How to set up as an independent contractor in South Africa

If you're thinking of becoming an independent contractor in South Africa, then congratulations: you're about to embark on an adventure as exciting and unpredictable as a safari in the savanna.

Whether you’re looking to set up shop in the sprawling mega-metropolis of Johannesburg, the picturesque winelands of Stellenbosch, or the stunning coastal landscapes of Cape Town, this storied country is an ideal locale to merge work and lifestyle.

Before you can fully embark on your self-employment journey, though, you’ll need to know how to:

• Register your business in South Africa

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of (allowing you to spend more time on the fun stuff, like wine tasting). So let’s begin.

First, it’s important to clarify how South Africa defines independent contractors.

What is an independent contractor according to South African law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

In South Africa, the Labour Relations Act makes a clear distinction between independent contractors and employees. Under section 200A of this act, you are considered a contractor if you:

• Work when, where, and how you want

• Have not been working full time (i.e. around 40 hours per week) for a business for a period of three months or longer

• Are not financially dependent on the business you’re working for

• Provide your own tools and equipment

• Are able to provide your services to multiple businesses or people at the same time

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

Business registration in South Africa

Before you can begin working as an independent contractor in South Africa, you’ll first need to choose a formal structure for your business. Some of the most popular models include:

• Sole proprietorship: A simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

• Partnership: A simple partnership agreement. Again, there is no legal separation between the individual and the business; you and your partners are personally responsible for any debts and liabilities.

• Private company: A formal, legal entity that is separate from you, the individual. All income and losses are attributed to the company as opposed to you personally (i.e. you are only liable for the capital you invest in the company). A private company must have at least one shareholder and one director.

There are pros and cons to each of these structures, but most independent contractors choose the sole proprietor model, as it is fairly simple to set up and operate. If you’re unsure, it’s a good idea to speak with a registered solicitor or accountant first. 

If you do opt for the sole proprietor structure, you don’t need to register your business or conduct any specific legal formalities; in the eyes of the government, you and your business are the same thing. However, if your business activity is subject to regulation or licensing (i.e. you are handling food, practicing a protected profession, or providing health-related services), you will likely need to acquire a relevant permit through your local municipality.

Note too, that, as a sole proprietor, your business will automatically operate under your own name. If you want to use an assumed trading name for marketing or branding reasons, you will need to register that name with the Companies and Intellectual Property Commission (CIPC).

How do I get paid as an independent contractor in South Africa?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides South Africa, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in South African rands — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in South Africa

As an independent contractor, you’re responsible for filing and paying your own taxes.

The good news is that, as a sole proprietor, you pay personal income tax on your business profits (using your personal tax number). This means that you do not have to fill out a separate tax return, or pay additional corporate taxes.

In South Africa, self-employed people pay income tax as a provisional tax. This means that you will estimate your taxable income for the year, and then pay it in advance (spread across at least two payments). To do this, you will need to create an eFiling account with the South African Revenue Service (SARS), and fill out an IRP6 return. SARS can help you calculate your amounts due for provisional tax.

Like most countries, South Africa has a progressive income tax rate system. Depending on how much you earn, you will pay a flat amount plus anywhere between 18% and 45% on the excess.

If you earn less than R 1 million (around $55,000), you can register to pay a simplified turnover tax, which covers all your various tax obligations (including income tax). SARS provides a detailed guide on turnover tax, including who is eligible, when to pay, and how much you will owe.

Independent contractors do not need to make social security contributions in South Africa.

On the flip side, you can claim tax deductions on a wide range of business expenses, such as:

• Accounting, bookkeeping, and other professional services

• Insurance premiums

• Equipment and materials (including maintenance costs)

• Rent and utility bills for business premises

• Business travel (including mileage and maintenance costs)

If you work from home, you can also claim a proportion of your rent/mortgage, utility bills, and security costs. Keep accurate records of all these expenses, as it is likely they will be reviewed by SARS.

VAT information for independent contractors in South Africa

If your annual taxable income exceeds R 1 million, you must register for — and start charging your clients — VAT. You can do this through the SARS eFiling system (you will need to identify and provide a relevant business activity code during this process).

The current standard VAT rate in South Africa is 15%, although some goods and services are exempt. SARS provides a detailed VAT guide on its website, including law changes, updates, and a full breakdown of rates by product or service type.

Liability considerations for independent contractors in South Africa

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both South African and international clients.

Accounting requirements for independent contractors in South Africa

As a sole trader, you do not need to publish financial statements or accounts. However, under the Tax Administration Act, you must still keep organized, accurate records of all your income and expenditure (including client invoices, purchase orders, bank statements, and receipts) for at least five years. This will also help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool, or hire a professional bookkeeper or accountant.

Note that it is not necessary to open a business bank account, although many accounting professionals recommend keeping your personal and business finances separate.

The dangers of contractor misclassification in South Africa

As we’ve mentioned, independent contractors are classified differently to employees in South Africa. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client under the country’s Labor Relations Act.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I'm working with to convert me to an employee in South Africa?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with South African law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in South African rands hassle-free, without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to South African laws, ensuring that you always stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received. 

Setting up as a contractor in South Africa

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for both South African and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.