Investment Incentives South Africa

Section 12I: Tax Incentive

This investment incentives programme in terms of section 12I of the Income Tax Act allows for the claiming of an additional investment tax allowance (35% or 55% for projects located outside of a Special Economic Zone (SEZ) or 75% or 100% for projects located within a designated SEZ). The maximum allowance claimable on qualifying manufacturing assets is capped at R550 million in the case of a brownfield project or R900 million for a greenfield project.

Manufacturing Competitiveness Enhancement Programme

The incentive provides a cost-sharing cash grant calculated based on a percentage of the applicant’s average manufacturing value-added (MVA) achieved for a specific period. The grant is capped to between 10% and 25% of the manufacturing value addition. The grant can be claimed against qualifying expenditure relating to capital investment, cleaner technology and resource efficiency improvement, enterprise-level competitiveness initiatives, feasibility studies and cluster competitiveness improvement initiatives.

Critical Infrastructure Programme

Provides a cash grant incentive that covers between 10% and 30% (capped to R30million per qualifying infrastructure project) of the construction cost for the development of critical infrastructure to support strategic investment projects to be undertaken in South Africa.

Examples of qualifying infrastructure include roads, rail infrastructure, electricity transmission lines and substations, water pipelines, sewer connections, sanitation, storm water, telecommunication infrastructure, runways and landing strips, as well as their associated generation, storage, purification and other facilities that supply,protector in anyway facilitate the networks and systems.

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Automotive Investment Scheme

The incentive provides a cash grant of between 20% and 35% claimable over a period of three years on the value of qualifying fixed asset investment in buildings, plant, machinery and equipment required for establishing a new production facility or expanding an existing production facility.

The objective of the investments incentive is to grow and develop the automotive sector in South Africa by encouraging light motor vehicle manufacturers to invest in new and replacement automotive models as well as to support related component manufactures that form part of the original equipment manufacturer supply chain.

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Introduction to Incentives

Grants and investment incentives in South Africa are generally managed by the Department of Trade and Industry (DTI) and are aligned to the DTI’s industrial policy and the relevant action plans.  Programmes come in the form of cash grants, tax incentives or subsidised financing mechanisms.

At Catalyst Solutions, we will work with you to identify which incentives are the most appropriate for your unique situation and we then partner with you to assist you to gain access to the relevant incentives.

Capital Investment

Industrial Policy Project (section 12I) tax incentive

This incentive programme in terms of section 12I of the Income Tax Act allows for the claiming of an additional investment tax allowance (35% or 55% capped at R550 million in the case of a brownfield project or R900 million for a greenfield project) on qualifying manufacturing assets. The approved status of the project is allocated according to the applicable point scoring criteria.

In addition, a company may be eligible to claim a further tax deduction on the cost of training provided to employees in support of the qualifying industrial policy project. The training allowance is capped at R36 000 per employee and may not exceed R30 million in total.

Manufacturing Competitiveness Enhancement Programme

The incentive provides a cost-sharing cash grant of between 30% and 70% of expenditure incurred, calculated based on a percentage of the applicant’s average manufacturing value-added (MVA) achieved for a specific period. The grant is capped to between 10% and 25% of the manufacturing value addition. The grant can be claimed against qualifying expenditure relating to capital investment, cleaner technology and resource efficiency improvement, enterprise-level competitiveness initiatives, feasibility studies and cluster competitiveness improvement initiatives.

Critical Infrastructure Programme

Provides a cash grant incentive that covers between 10% and 30% (capped to R30 million per qualifying infrastructure project) of the construction cost for the development of critical infrastructure to support strategic investment projects to be undertaken in South Africa.

Examples of qualifying infrastructure include roads, rail infrastructure, electricity transmission lines and substations, water pipelines, sewer connections, sanitation, storm water, telecommunication infrastructure, runways and landing strips, as well as their associated generation, storage, purification and other facilities that supply, protect or in any way facilitate the networks and systems.

Automotive Investment Scheme

This incentive provides a cash grant of between 20% and 30% claimable over a period of three years, on the value of fixed asset investment in buildings, plant, machinery and equipment required for establishing a new production facility or expanding an existing production facility.

The objective of the incentive is to grow and develop the automotive sector in South Africa, by encouraging light motor manufacturers to invest in new and replacement automotive models, as well as to support related component manufacturers that form part of the original equipment manufacturer supply chain.

Automotive Investment Scheme applicable to People Carrier & Medium to Heavy Commercial Vehicles

The incentive programs provides investment support to people carrier manufacturers / assemblers and automotive component manufacturers.  A cash grant of between 20% and 35% of the value of qualifying investment in productive assets is offered, payable over a three year period.

The incentive is a sub-component of of the Automotive Incentive Scheme and is designed to stimulate a growth path for the people carrier vehicles industry through investment in new / and or replacement models and components that will result in new or retention of employment and / or strengthen  the automotive vehicles value chain.

Industry Specific

Clothing and Textile – Production Incentive

The incentive is applicable to clothing, textile, footwear, leather and leather goods manufacturers, and provides a cash grant of up to 75% of a company’s Manufacturing Value Add (MVA), claimable against qualifying expenditure. The incentive consists of two components, namely an Upgrade Grant Facility and an Interest Subsidy for Working Capital.

The objective of the programme is to structurally change the sector by providing funding assistance to encourage manufacturers in the sector to invest in competitiveness enhancement initiatives.

Clothing and Textile Competitiveness Improvement Programme

The incentive provides a cost-sharing cash grant of 75% (up to a maximum grant of R25-million) towards initiatives undertaken by ordinary clusters (cluster consisting of a group of at least five companies) and up to 100% (reducing to 70% over a five year period) towards national cluster initiatives (sector wide developed initiatives coordinated by a national structure).

The objective of the programme is to build and improve capacity and global competitiveness in the clothing, textile, footwear, leather and leather goods manufacturing sectors and the related value chain in South Africa.

Foreign Film and Television Production Incentives

The objective of the incentive is to encourage and attract large budget foreign films and television productions, as well as the relevant post-film production work, to perform the work in South Africa. The incentive is available to foreign productions with qualifying South African production expenditure  of at least R12-million, and for projects with qualifying post-production expenditure of at least R1,5-million. Approved projects will be able to claim back 20% of qualifying film and television production expenditure and 5% of qualifying post-production expenditure.

South African Film and Television Production Incentives

The objective of the incentive is to support the local film industry and to create employment opportunities in South Africa. The incentive is available to qualifying South African productions with a production budget of at east R2,5-million. Approved projects will be able to claim back 35% of the first R6-million of qualifying South African production expenditure and an additional 25% of qualifying expenditure on amounts over R6-million.

Aquaculture Development and Enhancement Programme

The incentive is a sub-component of the Enterprise Investment Programme, offering a reimbursable  cost-sharing grant of up to a maximum of R40-million of qualifying assets, as set out in the guidelines. The incentive is applicable to fish hatcheries and fish farms.

The objective of the programme is to stimulate investment in the aquaculture sector with the intention to, amongst others, increase production, sustain and create jobs, encourage geographical spread, and broaden participation.

Other Incentives

Business Process Services

The incentive provides a cash grant of up to R 184 000 per offshore job created in South Africa, claimable over a three year period offset against operational expenditure. In addition to this, certain bonus incentive payments may also be allocated towards significant employment opportunities.

The objective of the incentive is to attract investment and create employment through the promotion of offshoring service activities to be undertaken in South Africa.

Employment Tax Incentive

Employers have the opportunity to claim an incentive of up to R1 000 per employee dependent on the current salary of the employee per month for a period of two years. This is only available for entities employing South African citizens and permanent residents between the ages of 19 and 29. There are no age limitations on the employees if the company operates within a Special Economic Zone (“SEZ”) or in a specific industry designated by the Minister of Finance by Notice in the Government Gazette.

The incentive can only be claimed for new employees employed from 1 October 2013.

Capital Projects Feasibility Programme

The incentive provides a cost-sharing cash grant of 50% (projects outside Africa) or 55% (projects elsewhere in Africa) towards feasibility study related expenditure for proposed capital goods projects to be undertaken outside of South Africa.

The objectives of the incentive are to stimulate growth in the South African capital goods and services sector and to increase related South African exports.

Black Business Supplier Development programme

The incentive is applicable to predominantly black-owned enterprises and provides a cost-sharing cash grant of 80% (up to a maximum grant of R200 000 per project) towards expenditure relating to enterprise support services. In addition, the incentive also provides a cost-sharing grant of 50% (up to a maximum grant of R800 000) for costs relating to qualifying investment in tools, machinery and equipment.

Export Marketing and Investment Assistance

The incentive provides benefits in the form of cost-sharing cash grants for expenditure relating to international exhibition participation, primary export market research, promotion of foreign direct investment and individual inward buying missions leading to the conclusion of export orders.

Energy Efficiency (Section 12L) Tax Incentive

This incentive provides for an income tax deduction equal to 45c per kilowatt hour or kilowatt hour equivalent of energy efficiency savings achieved by the taxpayer during the year of assessment measured against a baseline period. There are certain processes which need to be followed in order for the taxpayer to be able to claim the incentive on an annual basis for the energy efficiency projects which is implemented.

The Taxpayer will have to appoint a Certified Measurement Verification Professional (CMVP) who will then submit a report to the South African National Energy Development Institute (SANEDI). SANEDI will then issue a report which will stipulate the total energy efficiency savings for the year of assessment.

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