Is Section 12J VCC applicable to my business?
If you are looking to expand your business or invest new opportunities, creating a Section 12J Venture Capital Company (VCC) may be applicable to you.
Section 12J of the Income Tax Act was formed to incentivise South African taxpayers to invest into particular areas of the South African economy, through a significant tax incentive on the amount invested. An investor into a Section 12J VCC can reduce their income by the full amount invested into the VCC.
What is important to a South African taxpayer is whether this tax incentive is applicable to their business and how this could be implemented. At Jaltech, we have seen this tax legislation being applied across multiple areas, a few of these areas include:
- Franchisors looking to increase the number of franchisees (restaurant, print stores)
- Companies in the business of leasing movable property (yellow equipment, cranes, cars)
- Companies which have a substantial enterprise development and/or supplier development spend requirement
- Companies looking to raise finance for their projects
- Companies investing, acquiring or developing:
- Renewable energy projects
- Mining projects
- Hospitality assets (hotels, student residence, B&Bs)
- Manufacturing plants
- Agriculture projects
How does the tax incentive work?
The tax rebate for a South African taxpayer is 28% for corporates and up to 45% for individuals or trusts and is applicable to the amount invested into a business or opportunity located in South Africa.
This tax incentive for investing into a Section 12J VCC is in the form of a reduction of the taxpayer’s taxable income by the full amount invested and this is claimed by the South African taxpayer in the year the investment into the VCC is made.
Therefore, a South African taxpayer effectively receives 28% as a corporate and up to 45% as an individual or trust on the full investment value into a VCC. By way of illustration, if a company invests R10 million, it will receive R2.8 million in the form of a reduced tax bill. This means that the company receives the full R10 million investment exposure for just R7.2 million.
In order to ensure that Section 12J has application to your business or opportunity, Jaltech’s senior management will invite you to attend a non-committal consultation in order to understand and discuss the possibilities of structuring your opportunity/ through a Section 12J VCC.