The sun has set for venture capital companies
Income Tax Act Section 12J
Section 12J was introduced into the Income Tax Act by the government to provide individuals, companies and trusts with a tax incentive to invest in Venture Capital Companies (VCC). The aim was that the incentive will contribute to the creation of jobs and assist small and medium sized business to gain access to finance and thereby stimulating growth in the South African economy.
In order to obtain VCC status a company has to comply with certain requirements and submit an application to SARS for approval. The requirements include the company being resident in South Africa with the sole purpose or object being the management of investments in qualifying companies. The company furthermore is required to be a registered financial services provider and all tax affairs should be in order. Once all of these requirements are met the company may submit an application form provided by SARS (Link to application form) to firstname.lastname@example.org.
Since January 2009 investors were able to claim the investment made in qualifying SMME's through registered VCC's as a deduction from income. The VCC regime is subject to a 12-year sunset clause. The motivation for investors will thus soon come to an end as a result of the sunset clause which only provides for these types of investments until the 30 of June 2021 unless an extension is granted by the Government.
Various stakeholders in the industry have lobbied for the Government to extend the clause however in the National Budget of 2021 the Minister of Finance announced that the sunset clause will not be extended beyond 30 June 2021. "A National Treasury assessment determined that the incentive did not sufficiently achieve its objectives of developing small businesses, generating economic activity and creating jobs. Instead, it provided a significant tax deduction to wealthy taxpayers. The majority of investments supported by the incentive seem to be in low?risk or guaranteed return ventures that would have attracted funding without the incentive."
For more information please read the section on tax incentives in Chapter 4 - Revenue trends and tax proposal