Section 12J venture capital company structures ‘benefit investors’

The structures are incentivised with attractive rebates for individuals, funds, trusts and companies, says Jaltech co-founder Gaurav Nair

Section 12J venture capital company (VCC) structures can be commercialised to enhance returns from renewable energy projects for properties and for hospitality businesses, says Jaltech co-founder Gaurav Nair.

It would be a mistake for South African taxpayers who are making investments in SA not to consider structuring their investments through a section 12J VCC, as they are incentivised with rebates of up to 45% for individuals, funds and trusts and 28% for companies, says Nair.

Section 12J of the Income Tax Act is a piece of legislation that was created to promote investment in certain industries.

Jaltech is the only structuring specialist in the section 12J VCC space in SA, according to Nair. The group uses the section to structure businesses so that investors can enjoy tax benefits.

The law does not allow a section 12J deduction for investments in financial services, property development other than in the hospitality industry, the sin industries of tobacco, alcohol and gambling, arms and ammunition, or professional services consulting firms.

Substantial investments are being made in renewable
energy developments, including commercial and residential rooftop solar solutions, large photovoltaic projects and wind energy farms.

Nair says the ability of VCCs to invest in hospitality assets could be a boon for tourism in SA. For example, a person could buy a holiday home through a section 12J fund and the property could be classed as a hospitality asset. It would be serviced and managed by a third party and the owner would receive income and a tax rebate, he says.

Westbrooke Alternative Asset Management’s Jonti Osher, a commentator on section 12J, says there is limited time to invest in section 12J companies. The South African Revenue Service introduced section 12J with a sunset clause to take effect on June 30 2021 and the current regime might, or might not, be extended, he says.

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