Section 12J of the Income Tax Act No. 58 of 1962 was legislated by the South African Government to incentivise South African taxpayers to invest in local companies and to receive a tax deduction of up to 100%. The entire amount that is invested can be deducted from the investor’s taxable income.
Approved venture capital companies (VCCs) such as Optomise, provide the opportunity to invest in approved S12J compliant companies.
Once the funds have been received by Optomise, the equity finance is invested into the S12J companies and the investor is issued with an S12J tax certificate and their venture capital shares. This will include the name of the taxpayer, the year in which the investment was made, the amount of the investment made, and the tax registration number of the tax payer. The tax certificate will provide the investor with a 100% tax deduction for the funds invested for that tax year.
South Africans tax payers who are eager to invest in South Africa would be wise to investigate the S12J opportunities available to reduce their taxable income.
Investees must be a company and must be resident in South Africa.
They cannot be a controlled group company in relation to a group of companies.
Investee company’s tax affairs must be in order (a tax clearance certificate must be requested from SARS to support this requirement).
The company must be unlisted (section 40 of the Act) or it must be a junior mining company.
During any year of assessment, the sum of the ‘investment income’ derived by the company must not exceed 20% of its gross income for that year.
The qualifying company must not carry on a trade in respect of any of the following sectors: