What is a know-how and technology transfer agreement?
Is a know-how and technology transfer agreement enforceable in South Africa?
“As a general rule, every person is entitled freely to carry on his trade or business in competition with his rivals. But the competition must remain within lawful bounds. If it is carried on unlawfully, in the sense that it involves a wrongful interference with another’s rights as a trader, that constitutes an injuria for which the Aquilian action lies if it has directly resulted in loss. The court condemned as unfair and unjust the use of a competitor’s product to gain an advantage — the foundation for protecting misappropriated know-how and trade secrets where no registered right exists.”
“A patent may, subject to the provisions of this section, be granted for any new invention which involves an inventive step and which is capable of being used or applied in trade or industry or agriculture (s 25(1)). An invention is "new" only if it does not form part of the state of the art — and "An invention used secretly and on a commercial scale within the Republic shall also be deemed to form part of the state of the art" (s 25(8)), so secret commercial use can destroy novelty. Know-how, trade secrets, and confidential technical information that are not, or cannot be, patented fall outside the registration system and are protected instead by secrecy and contract, which is what a technology transfer agreement secures.”
“Part IVA (ss 49A–49H) levies a withholding tax on royalties "at the rate of 15 per cent" of the amount of any royalty paid to or for the benefit of a foreign person from a South African source (s 49B), and it "is a final tax" (s 49B(3)). The defined "royalty" covers "the use or right of use of or permission to use any intellectual property" and "the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information" (s 49A) — which captures payments for technical know-how. Any person making payment of a royalty to a foreign person "must withhold an amount of withholding tax on royalties from that payment" (s 49E). The 15% rate applies unless a double-tax agreement between South Africa and the foreign person’s country of residence provides a reduced rate.”
When you need a Know-How & Technology Transfer
- When you license or sell a manufacturing process, formula, recipe, design, or technical method to a manufacturer, franchisee, or licensee — and need their use of the know-how controlled and kept confidential, because there is no register protecting it for you.
- When a holding or technology-owning company in a group lets operating companies, subsidiaries, or a foreign affiliate use the group’s technology or know-how: the agreement records the licensed use and supports an arm’s-length royalty for transfer-pricing, tax, and exchange-control purposes.
- When you transfer technology offshore — assigning or licensing IP and know-how to a foreign party or moving it to an offshore IP-holding entity — which requires South African Reserve Bank exchange-control approval at a market-related price and triggers royalty withholding tax on the payments.
- When you enter a joint venture, R&D collaboration, or commercialisation deal where each party contributes technical know-how and you need to fix who owns improvements, what each party may use, and how the secrets are protected after the venture ends.
- When you receive technology under licence (you are the recipient) and want certainty about your scope, exclusivity, territory, royalties, training and technical support, and the right to use improvements you develop — without unknowingly inheriting infringement or confidentiality risk.
- When you bundle unregistered know-how with registrable rights — patents, registered designs, or trade marks — in one deal and need the registrable and the secret elements protected under the right legal mechanism for each.
What a Know-How & Technology Transfer should contain
Definition and scope of the technology and know-how
The foundation clause: precisely identify and schedule what is being transferred — the processes, formulae, drawings, technical documentation, software, data, and the practical know-how — and any associated registered rights (patents, designs, trade marks). Because know-how has no register, a vague definition is the single biggest cause of disputes; list deliverables, manuals, and the medium of transfer (documents, training, source code, on-site assistance).
Transfer versus licence (and exclusivity, territory, field of use)
State whether the deal is an outright assignment of the technology or a licence to use it, and if a licence, whether it is exclusive, sole, or non-exclusive, limited to a territory and a defined field of use. Confirm that on a licence the owner retains ownership of the know-how and the recipient acquires no rights beyond the permitted use — and on an assignment, exactly what passes and what (if anything) the transferor may retain.
Confidentiality and trade-secret protection
The clause that actually protects the asset, since secrecy is the protection. Define the confidential information, impose strict non-disclosure and non-use-beyond-purpose obligations, require need-to-know controls, sub-contractor flow-down, secure handling, and return-or-destruction on termination. Survival should be indefinite for true trade secrets — confidentiality that lapses on termination is worthless for know-how.
Royalties, fees and exchange control
How the recipient pays — a lump sum, a running royalty on net sales, minimum royalties, milestone fees, or a mix — with reporting and audit rights. For cross-border deals the royalty must be arm’s-length and market-related, supported by an auditor’s letter or IP valuation, because the South African Reserve Bank (Currency and Exchanges Manual section B.2) must approve the offshore licence or assignment and royalties must be repatriated within 30 days.
Withholding tax and tax allocation
Address tax expressly. Royalties paid to a foreign person for the use of IP or know-how attract a 15% withholding tax under sections 49A–49H of the Income Tax Act 58 of 1962 (reduced under an applicable double-tax agreement), withheld by the payer. State who bears the tax, whether amounts are grossed up, and how DTA relief and tax residency certificates are handled — getting this wrong leaves the local payer liable.
Improvements, modifications and grant-back
Fix who owns improvements, enhancements, and modifications developed by either party during the deal, and whether there is a grant-back of the recipient’s improvements to the owner (and on what terms). Technology evolves, so silence here causes ownership fights — and a grant-back must be drafted carefully to avoid competition-law concerns where parties are competitors.
Technical assistance, training and support
Know-how is often only usable with hands-on help, so specify the training, technical support, documentation, secondment of personnel, and any commissioning or acceptance the transferor must provide for the recipient to actually work the technology — together with the standards, timelines, and any additional fees.
Warranties, IP indemnity and liability
The transferor warrants it owns or is entitled to transfer the technology and that, to its knowledge, the technology does not infringe third-party rights; the recipient warrants it will use it only as permitted and keep it secret. Allocate an IP-infringement indemnity and a sensible liability cap — particularly important because, unlike a patent, know-how carries no presumption of validity.
Term, termination and post-termination obligations
Set the duration, renewal, and termination triggers (breach, insolvency, change of control, loss of confidentiality). Critically, spell out what happens on exit: cessation of use, return or destruction of all technical materials, survival of confidentiality, and the recipient’s acknowledgement that it retains no residual rights — so it cannot keep using the technology or springboard off the know-how afterwards.
Know-how / technology transfer vs patent licence in South Africa
| Feature | Know-how & technology transfer | Patent licence |
|---|---|---|
| What is protected | Unregistered secret technical knowledge | A registered, examined monopoly right |
| Source of protection | Confidentiality + contract + common law | Patents Act 57 of 1978 (statutory monopoly) |
| Register / public record | None — value depends on secrecy | Public patent register and specification |
| Duration of protection | Indefinite, as long as it stays secret | Fixed patent term (then it lapses to public) |
| Disclosure | Must be kept confidential | Invention is published in the specification |
| Key drafting risk | Leak destroys the asset; define secrets tightly | Patent validity / infringement scope |
| Offshore royalties | SARB exchange control + 15% WHT | SARB exchange control + 15% WHT |
Common South African pitfalls
- Treating know-how like registrable IP: there is no register and no statutory monopoly for trade secrets or know-how in South Africa, so protection depends entirely on confidentiality and contract. If the agreement does not tightly define the confidential information and impose strict, surviving non-disclosure and non-use obligations, a leak permanently destroys the asset and you are left with a hard delictual claim instead of a clear contractual one.
- Confidentiality that lapses on termination: for true trade secrets, the non-disclosure obligation must survive indefinitely. Drafting confidentiality to expire with the agreement (or after a few years) leaves the recipient free to use your secret technology afterwards — and the springboard advantage from Harvey Tiling cannot be undone once the head start is taken.
- Ignoring exchange control on offshore transfers: assigning or licensing technology to a non-resident, or moving IP to an offshore holding company, requires South African Reserve Bank approval (Currency and Exchanges Manual section B.2) at an arm’s-length, market-related price supported by an auditor’s letter or IP valuation. Transferring IP offshore without approval, or at an under-value, exposes the parties to exchange-control penalties and reversal.
- Overlooking the 15% royalty withholding tax: royalties paid to a foreign person for the use of IP or know-how are subject to a final 15% withholding tax under sections 49A–49H of the Income Tax Act (often reduced by a double-tax agreement), and the local payer must withhold and remit it. Failing to deduct it, or to obtain DTA relief and residency certificates, leaves the South African payer liable for the shortfall.
- Leaving improvements and grant-backs unaddressed: if the agreement is silent on who owns improvements developed during the deal, the parties end up fighting over enhancements built on the transferred technology. Where the parties compete, a poorly drafted exclusive grant-back can also raise competition-law concerns — so improvements, ownership, and grant-back terms must be deliberate.
- Disclosing a patentable invention as “mere know-how”: secret commercial use of an invention in South Africa can destroy the novelty needed to patent it later under the Patents Act 57 of 1978. Choosing the trade-secret route by default — without deciding whether the technology should instead be patented — can forfeit a stronger, registrable right.
Frequently asked questions
Is know-how protected as intellectual property in South Africa?
Know-how and trade secrets are not registrable intellectual property in South Africa — there is no register and no statutory monopoly, unlike patents, trade marks, or registered designs. They are protected only while they remain secret, through confidentiality and contract, backed by the common law of confidential information (Harvey Tiling v Rodomac) and the delict of unlawful competition (Schultz v Butt). A technology transfer agreement turns that protection into enforceable contractual terms.
What is the difference between transferring and licensing technology?
A transfer (assignment) is an outright sale of the technology — ownership of the know-how passes to the buyer. A licence keeps ownership with the owner and gives the recipient a defined right to use it, which can be exclusive, sole, or non-exclusive and limited by territory, field of use, and time, usually in return for a royalty. You assign when selling the technology outright; you licence when you want to keep it and let others use it.
Do I need Reserve Bank approval to transfer technology offshore?
Yes. Assigning or licensing intellectual property and know-how to a non-resident, or moving it to an offshore entity, requires South African Reserve Bank exchange-control approval. Under the Currency and Exchanges Manual for Authorised Dealers (section B.2), an Authorised Dealer can approve an arm’s-length, market-related sale or licence supported by an auditor’s letter or IP valuation, and royalties must be repatriated to South Africa within 30 days; transactions outside those rules must go to the Reserve Bank.
Is there withholding tax on royalties paid for know-how to a foreign party?
Yes. Royalties paid to or for the benefit of a foreign person for the use of intellectual property or know-how that has a South African source are subject to a final withholding tax of 15% under sections 49A–49H of the Income Tax Act 58 of 1962. The South African payer must withhold and remit it. The rate may be reduced if a double-tax agreement between South Africa and the foreign person’s country applies and the correct documentation is in place.
How do I protect a trade secret if it cannot be registered?
By keeping it secret and locking down access by contract. Use a clear definition of the confidential information, strict non-disclosure and non-use obligations that survive termination indefinitely, need-to-know controls, sub-contractor flow-down, secure handling, and return-or-destruction duties. South African law (Harvey Tiling v Rodomac) protects information that has the quality of confidence and was imparted in confidence, and restrains its use as a “springboard” — but the contract makes enforcement far simpler than a common-law claim.
Should I patent my technology or keep it as a trade secret?
It depends on the technology. A patent under the Patents Act 57 of 1978 gives a registered, time-limited monopoly but requires public disclosure and lapses; a trade secret can last indefinitely but only while it stays secret and gives no protection against independent discovery or reverse engineering. Importantly, secretly using an invention commercially in South Africa can destroy the novelty needed to patent it later — so decide deliberately, do not default into the trade-secret route.
Who owns improvements made to the technology after the transfer?
Whoever the agreement says — and if it is silent, ownership of improvements becomes a dispute. A well-drafted technology transfer agreement fixes who owns enhancements and modifications developed by each party, and whether the recipient must grant back its improvements to the owner. Where the parties are competitors, grant-back and improvement clauses must be drafted carefully to avoid competition-law concerns.
Does a technology transfer agreement have to be in writing?
There is no general statutory rule that a technology transfer agreement must be in writing, but it always should be — and in practice it must be, because exchange-control approval and the tax treatment both depend on a written agreement. Authorised Dealers and the Reserve Bank require the written licence or assignment and supporting valuation, and confidentiality and royalty terms need to be unambiguous to be enforceable, so an oral deal is never adequate for technology transfer.
Sources & authority
- Schultz v Butt [1986] ZASCA 47 (Appellate Division — unlawful competition / misappropriation, the Aquilian action)
- Patents Act 57 of 1978 — LawLibrary consolidated version (the registrable-IP boundary)
- Income Tax Act 58 of 1962, ss 49A–49H — LawLibrary consolidated version (15% withholding tax on royalties, incl. know-how)
This guide is general information, not legal advice. It reflects the law as at June 2026.