A quintessential guide to government tax incentives in SA

When Covid hit South Africa in March, businesses scrambled for lifelines from the various government economic stimulus packages and other support measures available.  But, what so many South African businesses don’t realise, is that government incentives have been around for years. 

Dov Paluch, Managing Director at specialized grants and incentives consultancy Catalyst Solutions, says 85% of South African companies they meet on a daily basis have no idea about the various incentive programmes available from the South African Government. 

“So many South African entrepreneurs, SME’s and large corporates are looking to innovate and evolve, but the capital investment to do this can be substantial, which is why these mechanisms offer a significant opportunity to local businesses in funding their growth and innovation.”

Catalyst has assisted companies in accessing more than R7 billion in grants and tax incentives. But, Dov cautions navigating the labyrinth of different incentives can not only be confusing, but difficult to attain if not done properly. 

“Accessing these grants can be challenging and time consuming. Which is why businesses need to partner with organisations who can assist them by expediting and streamlining the process.”

Catalyst outlines 4 of the most prominent government support schemes focusing on innovation: 

  1. Section 11 D Tax Incentive

The Section 11 D 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. R&D is not limited to work being done in a laboratory. Examples of qualifying activities include product or process development and improvements, scientific or technological designs, patentable work, activities involving testing and trial work, or software development.

Who qualifies for the Section 11 D Tax Incentive?

  • The R&D must be done in South Africa and qualifying expenditure can include salaries, overheads, materials and contractor costs. You may however apply for the R&D incentive if you are conducting R&D for a foreign company even if it is for a project in another country as long as you are conducting the R&D work in South Africa.
  • Current legislation requires companies to pre-approve the R&D that is being done in order to claim the incentive. Only expenses incurred after the date of submitting the application can be included. 
  • The tax deduction would be claimed by the company that is controlling the methodology and advancing the science and technology.
  • No BEE level is required.
  • There is no IP restriction.
  1. SPII Cash Grant 

The Support Program for Industrial Innovation (SPII) is an incentive administered by the Department of Trade, Industry and Competition. The incentive is offered for innovative development projects and is a matching scheme, where the DTIC will match between 50% – 85% of the project costs of up to a value of R5 million. This cash is non-taxable and is provided upfront in 3 milestones during the project duration.

Who qualifies for the SPII cash grant?

  • A company must have a BEE level; The higher the level the higher the matching proportion from the government, 50% at the lowest end and up to 85% for a level 1 BEE Company.
  • The company must have a clear road map going forward on how they will be spending the funding.
  • The company must have the ability to match the funds that the government will be injecting over the milestone periods (i.e. the remaining 15% – 50%).
  • The company should be working on either a new product or a significant upgrade to an existing one.
  • You can only apply for one project per company at a time.
  • The IP must remain in South Africa for 3 years.
  • Costs that can be included are: Salaries, sub-contractors, tooling costs, capital equipment, computer hardware and software costs, patent costs, travel costs, licensing costs, product trials, clinical trials, documentation, quality assurance, product certification and proof of market.
  1. TIA Loan

The Technology Innovation Agency provides unsecured loans of up to R50 million. Run through the Department of Science and Innovation, the loan is only paid back out of revenue should the development be successful. TIA is focused on projects that are advancing technology. The loan will be paid out in milestones.

Who qualifies for the TIA Loan? 

  • The DSI is looking for a company working on a project that is a world’s first.
  • It must be an extremely high technology hurdle. It should really be pushing the boundaries of what technology can do.
  • Potentially a project that is too risky for the company to completely fund themselves as the technology may fail because of its technical nature.
  • The company should also have a road map on how the funding will be spent.
  • Payments are released quarterly subject to audits.
  1. THRIP Programme

The Technology and Human Resources for Industry Programme (THRIP) is a cost-sharing grant of up to R8 million per annum for a period of 3 years for approved projects engaged in applied research and development

(R&D) in science, engineering and technology.

Who qualifies for the THRIP Grant?

  • The applicant must  be a registered legal entity in South Africa
  • Have a partnership with one partner being a South African research institution and the duration of the partnership must be equal to or more than the period of the THRIP project. 
  • The project must include at least one registered South African student at 4th-year level of study or higher, in the science, engineering and technology fields. 
  • In order to be supported the project must (among others) be applied research in the fields of science, engineering and/or technology whose outputs could make a significant contribution towards improving the industry partner’s competitive edge.
  • Must have at least a level 2 BEE level

Catalyst Solutions will work with your business on a strategy to take advantage of the opportunities on offer for your growth projects and assist you throughout the application and claiming process. Get in touch for more information info@catalystsolutions.co.za 

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