- By Dov Paluch | Director, Catalyst Solutions
The South African government introduced the section 11D R&D tax incentive to do something specific: reduce the cost of private sector innovation. The logic is straightforward. Companies that invest in research and development take on real financial risk. The outcome is uncertain, the timelines are long, and the commercial return is never guaranteed. A 150% tax deduction on qualifying expenditure is the government’s way of sharing some of that risk.
The incentive has been in place since 2006 and was significantly overhauled from 1 January 2024, with a simplified definition of qualifying R&D and a new six-month grace period on expenditure.
What surprises many finance directors is how broadly it applies. The incentive is not limited to pharmaceutical companies or mining groups. It is available to any South African company with section 11D qualifying activities and those activities cover more ground than most finance teams expect. The test is whether the technical work involves genuine uncertainty, where a skilled person in the relevant field would need to run experiments or investigations to find the answer, rather than simply applying existing knowledge. For a broader overview of eligibility, the DSTI approval process, qualifying expenditure and record-keeping, see our complete guide to South Africa’s Section 11D R&D tax incentive.
The 2024 amendments simplified the definition of qualifying R&D considerably. Under the revised framework, activities must be systematic, meaning planned and documented rather than ad hoc, and they must be aimed at resolving scientific or technological uncertainty. There must also be an element of innovation in terms of discovering new scientific or technological knowledge, or developing (or significantly improving) a new product or process.
Scientific or technological uncertainty exists when the answer to a technological problem is not already known and cannot be worked out by someone with relevant expertise without actually doing the investigative work. If your engineering team knows how to solve a problem before they start, it does not qualify. If they are designing experiments, testing hypotheses, and working through failure before they reach a solution, it very likely does.
In practice, this applies across a wider range of sectors than most companies assume. A pharmaceutical company developing a new drug formulation is an obvious example. Less obvious is the food manufacturer running trials to achieve a specific texture or shelf-life result that existing processes cannot deliver. Or the software company building a machine learning model where the architecture and training approach are genuinely experimental. Or the mining company developing a new flotation process to extract value from lower-grade ore.
While there needs to be innovation, the work does not need to result in a patent or a published paper. It also does not need to succeed. Failed experiments count, provided the failure was part of a genuine investigative process aimed at resolving uncertainty as this will also ultimately add to the existing body of knowledge.
Systematic is also worth unpacking. The DSTI adjudication committee does not just want to know what the work was. It wants to see evidence that the work was planned, executed and recorded in a methodical way. Project records, test logs, technical reports, and internal documentation of what was tried, what failed, and what was learned all contribute to demonstrating that the work was genuinely investigative rather than routine. Companies that do qualifying work but document it poorly are in a weaker position than companies that document carefully, even where the underlying R&D is identical.
Understanding the exclusions is as important as understanding what qualifies. Section 11D qualifying activities are assessed against both sides of the definition, and a well-built claim is one where the boundaries have been properly considered from the start.
The legislation is explicit. Routine testing, quality control, and analysis carried out in the normal course of business do not qualify. Neither does market research, sales promotion, or research in the social sciences, arts, and humanities. The creation or development of financial instruments, the enhancement of trademarks or goodwill, and oil, gas or mineral exploration are also excluded unless the work involves developing new technology for that exploration specifically.
Two exclusions are worth pausing on because they generate the most confusion in practice.
Not all software development qualifies under section 11D. Building a standard application using established frameworks and known approaches does not meet the uncertainty test. Software development qualifies only where the technical approach is genuinely experimental, where the team is working through problems that existing tools and methods cannot solve.
Prior to the 2024 amendments, developing internal business processes was excluded entirely. That exclusion has been removed. Internal processes now qualify provided the work involves genuine scientific or technological uncertainty, regardless of whether the outcome is intended for sale or internal use only. This is a meaningful change for manufacturing and operations-heavy businesses that may have dismissed the incentive on this basis before.
A related challenge arises when a project contains a mix of qualifying and non-qualifying activities. A software development project, for example, might involve a genuinely experimental component alongside substantial routine build work. Only the experimental portion qualifies. Identifying where that line sits requires technical judgement, and drawing it incorrectly, either too broadly or too narrowly, affects both the strength of the DSTI application and the accuracy of the expenditure claim that follows. This is one of the reasons why managing an R&D tax claim in-house is more demanding than it appears.
One of the most significant changes introduced from 1 January 2024 is the six-month grace period on qualifying expenditure. Before this amendment, a company could only claim expenditure incurred from the date the DSTI received the application. Starting work before submitting meant losing that early expenditure entirely.
The grace period changes that. A company can now claim qualifying expenditure incurred up to six months before the application submission date, provided the project is subsequently approved. In practical terms, this means a business that identifies a qualifying project in March and submits its application in September can include expenditure from as far back as March, being the inception of the project.
The implication for companies that have not yet applied is worth noting. If you are currently undertaking work that may qualify, the date you submit your application determines how far back your eligible expenditure can reach. Waiting costs money in a way that is difficult to recover later.
Establishing which of your activities count as section 11D qualifying activities is the starting point of the process, not the end of it. The DSTI adjudication committee includes external technical experts who assess each application against the definition of qualifying R&D. The quality of the technical narrative submitted, how accurately and specifically it describes the uncertainty being resolved and the investigative work being done to achieve the discovery or development, determines whether the application is approved.
Once approval is granted, a second layer of compliance follows. SARS retains independent audit rights over the expenditure claimed under an approved project. DSTI approval addresses the technical question. SARS addresses the financial one. Both require the same standard of documentation and preparation, and both need to be considered from the moment a qualifying project is identified.
If you are unsure whether your technical work qualifies under section 11D, or want to understand whether your current claim is being built to the standard the DSTI and SARS both require, speak to the Catalyst Solutions team. We work with businesses across South Africa and have supported clients through the full section 11D process, from initial application to SARS audit.
About the author
Dov Paluch is a director at Catalyst Solutions, a multi-disciplinary R&D tax advisory firm serving innovative businesses across the UK, South Africa, Australia and Germany. The Catalyst Solution’s team includes accountants, lawyers, engineers, and scientists and is built on the belief that the only R&D tax claims worth building are those you can confidently explain years later.
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