreign employee’s country of residence (see
Question 25).
If the employee is employed by a foreign company and
is seconded to South Africa, the income tax can be
withheld by a representative of the employer in South
Africa. If the employer does not have a representative
in South Africa, the employee is responsible for
ensuring that the tax is fully paid to SARS. Non-resident
employees are subject to the same rates as resident
employees, unless a DTT provides otherwise.
Non-resident employees who enter South Africa to carry
out a contract of service within South Africa and who,
on the termination of the contract must leave South
Africa do not have to contribute to the unemployment
insurance fund.
Employers
Employers pay corporate income tax (CIT) on their
income. Both South African resident and non-resident
companies pay CIT at a flat rate of 28%, except that
non-resident companies only pay income tax in South
Africa if they:
Derive income from South Africa; and
In the case of companies which are resident in a country
which has concluded a DTT with South Africa, have a
permanent establishment (PE) in South Africa (that is, a
fixed place of business through which business is carried
out, whether wholly or in part, for example, a branch).
South African resident employers contribute 1% of
their employees’ monthly gross remuneration to the
unemployment insurance fund, subject to a maximum
of ZAR148.72 per employee. In total, the employer must
pay the total contribution of 2% (1% contributed by the
employee and 1% contributed by the employer) to the
unemployment insurance fund within the prescribed
period.
Certain employers who pay an annual remuneration of
more than ZAR500,000 pay a skills development levy of
1% of their gross monthly payroll.
10 11
8. Business Vehicles
18. WHEN IS A BUSINESS VEHICLE SUBJECT TO TAX IN
YOUR JURISDICTION?
Tax resident business
Legal entities qualify as tax residents if they are
incorporated, established, formed or effectively
managed in or from South Africa.
Non-tax resident business
Non-resident business vehicles are only taxed on South
African-sourced income. If the entity’s country of
residence has a DTT with South Africa, the vehicle will
only be taxed on its income (business profits) in South
Africa if it has a PE, and only on income/profits which
is/are attributable to the PE’s activities. Non-resident
companies pay income tax at 28%. As is the case with
South African resident companies, 66.6% of the net
capital gain derived by a non-resident company is
included in its taxable income and subjected to capital
gains tax (CGT) at a rate of 28%, (therefore resulting
in an effective CGT rate of 18.67% ) on some of their
capital gains.
19. WHAT ARE THE MAIN TAXES THAT POTENTIALLY
APPLY TO A BUSINESS VEHICLE SUBJECT TO TAX IN
YOUR JURISDICTION (INCLUDING TAX RATES)?
Tax resident companies pay the following taxes in South
Africa:
CIT on their worldwide income at 28%. Non-resident
companies pay CIT of 28% on South African sourced
income.
CGT on their worldwide capital gains at 18.67%. Non-resident
companies pay CGT at 18.67% on certain of
their capital gains.
Dividends, Interest and
IP Royalties
20. HOW ARE THE FOLLOWING TAXED:
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign
corporate shareholders?
Dividends paid
Dividends received by or accrued to any person,
are subject to a 15% withholding tax on dividends
(Dividends tax). Dividends tax is levied in respect of
dividends paid by a company. The rate of Dividends
tax may be reduced by the terms of a DTT. In terms of
the Income Tax Act (ITA), cash dividends paid by listed
companies are deemed to be paid on the date of actual
payment. Cash dividends paid by unlisted companies are
deemed to be paid on the earlier of the date on which
the dividends are paid or become due and payable.
Non-cash dividends (dividend in specie) are deemed to
be paid on the earlier of the date on which they are paid
or become due and payable. The liability for Dividends
tax on cash dividends falls on the beneficial owner of
the cash dividends (shareholder) and the liability for
Dividends tax on dividends in specie falls on the South
African resident company paying the dividends in specie.
Dividends received
FForeign dividends (dividends received from foreign
companies) can either be fully exempt from income
tax or partially exempt from income tax. They are
fully exempt from income tax if certain specific
requirements (such as the participation exemption) are
met. Foreign dividends which are not fully exempt from
income tax are partially exempt from income tax in
terms of a formula provided for in the ITA. The effect
of the formula is that the rate of income tax levied on
foreign dividends can never be more than the rate of
Dividends tax (15%).
Interest paid
There is generally no income tax payable on interest paid
to non-tax resident lenders. However, interest in the
form of an annuity and interest which is attributable to
a PE is subject to income tax. South African residents are
subject to tax on interest income. From 1 January 2015,
withholding tax on interest paid by a South African
resident to a non-South African resident will be subject
to a withholding tax of 15% unless reduced by the
provisions of a DTT.
IP royalties paid
Until 31 December 2014, royalties paid to non-residents
from a South African source are subject to a withholding
tax at 12%. This rate may be reduced by the provisions
of a DTT, if any. With effect from 1 January 2015,
royalties paid by a South African resident to a non-resident
will be subject to royalty withholding tax of
15% unless reduced by the provisions of a DTT.
Groups, Affiliates and
Related Parties
21. ARE THERE ANY THIN CAPITALISATION RULES
(RESTRICTIONS ON LOANS FROM FOREIGN
AFFILIATES)?
In South Africa, general arms length provisions are
used to determine thin capitalisation. In essence, the
sequence of questions posed is as follows:
whether an affected transaction (for instance, a
transaction between a South African resident and a
non-resident) has been entered into;
whether the parties to the affected transaction are
connected persons in relation to each other;
whether the affected transaction has given rise to a tax
benefit for one of the parties; and
whether the affected transaction was entered into on
arm’s length or non-arm’s length terms or conditions.
If the answers to first three questions are in the
affirmative and the answer to the fourth question
is that the affected transaction was entered into on
non-arm’s length terms and conditions (for instance,
an excessive rate of interest was agreed), SARS will tax
the party that derives a tax benefit from the affected
transaction as if the affected transaction had been
entered into on arm’s length terms and conditions. Any
difference between the amount calculated after taking
into account arm’s length terms or conditions and
any amount calculated on the basis of the non-arm’s
length terms or conditions is treated as a non-arm’s
length loan from the South African taxpayer to the
non-resident. The South African taxpayer will be
required to calculate an arm’s length interest rate on
the deemed loan and the interest will be deemed to be
payable until the deemed loan is repaid to the South
African taxpayer. The difference will not be treated as
a loan if it is repaid to the South African taxpayer by
the end of the tax year in which it is determined. If the
loan remains unpaid, interest will accrue to the South
African taxpayer and will continue to accrue every tax
year until the deemed loan is repaid.
12 13
9. Financial assistance provided by a non-resident to
a headquarter company to enable the headquarter
company to provide financial assistance to a foreign
company in which it holds at least 10% of the equity
shares and voting rights, is exempt from the thin
capitalisation rules. Financial assistance provided by a
headquarter company to a foreign company in which
it holds at least 10% of the equity shares and voting
rights is also exempt.
Financial assistance provided by a non-resident to a
headquarter company to enable the headquarter
company to provide financial assistance to a foreign
company in which it holds at least 10% of the equity
shares and voting rights, is exempt from the thin
capitalisation rules. Financial assistance by a headquarter
company to a foreign company in which it holds at least
10% of the equity shares and voting rights is also exempt.
22. MUST THE PROFITS OF A FOREIGN SUBSIDIARY
BE IMPUTED TO A PARENT COMPANY THAT IS
TAX RESIDENT IN YOUR JURISDICTION
(CONTROLLED FOREIGN COMPANY RULES)?
Controlled foreign company rules apply in respect of
South African residents that hold participation rights in
foreign companies. The rules apply where South African
residents (other than headquarter companies (see
Question 21) hold or exercise more than either:
50% of the total participation rights in a foreign
company; or
50% of the voting rights of a foreign company.
Participation rights are defined as the rights to participate
in all or part of the benefits of the rights (other than
voting rights) attaching to a share, or any interest of
a similar nature in a foreign company. If no person
holds participation rights or if no such rights can be
determined for any person, voting rights constitute a
participation right.
The rules impute the income of the foreign company to the
South African resident shareholders in proportion to their
participation rights, and tax them on the imputed amount
23. ARE THERE ANY TRANSFER PRICING RULES?
There are transfer pricing rules and these apply in
respect of affected transactions entered into between
connected persons, at non-arm’s length terms and
conditions and as a result of which one of the parties to
the affected transaction derives a tax benefit. In terms
of the rules, where the circumstances set out in the
rules prevail, SARS will tax the party that derives a tax
benefit from the affected transaction as if the affected
transaction had been entered into on arm’s length terms
and conditions. Any difference between the amount
calculated after taking into account arm’s length terms
or conditions and any amount calculated on the basis
of the non arm’s length terms or conditions is treated
as a loan from the South African taxpayer to the non-resident.
The South African taxpayer will be required to
calculate an arm’s length interest rate on the deemed
loan and the interest will be deemed to be payable until
the deemed loan is repaid to the South African taxpayer.
The difference will not be treated as a loan if it is repaid
to the South African taxpayer by the end of the tax year
in which it is determined. If the loan remains unpaid,
interest will accrue to the South African taxpayer and
will continue to accrue every tax year until the deemed
loan is repaid.
Customs Duties
24. HOW ARE IMPORTS AND EXPORTS TAXED?
Goods imported into, or exported from, South Africa
are liable for VAT and customs duty, subject to the
availability of rebates and refunds. Direct exports
(where the South African seller supplies the goods) are
subject to VAT at 0% and indirect exports (where, for
example, a client of a South African seller arranges for
the delivery of the goods to the client’s customer in the
country to which the goods are exported) are subject to
VAT at 14%.
If goods are imported from one of the countries falling
within the Common Customs Area (Namibia, Botswana,
Lesotho and Swaziland), they are exempt from customs
duty but not VAT.
Double Tax Treaties
25. IS THERE A WIDE NETWORK OF DOUBLE TAX
TREATIES?
South Africa is currently party to approximately 80
double tax treaties, including with the United States
and the United Kingdom, and is currently in the
process of re-negotiating and ratifying a number of
other treaties.
Competition
26. ARE RESTRICTIVE AGREEMENTS AND PRACTICES
REGULATED BY COMPETITION LAW? IS UNILATERAL
(OR SINGLE-FIRM) CONDUCT REGULATED BY
COMPETITION LAW?
Competition authority
Competition law in South Africa is regulated by the
Competition Act 1998 (as amended) (Competition Act)
and the regulations promulgated in terms of the
CompetitionAct. The Competition Act is enforced by
the Competition Commission (Commission), the
Competition Tribunal and the Competition Appeal
Court. See www.compcom.co.za and
www.comptrib.co.za.t.
Restrictive agreements and practices
The Competition Act applies to all economic activity
within, or having an effect within South Africa.
Sections 4 and 5 of the Competition Act regulate
horizontal relationships (relationships between
competitors) and vertical relationships (relationships
in the supply chain), respectively. For parties in a
horizontal relationship, three categories of conduct
(cartel conduct) are per se prohibited (section 4(1)(b)
Competition Act):
Directly or indirectly fixing a purchase or selling price or
any other trading condition.
Dividing markets by allocating customers, suppliers,
territories or specific types of goods or services.
Collusive tendering.
For parties in a vertical relationship, the practice of
prescribing a minimum resale price is per se prohibited
(section 5(2) Competition Act).
Other agreements or concerted practices by parties in
either type of relationship (i.e. horizontal or vertical) are
only prohibited if they have the effect of substantially
preventing or lessening competition in a market (but
may be justified on a rule of reason basis).
14 15
10. Parties found to have engaged in cartel conduct or
minimum resale price maintenance are subject to an
administrative penalty for a first-time contravention
(up to a maximum of 10% of turnover). For other
contraventions, an administrative penalty is only
competent if the conduct is substantially a repeat by
the same firm of conduct previously found to have
contravened the Competition Act.
When the Competition Amendment Act 1 of 2009 comes
into force in its entirety (this Act has been signed by
the President but the provisions below have not yet
come into force and there is no indication when this
will occur), it will be a criminal offence for a company
director or a person engaged, or purporting to be
engaged, by a company in a position with management
authority to either:
Cause the company to engage in cartel conduct.
Knowingly acquiesce in the company engaging in cartel
conduct.
Any person convicted of this offence is liable for:
A fine of up to ZAR500,000.
Imprisonment for up to ten years.
Both a fine and imprisonment.
Unilateral conduct
Unilateral (or single-firm) conduct is regulated by the
Competition Act to the extent that the company is
dominant.
A dominant company must not (section 8, Competition Act):
Charge an excessive price to the detriment of consumers
(section 8(a)).
Refuse to give a competitor access to an essential facility
when it is economically feasible to do so (section 8(b)).
Engage in any of the following exclusionary acts, unless
the company concerned can show technological,
efficiency or other gains which outweigh the anti-competitive
effect (i.e. a rule of reason standard of
analysis) (section 8(d)):
require or induce a supplier or customer not to deal with
a competitor;
refuse to supply scarce goods to a competitor when
supplying those goods is economically feasible;
sell goods or services on condition that the buyer
purchases separate goods or services unrelated to
the object of a contract, or force a buyer to accept a
condition unrelated to the object of a contract;
sell goods or services below their marginal or average
variable cost; or
buy up a scarce supply of intermediate goods or
resources required by a competitor.
Engage in any exclusionary act other than those listed
above (as set out in section 8(d)) if the anti-competitive
effect of the act outweighs any technological, efficiency
or pro-competitive gains (section 8(c)).
A dominant company must not engage in prohibited
price discrimination (section 9, Competition Act).
Subject to certain defences, an action is prohibited price
discrimination if:
It is likely to have the effect of substantially preventing
or lessening competition.
It relates to the sale, in equivalent transactions, of goods or
services of similar grade and quality to different purchases.
It involves discriminating between purchasers in terms
of price, any discount, allowance, rebate or credit given,
the provisions of services or the payment for any service.
For example, prohibited price discrimination may
occur where a seller charges a different unit price for a
product or service to customers without any difference
in the cost of supply.
Parties found to have breached sections 8(a), (b) or
(d) may be subject to an administrative penalty for a
first-time contravention (up to a maximum of 10% of
turnover). Parties found to have contravened sections
8(c) or 9(1) will only be subject to an administrative
penalty if the conduct is substantially a repeat by
the same firm of conduct previously found to have
contravened the Competition Act.
27. ARE MERGERS AND ACQUISITIONS SUBJECT TO
MERGER CONTROL?
The competition authorities must be notified if a
transaction:
Constitutes a merger under section 12 of the
Competition Act (that is, when one or more firms
directly or indirectly acquire or establish direct or
indirect control over the whole or part of the business
of another firm).
The parties meet certain asset and turnover thresholds
(discussed below).
The merger has an effect within South Africa.
There are two categories of mandatory notifiable
mergers, namely intermediate and large mergers:
To constitute an intermediate merger, the acquiring
group and the target company must have combined
assets or turnover in South Africa (whichever
combination is the higher) of equal to or greater than
ZAR560 million and the target company must have
assets or turnover in South Africa (whichever is the
higher) of equal to or greater than ZAR80 million.
To constitute a large merger, these values are replaced
with ZAR6.6 billion and ZAR190 million, respectively.
In calculating the turnover and asset values of the parties,
the only relevant assets are assets in South Africa and
the only relevant turnover is turnover in, into or from
South Africa. Importantly, the entire acquiring group
is taken into account in the asset and turnover calculations.
For the target company, only the company that is
transferred is taken into account. The assets and turnover
must be calculated with reference to the most recent
audited financial statements of the merging parties.
Mergers between companies that have no South African
presence, except for sales into South Africa, may also
require notification if they meet the above requirements.
For example, two merging foreign firms, generating
sales in South Africa in the preceding financial year of
ZAR480 million (for the acquiring group) and ZAR90
million (for the target firm) would be required to notify
the merger in South Africa.
Intermediate and large mergers must receive
competition approval before they can lawfully be
implemented. Implementation of a notifiable merger
without approval may result in an administrative
penalty being imposed (up to a maximum of 10% of
turnover). In addition, the parties to the merger may be
ordered to sell any shares, interest or other assets they
have acquired as part of the merger i.e. to unwind the
transaction.
It is not mandatory to notify a merger where the parties
do not meet the notification thresholds set out above
(i.e. a small merger). However:
The Commission may call on the parties to notify a small
merger within six months of the implementation if it is
of the opinion that the merger may substantially prevent
or lessen competition or cannot be justified on public
interest grounds; and
In terms of the Commission’s Guideline on small merger
notification, small mergers should be notified where (i)
at the time of entering into the transaction one of the
parties involved (or a firm within their respective groups)
must be subject to a prohibited practice investigation
(e.g. price fixing or market division); or (ii) be respondents
to pending proceedings related to a prohibited practice
referred by the Commission to the Tribunal).
Mergers are assessed to see if they substantially prevent
or lessen competition and whether they raise any
adverse public interest grounds. When determining
whether a merger can or cannot be justified on public
interest grounds, the Commission or the Tribunal must
consider the effect that the merger will have on (i) a
particular industrial sector or region; (ii) employment;
(iii) the ability of small businesses, or firms owned
by previously disadvantaged persons, to become
competitive; and (iv) the ability of national industries to
compete in international markets.
.
16 17
11. Intellectual Property
28. OUTLINE THE MAIN IP RIGHTS IN YOUR
JURISDICTION.
Patents
Definition and legal requirements. For an invention to
be patentable, it must:
Be new.
Involve an inventive step.
Be capable of industrial application.
Not be specifically excluded from protection as a patent.
A patent holder has the right to exclude others from
making, using, disposing or importing the invention so
that the right holder enjoys all the benefits relating to
the invention.
Registration. A patent must be registered with the
South African Registrar of Patents to be protected.
Enforcement and remedies. Patent disputes are dealt
with by the Commissioner of Patents or the High Court.
The following reliefs are available for infringement
(Patents Act 1978):
Interdicts.
Delivery up of the infringing product.
Damages.
Length of protection. Protection lasts for 20 years from
the date of application, provided annual renewal fees
are paid. A patent cannot be renewed.
Trade marks
Definition and legal requirements. Trade marks must
be capable of distinguishing the goods or services of
one undertaking from those of other undertakings. The
right holder is entitled to prevent unauthorised use of an
identical or substantially similar mark used in the same
type of industry as that in which the trade mark has
been registered.
Protection. Trade marks can be registered with the
South African Registrar of Trade Marks. Unregistered
marks can be protected under the common law action
of passing off.
Enforcement and remedies. Where there has been an
infringement, the High Court can (Trade Marks Act 1993):
Grant interdicts.
Order the removal of the infringing mark and the
delivery up of the products bearing the mark.
Award damages.
Length of protection and renewability. Trade marks are
registered for ten years but can, on application, be renewed
for an unlimited number of additional ten-year periods.
Registered designs
Definition. A registered design is generally used to
protect the physical appearance of an article. The design
may be aesthetic or functional. An aesthetic design
must be new and original. A functional design must
be new and not commonplace in the art concerned.
Registration of a design grants to the right holder the
right to exclude other people from making, importing,
using or disposing of any article included in the class in
which the design is registered, so that the right holder
enjoys all the benefits relating to the design.
Registration. Designs can be registered with the South
African Registrar of Patents. Designs for articles that
are not intended to be produced in large quantities by
industrial process cannot be registered.
Enforcement and remedies. If a design right is
infringed, a right holder can seek (Designs Act 1993):
An interdict.
Delivery up of the infringing product.
Damages.
A reasonable royalty.
Length of protection and renewability. Registered
aesthetic designs are protected for 15 years. Registered
functional designs are protected for ten years. The
registration of a design cannot be renewed.
Unregistered designs
Unregistered designs are not protected by legislation.
However, copyright exists over the design and protection
may be found in terms of copyright law (see below,
Copyright).
Copyright
Definition and legal requirements. The following are
eligible for copyright protection, provided they are original:
Literary works.
Musical works.
Artistic works.
Cinematography.
Sound recordings.
Broadcasts.
Programme-carrying signals.
Computer programs.
Published editions.
The right holder is entitled to the exclusive right to
reproduce, publish, perform, broadcast or adapt the work
in question, depending on the nature of the work protected
by copyright.
Protection. No registration is required, as copyright subsists
automatically.
Enforcement and remedies. The owner of copyrighted
material can institute an action for (Copyright Act 1977):
An interdict.
Damages.
Delivery up of infringing copies.
A reasonable royalty.
Length of protection and renewability. Protection for
literary, musical and artistic works lasts for 50 years from
the end of the year in which the creator dies. Protection for
all other works lasts for 50 years from the end of the year in
which it is first released.
Plant breeders’ rights
Nature of right. New varieties of plants developed by
plant breeders do not constitute patentable subject
matter, unless they are produced by a process which
is microbiological in nature or which is not essentially
biological in nature, and protection for such new
varieties of plants is granted in terms of the Plant
Breeders’ Rights Act 1976. The legislation gives the
holder the exclusive right to:
Produce or reproduce the plant variety.
Condition it for propagation.
Sell or market it.
Export or import it.
Stock it for any of these purposes.
Protection. Protection can be obtained for any plant
variety which is defined as:
New.
Distinct.
Uniform.
Stable.
The application for a plant breeder’s right is made to the
department of agriculture and more specifically to the
Registrar of Plant Breeders’ Rights and Plant Improvement.
Enforcement. The right holder can require that prior
written authority must first be obtained during the
period of protection to perform any of the following
acts:
Producing or reproducing the variety (multiplication).
Conditioning it for propagation.
Selling/marketing it.
Exporting or importing it.
18 19
12. Stocking propagating material or unauthorised
harvested material for any of the above purposes.
This also applies to varieties derived from the protected
variety. Where no prior written consent in the form of
a licence is obtained, the holder of the right can sue for
infringement of the right.
Length of protection. Protection is 25 years for vines
and trees, and 20 years for all other plants.
Other
Where intellectual property is created using South
African public funds there are strict rules governing
ownership and transfer of such rights, as well an
obligation to commercialise the intellectual property.
Laws are imminent whereby traditional knowledge and
local cultural heritage will be protected as intellectual
property.
Exchange control approval is required before local
intellectual property and royalties related to such
intellectual property can be transferred offshore.
Marketing Agreements
29. ARE MARKETING AGREEMENTS REGULATED?
Agency
The principles of agency are regulated by common law
and contract.
Distribution
There is no specific legislation relating to the appointment
of distributors. Distribution agreements are unlikely to
breach competition law unless they contain excessive
restrictions such as price fixing (see Question 26).
Franchising
Franchise agreements must be (Consumer Protection Act
2009):
In writing.
Include certain information (for example, that the
franchisee may cancel the franchise agreement without
cost or penalty within ten business days after signing the
agreement by giving written notice to the franchisor).
Neutral in its duration or terms.
A franchisor must provide a disclosure document to a
prospective franchisee at least 14 days before a franchise
agreement is signed. This document must include certain
specified financial information and an organogram
(organisational chart) setting out the support system
in place for franchisees. Franchisees are entitled to file
complaints with a number of dispute resolution bodies
responsible for enforcing the Consumer Protection Act.
E-commerce
30. ARE THERE ANY LAWS REGULATING E-COMMERCE
(SUCH AS ELECTRONIC SIGNATURES AND
DISTANCE SELLING)?
E-commerce is regulated by the Electronic
Communications and Transactions Act 2002 (ECTA),
which deals with:
Electronic signatures.
Cryptography.
The protection of personal information.
Domain name administration.
The liability of service providers.
Cyber crime.
The ECTA contains basic consumer protection provisions
relating to the sale of goods or services over the internet.
Advertising
31. OUTLINE THE REGULATION OF ADVERTISING IN
YOUR JURISDICTION.
The Advertising Standards Authority (ASA) is a self-regulatory
body that has been established to regulate
advertising in South Africa. All advertising companies,
advertising media suppliers and industry bodies that
are members of the ASA are bound by the provisions
of the Code of Advertising Practice, which is based on
the International Code of Advertising Practice compiled
by the International Chamber of Commerce. The
Advertising Code is then supplemented by individual
codes determined by the various member organisations
of the ASA or negotiated with government. Advertising
on electronic broadcast media is subject to the
Electronic Communications Act 2005, which provides
that broadcasters must adhere to the Advertising Code
as determined and administered by the ASA. Outdoor
advertising is regulated at a local government level in
terms of by-laws adopted by each municipality.
Data Protection
32. ARE THERE SPECIFIC STATUTORY DATA
PROTECTION LAWS? IF NOT, ARE THERE LAWS
PROVIDING EQUIVALENT PROTECTION?
The Protection of Personal Information Act 2013 has
been signed into law by the President but has not yet
taken effect. The Act is expected to take effect during
2014 and there will be a 12 month transition period
before organisations have to comply with the Act. The
Act will impose mandatory data protection obligations
on data controllers with regard to the processing and
use of personal data or confidential information. The
Act is similar in many respects to the EU Data Protection
Directive and the UK Data Protection Act.
Until the Act takes effect, the processing of confidential
information is currently regulated in terms of section
14 of the Constitution of the Republic of South Africa
1996 (the right to privacy) and the common law right to
privacy of South Africa, which is protected under the
law of delict (tort), as well as requirements that emanate
from certain other sector or activity-specific legislation
such as employment legislation, credit legislation and
financial services advisory legislation.
Product Liability
33. HOW IS PRODUCT LIABILITY AND PRODUCT
SAFETY REGULATED?
The Consumer Protection Act has introduced the
concept of no fault liability. A producer, importer or
retailer of goods (or all of them jointly and severally) can
now be held liable for any harm caused by supplying
unsafe goods, product failure or inadequate instructions
or warnings. Under common law and contract law, a
person can only be held liable for negligence where
he should reasonably have foreseen a likelihood of
harm, although strict liability exists for latent defects
in products where the latent defect makes the product
wholly or partially unfit for its purpose.
20 21
13. Main Business
Organisations
The Department of Trade and Industry of the
Government of the Republic of South Africa ( DTI)
www.thedti.gov.za
Main activities. Focuses on industrial development,
trade, export and investment, broadening participation
in the South African economy through broad-based
black economic empowerment and on the development
and implementation of a coherent, predictable and
transparent legislative and regulatory framework.
Companies and Intellectual Property Commission (CIPC)
www.cipc.co.za
Main activities. Established in terms of the Companies
Act, 2008, its main activity is to register and maintain
the registration of companies and intellectual property rights.
Takeover Regulation Panel (TRP)
www.trpanel.co.za
Main activities. A regulatory body established in terms
of the Companies Act, 2008, its main activities are to
regulate affected transactions and takeovers in terms of
the Companies Act and to investigate complaints with
respect to affected transactions and takeover offers.
South African Revenue Service (SARS)
www.sars.gov.za
Main activities. Established in terms of the Income Tax Act
to collect revenue and ensure compliance with tax law.
Financial Services Board (FSB)
www.fsb.co.za.
Main activities. The Financial Services Board is an
independent institution established in terms of the
Financial Services Board Act 1990 to oversee the South
African Non-Banking Financial Services Industry in the
public interest.
Contributor
Profiles
Ashleigh Hale
Partner
Bowman Gilfillan
Tel +27 11 669-9342
Fax +27 11 669-9001
Email a.hale@bowman.co.za
www.bowman.co.za
Professional qualifications
South African qualified, 1999
Areas of practice
Mergers & Acquisitions;
joint ventures; corporate and
commercial
Talita Laubscher
Partner
Bowman Gilfillan
Tel +27 11 669-9522
Fax +27 11 669-9001
Email t.laubscher@bowman.co.za
www.bowman.co.za
Professional qualifications
South African qualified, 2001
Areas of practice
Employment and employee
benefits
Magola Makola
Partner
Bowman Gilfillan
Tel +27 11 669-9398
Fax +27 11 669-9001
Email m.makola@bowman.co.za
www.bowman.co.za
Professional qualifications
South African qualified, 2003
Areas of practice
Tax
Jean Meijer
Partner and Co-Head of
Competition
Bowman Gilfillan
Tel +27 11 669-9384
Fax +27 11 669-9001
Email a.hale@bowman.co.za
www.bowman.co.za
Professional qualifications
South African qualified, 1994
Areas of practice
Competition/Anti-Trust
Darren Olivier, Partner
Adams and Adams
T +27 11 895 1011
F +27 11 784 2889
Email Darren.olivier@adamsadams.com
www.adamsadams.com
Professional qualifications
South African qualified attorney
Areas of practice
Areas of practice. Trade mark
registration and prosecution,
licensing, commercial IP
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