The Research and development (R&D) Tax Incentive is a significant driver of innovation in South Africa encouraging companies to undertake R&D activities they might not otherwise be able to fund. However, many companies don’t claim the R&D credit because they aren’t aware of its existence or don’t think it applies to them. Others find accessing this incentive extremely challenging and time consuming.
But, the R&D incentive’s role in helping to build, grow and innovate means the pros far outweigh the cons. Catalyst Solutions outlines everything you need to know about applying for the R&D Tax Incentive in South Africa.
A brief outline on the Section 11D Tax Incentive
The Section 11D Tax Incentive allows for a supercharged tax deduction of 150% on qualifying R&D expenditure, which results in a cash (tax saving) benefit of 14% on qualifying expenditure.
South Africa is unique in that it is one of the few countries globally that require pre-approval in order to claim an R&D tax incentive. Most other countries that offer an R&D incentive utilise a post approval process in which companies claim the incentive with possible audits after utilising the incentive. On the one hand this provides more certainty with the incentive, however this does add to the administration of the incentive.
Do you qualify?
- The R&D must be done in South Africa and qualifying expenditure can include salaries, overheads, materials and contractor costs.
- A company can apply for multiple projects at a time
- No BEE level is required.
- There is no IP restriction.
An overview of the application process
The application process to access this incentive involves submitting an application to the Department of Science and Innovation (DSI). Final approval of an application may take anywhere upto a few months. However, it is important to note that approvals are backdated to the date of submission – it is therefore extremely important to submit applications as early as possible in the life of a project.
The DSI aims to reach a decision within 90 days from submission of the application, however in reality, as a letter needs to be signed off by the Minister of Science and Innovation, the response time is often longer.
The current application process is very administratively burdensome and requires a deep understanding of both the qualifying criteria and the nature of R&D being done.
Catalyst can help you access the R&D tax incentive by:
Identifying eligible R&D activities, and engaging with your technical team to gain a deep understanding of your goals and the technical challenges you will need to overcome.
- Benchmarking the work being performed against other work done on a global level to ensure that it is genuinely innovative and true R&D.
- Compiling a technical motivation that supports the eligibility of R&D activities
- Reviewing all financial data to ensure it complies with relevant legislation and guidelines.
- Preparing supporting reports, schedules, and documents that can be used to validate a claim in the event of a SARS audit.
- Advising on the best way to structure future R&D projects to maximise your ability to access this incentive
- Remaining in constant communication with the DSI to ensure client applications are timeously adjudicated by the committee.
The bottom line
The reality is that the Section 11D Tax Incentive is far more widely applicable than many believe, can be secured efficiently with the right guidance, and continues to be hugely valuable to South African businesses who invest in innovation and R&D.
And with so much work going into the physical research and development of your products and services, the last thing you need is the extra work and administrative hurdles involved with applying for an incentive. Identifying, processing and securing the 11D incentive and dealing with the complex regulatory issues involved, requires vast expertise and experience. That’s one reason our specialist team frequently exceeds the expectations of our clients, achieving savings that are significantly larger than anticipated.
Visit www.catalystsolutions.co.za or Email: email@example.com to apply for your Section 11D Tax Incentive for the new financial year.