As South African businesses attempt to navigate the uncharted waters of the Coronavirus pandemic, they are seeking ways to diversify, innovate, and pivot to ensure their continued survival.
Dov Paluch, Managing Director at specialized grants and incentives consultancy Catalyst Solutions, says the crisis has pushed businesses out of their comfort zones, igniting innovation in an attempt to adapt to the rapidly changing landscape.
“Major world events are known for being the catalyst for reinvention. Uber, Pinterest and Airbnb were created in the midst of the 2008 recession, while World War Two is renowned for a host of technological innovations that changed the world. Again, 2020 is expected to be regarded as a turning point in scientific and technological advancement across industries as the world attempts to adjust to the new normal.”
He says with the crisis pushing so many businesses to seek much-needed cash injections from the various government economic stimulus packages, businesses are failing to harness the obvious benefits of governments long-standing R&D tax incentive.
“R&D should be the first port of call when it comes to innovation. Companies who are taking the lead in innovation and technology in response to the crisis should make sure that they are not missing out on Government’s Section 11 D Tax Incentive to boost liquidity.
Dov says the incentive offers South African businesses the best of both worlds – the opportunity to innovate, and a supercharged tax deduction of 150% on qualifying R&D expenditure, which results in a cash(tax saving) benefit of 14% on qualifying expenditure.”
Dov says the incentive not only encourages companies to undertake R&D projects they otherwise would not be able to fund, but has a broader impact on industry and job creation.
He adds a major benefit of the Section 11 D Tax Incentive is the fact that any business in any sector or industry is welcome to apply as long as they meet the qualifying criteria.
“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.”
Dov however cautions that understanding and applying for the incentive can be both challenging and time-consuming.
“We’ve seen that a large number of the companies who try and apply themselves, land up either abandoning the process, or ultimately seeking the expertise of a consultancy. At Catalyst, our approval percentage is over 90%, ideally positioning us to help guide businesses from start to finish.”
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.
Catalyst Solutions will work with your business on a strategy to take advantage of the Section 11 D Tax Incentive and assist you throughout the application and claiming process. Get in touch for more information email@example.com