Construction is a very important sector, not just in South Africa, but all over the world. It involves building houses and offices for people to occupy. The demand for housing can never be abated; people will always need houses and so investing in a construction company will always be a good investment. Expectedly, you are not the only person that wants to delve into construction; many young entrepreneurs have discovered this as a very viable venture.
But of course, being such an important venture, there has to be some kind of regulation. Otherwise, the government would just sit around while random people build flimsy structures which would endanger the populace, and do more harm than good. Even though the purpose of the regulation is not to stop you from becoming a construction contractor, it is quite possible to become overwhelmed by the amount of paperwork required to apply for construction tenders and contracts. However, if you are determined, you can successfully get your construction company registered, and start the business of constructing houses and offices; making your money, and contributing your bit to the development of society.
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How To Start A Construction Company In South Africa
This article will tell you what you need, help you identify where to get them, and how to go about it. It does not matter whether you’re an informal business that wants to step up, or an entrepreneur looking to start a new construction company in South Africa.
What are the Requirements to Start a Construction Company in South Africa?
You need to comply with industry regulators. Essentially, you can group the Compliance Documents into two distinct parts: the first part is general. You need to register your company the same way any other business would need to. That would enable you to do business as a Pty Company, pay tax to SARS, and legally employ staff.
The second part of the paperwork is industry-specific; and relates to the construction industry in South Africa; this documentation will help you successfully make tenders and contracts. Of course, not every tender you make will require you to provide documentation proving the validity of your establishment, but it is a good idea to be duly documented.
Anyway, let us present a list of the documents that you need to legally and properly operate as a construction company in South Africa.
Section 1: General Documentation
1. Company Registration (register at the CIPC)
There are various types of businesses recognized in South Africa, however the most suitable for a construction company is a PTY company. This is what most construction companies use, and it will give you the credibility you need to get your tenders accepted. The benefit of a PTY company is that it gives you independence from your company and your company from you. Registering for a Pty Company means that you are taxed separately from your company and that your company can be sued instead of you. That is a good thing because if trouble comes as a result of your work, you don’t have to face the penalties personally.
While is cheaper to register a business rather than a company, you would not appear very professional to clients, and also as a Sole Proprietor. This means you need to submit your expenses and your income as part of your personal taxes to SARS every year. Furthermore, if the taxman or a client takes up the issue, you would personally be responsible.
As you have seen a PTY company is your best and safest bet when it comes to getting a company registered, especially as you are starting a construction company.
2. Employer Tax Registration (register at SARS and/or the UIF Office)
As a construction company, you will be hiring people to work with you, and that means you have to take care of them and pay something called an employer tax. Furthermore, you may also need to register for SDL (Skills Levy Development) or UIF (Unemployment Insurance Fund). This will require you to make very small monthly contributions for each employee. This is like a safety net that every concerned employer subscribes to. The SDL adds to a fund that’ll allow your employees to pursue training that can help them advance their careers. On the other hand, the UIF is a fund that takes care of your employees in the form of offering them employee temporary financial relief if they ever lose their job with you.
Technically, you may not be required to contribute to the UIF fund if your employees work for you less than 24hours a month. You can also be exempted from SDL if you expect your total salaries to be less than R500 000 for the next 12 months.
3. B-BBEE Affidavit or Certificate (register with a Commissioner of Oath or with the CIPC)
This one depends on how much money you are making: If your business’s turnover is less than R10 million in a year, then you don’t need a B-BBEE Certificate as yet. You do however need an Affidavit. You can just fill out a B-BBEE Affidavit and have it signed by a Commissioner of Oaths. This affidavit will serve as your B-BBEE certificate until you exceed a yearly turnover of R10 million. With that kind of money passing through your company you need an official B-BBEE Certificate.
4. Letter of Good Standing
A Letter of Good Standing is a document that indicates that you’ve registered with the workman’s Compensation Fund and your payments are up to date. This will help you look solid when you make tenders for contracts, and also protects you against very serious lawsuits.
The Workman’s Compensation Fund is a form of national insurance that is designed to provide financial compensation for your employers if they are harmed at work in any way. Of course, you will agree that the construction industry can come with some amount of risk of bodily harm, and so it is a good idea to make these provisions against that.
Because property developers and companies want to be sure that if any injury should happen to your workers they will not be responsible, so are going to need to show them this documentation so that they can go ahead and give you the jobs.
5. VAT Registration (register at SARS)
Some companies just go ahead and register for VAT as soon as they are formed. However, the truth is that VAT Registration is mandatory only when your company’s turnover/sales cross the R1 million mark. Before you hit that milestone, it’s completely voluntary.
Section 2: Construction Documentation
1. CIDB Register for Contractors
The Construction Industry Development Board (CIDB) registration is compulsory. This registration is required by South African law (Act 38 of 2000) for all construction companies. This registration will help you apply for contracts and tenders.
However, you do not need this if you want to build houses for your personal use, or to rent, or to sell. You also do not need this registration if you are only focused on providing labour or building materials for building companies.
As a full-fledged construction company, you need registration. The CIDB has the responsibility to ensure that there are national standards. They maintain the Code of Conduct that all construction companies uphold across South Africa, and also they help keep track of which contractor builds what, so as to know those who are competent, and punish those who do bad jobs.
2. NHBRC Registration
The National Home Builders Registration Commission (NHBRC) is another regulatory organization in South Africa that keeps a database of registered builders. Some clients request to see evidence of registration with them as a prerequisite before giving out jobs.
3. MBSA Membership
Master Builders South Africa is a voluntary association. Because this association is all about high building standards, it pays to be associated with them.
How much does it Cost to Register a Construction Company in South Africa?
You need to pay the NHBRC application fee of R745. 61, as well as the Company Registration fee of R125. That amounts to 870.61. However, because there will be some driving around involved, please have a bigger budget. Of course, as soon as a business takes off you will still have to register with more professional bodies.