Building global wealth from South Africa #3: Getting paid from abroad

Welcome to Part 3!

If you're new to this series, you can check out the previous posts in this newsletter to get up to speed.

Now this is where we get serious and dive into things.

Getting paid from abroad as an individual

Hang on, didn't I already write about this one?

I did indeed! But let's recap before checking out the other post for more info.

For an individual, whether as a de-facto employee or as a freelancer, this process is a fair bit simpler. You can use usual international payment rails like SWIFT, new fintech services like Wise, or companies you work with might use global payroll software like Deel or Remote.

That being said, this is a subtopic that goes a fair bit deeper when it comes to your employment and tax status. As such I've written a completely separate post about that here: Full guide to working for foreign companies from South Africa

Getting paid from abroad as a business

This is the bread and butter of operating globally to build wealth from South Africa. Some may be fortunate enough to get a high-paying remote job, but others will have to build their own business.

Remember: In South Africa, you can operate a business as an individual without formally registering. This is known as sole proprietorship, and is what most freelancers, contractors and personal service providers would fall under. It's not completely admin-free, but this is the reason I'm going to be using business instead of company below.

There are two aspects to payments as a business: having a bank account to remit funds to, and a method to accept payments from your customers.

Bank accounts

Obtaining a bank account can be fairly straightforward, albeit with a bit more documentation. For recommendations and comparisons of business bank accounts, I'd highly recommend the following article by Gareth Dwyer over at Ritza: Comparing Business Bank Accounts in South Africa

Accepting payments

Accepting payments is where the majority of the complexity lies. The regulatory environment for businesses is a bit stricter here.

Most notably, due to South Africa's exchange controls (thank the reserve bank for this), it's very difficult to operate globally from a currency point of view.

The main issue for a long time has been that there's very few methods to charge customers directly in a foreign currency like dollars or pounds.

Why is that important? At its core, the issue is about perception and market access moreso than the benefits of getting paid in a stronger currency.

Globally, nobody knows or cares what a Rand is. From an international buyer perspective, seeing an unknown currency can also give the impression that you only support your local market.

This is especially important for digital businesses that are not restricted by geography. Software, online products, anything like that.

So, what are our options? Fortunately in 2024 we have quite a few:

- Easiest: Using a Merchant of Record (MoR) payment gateway

- Hardest: Incorporate in a foreign country entirely

- Newest: Using a South African payment gateway's currency features

Easiest: Using a Merchant of Record

Up until very recently, the (arguably only realistic) way to sell in e.g. USD would be to sign up with an MoR like LemonSqueezy.

A merchant of record acts in a legal sense as the real business interacting with your customer, where you are merely a supplier of goods for that customer. This way, the MoR handles sales tax (i.e. VAT) and other obligations for you, in exchange for taking a much higher percentage of your sales compared to a payment provider like Stripe. I've seen anecdotes of fees as high as 15%, compared to the average payment provider fee of around 3%.

Some argue that using an MoR is unnecessary - the tax authorities over in Tuvalu aren't going to chase you down because you sold a $15 ebook once and didn't pay them sales tax. There's plenty of debate around this online, but it's out of scope for this post. I'll put some links down at the bottom if you're curious though.

In an environment like ours, there wasn't much of a choice for a long time around using an MoR or not, if you didn't want to incorporate abroad (with all the hassle that that entails).

Hardest: Incorporating abroad

Now, this isn't the hardest one to start, but depending on your current situation and the final ownership structure, it can be one of the hardest to maintain.

There are plenty of services out there to make incorporating abroad very simple, such as Stripe Atlas, IncorpUK, and others for other countries.

Simple enough, right? Pay some money, file some paperwork, get a foreign bank account, and you're off to the races!

The catch, as with many things, is not in the upfront cost & effort, but the long-term maintenance.

Owning an amount of shares (usually >=25%) of a company abroad usually places you under a new set of tax obligations. These are known as Controlled Foreign Company (CFC) or Ultimate Beneficial Owner (UBO) laws.

This means that while your company is abroad, and most of its work is done by you in your home country, then you or the company may be required to file additional tax paperwork for the company or your income from it.

This is intended largely to prevent people from incorporating abroad and using that to not pay taxes locally.

In addition to that, the company itself is subject to its country's taxes and laws, so you'll need to handle yearly filings for it. Not always the most difficult thing. However when dealing with your own and another country's laws, especially if you're not physically present in the other country, things can become complicated really quickly.

That might then lead you to engaging with accountants and other services in that country to keep your company in good standing, on top of your own local tax and filing obligations.

If you're just starting out with building a business, this can be quite a lot of admin work and money to sink into just keeping your company in existence, let alone the work of actually running a business.

Newest: Using a local payment gateway with currency conversion

Finally, in 2024 the local payments space has finally opened up to allowing the use of foreign currencies! To a degree, that is.

At the time of writing this, there are two South African providers that offer this: Payfast and Peach Payments. Others I hear are also working on their version of this, so it's an arms race now! For the future I'm very hopeful that the Stripe-owned Paystack will also finally come into the fold here.

Right now, the one I'd recommend using is Payfast with their Multi-Currency Pricing feature.

How it works is that at checkout, customers can select which currency they'd like to pay in. The Rand-converted amount is then displayed alongside. They are then charged the exact forex amount in ZAR, and your Payfast account receives that ZAR.

This solves the perception issue for international buyers, while also adhering to South Africa's currency restrictions. Right now, it's the best local solution. The only real downside is that you'll still be settling out money into ZAR, but that might not be the worst thing in the world if you're actually spending that money locally.

What about Peach? Their feature... exists.

Listen, Peach has gone to great lengths to improve their product and branding, and I know some great developers there. What I'm about to say is not to bash them or be overly negative. However, the execution of their multicurrency payments is really inconvenient for solo or small businesses.

Drawing from their posts on multicurrency here and here, as well as my direct attempt to sign up to use that feature, it has the following restrictions:

- You must have an enterprise tier Peach account. That's not as daunting as it sounds - the gist I gathered is that it has a monthly fee of a few hundred rands. But, any extra cost like that adds up early on, and it adds a bit more admin. Do they even offer this enterprise tier to sole proprietors?

- You must open an Absa multicurrency merchant account. This is the big one. Peach says they can assist with this, but Absa has strict requirements about approving these accounts. You're unlikely to get one when you're starting out. On top of that, Absa plainly sucks on every possible level. This is something I will not currently accept a dissenting opinion on.

In short, using Peach for multicurrency is way more admin than Payfast or an MoR, so right now I wouldn't bother.

Phew, that was a lot of info! Luckily, Parts 4 and 5 will be a bit more to the point. They'll be out on Friday and Monday.

Can't wait for the next one to be released on LinkedIn? The complete guide is available on my website, free of charge, in one long post! Check my profile for info.