African Fiscal Incentives
The South African government,
understandably enough after decades of international isolation,
is very keen to encourage foreign direct investment (FDI)
into South Africa, and offers a range of taxation and other
incentives in order to entice international (and in some cases
domestic) investors. Here we will be looking at some of the
major initiatives set up by the new regime: Industrial Development
Zones (IDZ) and the Small and Medium Enterprise Development
Programme (SMEDP), and a range of incentives offered for manufacturing
Enterprise Investment Programme was launched by the government
in July 2008, to provide sector-specific financing in order
to encourage growth in key areas.
Industrial Development Zones
(IDZs) are purpose-built industrial estates providing facilities
and services tailored for export-oriented industries. They
are linked to international airports or ports, and run along
similar lines to Export Processing Zones, which fall outside
of domestic customs zones, and so are able to import items
free of customs and trade restrictions, add value, and then
export. Sites already earmarked for, or actually being used
as IDZs include Richmond, East London, Durban, Coega, Saldanha,
and the Johannesburg international airport.
New investments locating in
an IDZ can expect several benefits:
- Attractive regulatory regime
and investment facilitation services provided by zone operators;
- Duty free imports of capital
goods and inputs, plus VAT exemption for exports;
- Access to the government's
- Effective infrastructure
IDZs usually consist of two
zones of operation:
- Customs Secured Area (CSA).
A delimited area with entrance and exit points controlled
by customs personnel, and a dedicated customs office providing
rapid inspection and clearance.
- Industries and Services
Corridor (ISC) Adjacent to the CSA, and occupied by service
providers to the export-oriented enterprises located in
the Customs Secured Area.
On January, 23, 2012, a Special
Economics Zone Policy and Bill were gazetted by the Minister
for Trade and Industry, inviting the public to comment on
the proposal with a deadline of March, 22, 2012.
The proposals specifically target
the creation of Sepcial Economic Zones (SEZ) in the underdeveloped
regions in the country. Under the proposals, an IDZ will be
classed as a type of SEZ and regulated by an SEZ board instead
of via the Manufacturing Development Act. The Bill further
aims to provide for the designation, development, promotion
and management of SEZs, the regulation of applications and
permits and the establishing of an SEZ fund.
Small and Medium Enterprise
Development Programme (SMEDP)
N.B. The SMEDP was suspended
on August 31, 2006. No applications for the SMEDP programme
were accepted after this date and existing guidelines apply
only to applicants accepted into the scheme prior to August
The SMEDP is a programme designed
to generate employment, and create opportunities for the introduction
of new and advanced skills to South Africa, as well as to
encourage foreign investment in the country. One of the programmes
it offers provides incentives for those planning to expand
existing South African based enterprises, or to start new
projects in a range of sectors, including manufacturing, tourism,
business services, information and communications, technology,
and high value agricultural projects.
Eligible projects can claim
an annual tax free cash grant of up to 10% of the qualifying
investment cost, paid over two or three years if a labour
usage criteria is met. The rates for assistance are as follows:
- First R5 million ($630,000
approx) investment 10% per annum
- Next R10 million ($1.26m approx) investment 6% per annum
- Next R15 million ($1.89m approx) investment 4% per annum
- Next R20 million ($2.52m approx) investment 3% per annum
- Next R25 million ($3,15m approx) investment 2% per annum
- Next R25 million investment 1% per annum
Another incentive, offered to
businesses with approved training programmes, is the Skills
Support Programme, which can be accessed simultaneously with
any other investment or competitiveness programmes. The SSP
offers a three-year grant to the value of up to 50% of the
cost of training new staff as the result of an expansion or
new project. It also offers a capital grant for training equipment
and course materials.
The government is also very
keen to stimulate domestic investment, as it believes that
this is the key to foreign investment, as international investors,
to a certain degree, follow the sentiment and mood of their
domestic counterparts. To this end, a number of Spatial Development
initiatives (SDIs or 'Investment Corridors') have been set
in place to establish conditions that will be attractive to
both domestic and international investors. SDIs have tended
to be established outside the major industrial centres, and
offer private/public partnerships designed to encourage economic
growth, and create jobs in areas such as tourism and agriculture.
However, the incentives offered to investors in these initiatives
are 'soft' incentives, for example links with local suppliers,
red tape reduction, etc, and as such will probably appeal
more to domestic enterprises than international investors.
Incentives For Manufacturing
A company which incorporated
on or after October 1, 1996 contemplating carrying on a manufacturing
project as its sole business, may be awarded a tax holiday,
up to a maximum of six years, if the project meets certain
conditions. The project may consist of one or more of three
components, namely a spatial component, an industry component
and a human resource component.
The company must apply to the
Regional Industrial Development Board for the approval of
its project before it will be granted the tax holiday status.
Such status consisting of a zero rate being applied to taxable
For each component certified
by the board, the company will be entitled to the tax holiday
status for two consecutive years. The tax holiday status will
commence in the first year in which the company has a taxable
income and will lapse ten years after the project was approved.
Existing entities will not qualify
for the tax holiday. Additional information may be obtained
The Department of Trade and
Private Bag X 86
Tel: (012) 394 9500
Fax: (012) 394 9501
Investment Project program offers a tax allowance of up to
100 percent (a maximum allowance of R600 million (app. $100
million) per project) on the cost of buildings, plant and
machinery, for strategic investments of at least R50 million
(app. $85 million).
there was a delay in implementing the scheme, the trade and
industry department announced in April 2002 that the R3-billion
Strategic Investment Projects (SIP) incentive scheme had come
on stream after finalising the criteria for the evaluation
of projects. The incentive was broadly welcomed by investment
analysts and consultants.
of Trade and Industry said at the time: "The incentive
represents an innovative step by government to attract private
sector investment in profitable and wealth-creating entitities
into SA, from both local and foreign entrepreneurs. The SIP
will support industrial projects investing at least R50m in
qualifying industrial assets. These projects are expected
to increase production within the SA industry and have a potential
for long-term sustainability."
incentive programme provides tax credits equal to between
50% and 100% of the cost of qualifying projects, with a points
system being used to assess the value of individual projects.
SIP incentive is accessible to industrial projects participating
within the following sectors:
of products: all listed manufacturing activities excluding
tobacco and tobacco related products;
and computer related activities: hardware consultancy, software
consultancy and supply, data processing (excluding standard
secretarial services), and database activities;
and development activities: research and experimental development
on natural sciences and engineering
proposed project should:
investment in new qualifying assets equal to or exceeding
annual production of the relevant industry sector within
substantially displace products or jobs in the relevant
long term commercial viability;
employment and production in the same economic sector in
which the project is to be established;
concurrently be benefiting from certain other schemes as
per the relevant legislation.
Enterprise Investment Programme
Investment Programme was launched by the government in July
2008, to provide sector-specific financing in order to encourage
growth in key areas.
currently operates under two sub-programmes – the Manufacturing
Investment Programme (MIP) and the Tourism Support Programme
(TSP – though further sub-programmes are expected to
be added in the future to address the needs of other specific
works through an investment grant of between 15% and 30% towards
qualifying investment in plant, machinery and equipment and
customised vehicles required for establishing new or expanding
existing production facilities or upgrading production capability
in existing clothing and textiles operations.
is designed to stimulate investment into the manufacturing
and related services sectors as part of the government’s
efforts to create further employment and ensure sustained
growth within the industry.
aims to encourage further investment into the industry by
providing a grant of up to 30% towards qualifying investment
below R200m in plant, machinery and equipment and commercial
vehicles required for establishing new and expansions of existing
the MIP can be accessed by a range of sectors in the manufacturing
industry, the government is focusing on four key sectors that
it has identified as having the most potential for achieving
its growth objectives: Metal fabrication, Capital and Transport
equipment; Automotive and components; Chemicals, plastic fabrication
and pharmaceuticals; and Furniture sectors.
of the TSP is to specifically promote sustainable job creation
outside of the traditional tourism destinations of Durban,
Cape Town and Johannesburg, as well as encouraging greater
transformation in the sector.
has chosen to support the tourism sector as it remains vital
to the South African economy, contributing close to R100bn
to GDP, and has relatively low entry barriers providing real
potential to grow the SMME segment.
many SMMEs have entered the tourism sector, particularly ahead
of 2010, most remain small and do not expand into medium sized
businesses, thereby limiting their job creation capacity.
offers a grant of up to 30% of qualifying capital investment
by enterprises investing below R200m, provided the enterprises
are located outside the three established tourism areas.
can be used by applicants as part of their equity contribution
when approaching third party partners and may also be used
to access further loans from banks.
Investment Incentive Schemes
African government has introduced a number of other schemes
designed to encourage investment in certain industries, including:
Infrastructure Programme (CIP)
programme provides subsidised support for economic infrastructure
required for committed productive investments, including new
or expanding existing projects. It also assists companies
with a top-up grant, with funding ranging from 10% to 30%
of the qualifying development costs.
the competitiveness of South African industries;
economic growth and create employment;
the development of industrial activities tat have strategic
advantage for South Africa;
a geographical spread of economic activities within South
and prioritise rural and economically depressed areas.
sector enterprises, private /public partnerships, industrial
development project operators, strategic Investment programme
applications and investors in strategic economic projects
may apply for assistance under the scheme. The following qualifying
costs may be claimed for:
incurred directly in the installation, construction and
erection of infrastructure;
costs incurred by the applicant for payment of employees
undertaking project work;
of materials directly consumed during the installation,
construction and erection of the infrastructure;
of new capital items, e.g. test equipment.
and Human Resources For Industry Programme (THRIP)
and Human Resources for Industry Programme (THRIP) is a partnership
programme, which challenges companies to match government
funding for innovative research and development in South Africa.
Managed by the National Research Foundation (NRF) on behalf
of the Department of Trade and Industry (the dti), THRIP focuses
on projects that specifically promote and facilitate scientific
research, technology development and technology diffusion,
or any combination of these.
projects funded by THRIP must include human resource development,
the choice of technological focus is left to the industrial
participants and their partners. The industry and the dti
share the costs – and therefore the risk – of
developing commercial technology on a R2 to R1 basis (industry:
the dti). the dti’s support may be doubled if a project
supports certain THRIP priorities.
takes place in the following ways:
and THRIP invest jointly in research projects where project
leaders are on the academic staff of South African Higher
Education Institutions (HEIs)
matches investment by industry in projects where researchers/experts
from Science, Engineering and Technology Institutions (SETIs)
serve as project leaders and students are trained through
Innovation Promotion through the Transfer Of People (TIPTOP)
schemes promote the mobility of researchers and students
between the industrial participants, HEIs, and SETIs involved
in joint projects. Four TIPTOP schemes are available, namely:
exchange of researchers and technology managers between
HEIs, SETIs and industry.
placement of SET graduates in firms, while they are
working towards a higher degree on a joint research
The placement of SET graduates in small, medium and
micro enterprises (SMMEs).
placement of SET skilled company employees within HEIs
Programme for Industrial Innovation (SPII)
administered by the Industrial Development Corporation of
South Africa, promotes technology development in the manufacturing
and IT industry through innovation of new products and processes.
All private sector firms and commercialised state owned companies,
which incur direct costs in the development of innovative
new products/processes qualify for the funding.
The SPII is focussed specifically on the phase that begins
at the conclusion of basic research (at the stage of proof
of concept) and ends at the point where a pre-production prototype
has been produced.
is provided in the form of product process development, a
matching scheme and a Partnership Scheme:
process development: Financial assistance is provided for
small, very small and micro enterprises in the form of a
grant of between 65% and 85% of the qualifying cost incurred
during the technical development stage with a maximum grant
amount of half a million Rand (R500,000) per
project. For enterprises with more than 25% black shareholding,
the grant is 65%, for enterprises with between 25% and 50%
black shareholding, the grant amount is 75%, and for enterprises
with black shareholding of more than 50%, the grant amount
scheme: This is a conditional grant that is repaid by means
of levy sales. Financial assistance is provided to SMEs
with more than 200 employees, a turnover of more than R51
million, and assets less than R19 million, in the form of
a grant of up to 50% of the qualifying cost incurred during
the technical development stage up to a maximum grant amount
of one and a half million Rand (R1,500,000) per project.
scheme: Financial assistance is provided in the form of
a conditionally repayable grant of 50% of the qualifying
cost incurred during development activity, with a minimum
grant amount of one and a half million Rand (R1,500,000)
per project, repayable on successful commercialisation of
the project. In considering support for a project under
SPII, there should be a clear indication of the causality
(additionality) that will follow from the support.
Industrial Participation Programme – NIPP
seeks to leverage economic benefits and support the development
of South African industry through government procurement.
The programme is targeted at the South African industries,
enterprises, and suppliers of goods and services to government/
parastatals, where the imported content
of goods and services equals to or exceeds US$10 million.
The primary customer of NIPP is the South African industry
that benefits through the NIPP business plans which, when
implemented generate new or additional business activities
through one or more of the following: investment, export opportunities,
job creation, increased local sales, SMME and BEE promotion,
research and development and technology transfer. The secondary
customer of the NIPP is the foreign supplier who benefits
from the programme through increased participation in the
South African economy. In the case of foreign customers, the
imported content of the purchase or lease contract for goods
and services must equal to or exceed US$10 million to qualify
for participation. In the case of South African industries,
participation is dependent on enterprise capability to satisfy
the requirements of both the programme and the foreign supplier.
Budget Film and Television Production Rebate Scheme has been
introduced where an eligible applicant will be rebated a sum
totalling 15 percent for foreign productions, or 25 percent
for qualifying South African Productions. This includes official
co-productions of the Qualifying South Africa Production Expenditure
(“QSAPE”) that the applicant has spent on an eligible
objective is to provide additional financial incentives for
the production of both foreign and domestic large budget film
and television projects in South Africa. In establishing the
rebate, the government recognises that large budget film productions
contribute to South Africa’s economic development and
international profile by providing valuable economic, employment
and skill development opportunities for the South African
film production industry.
rebate will ensure that South Africa remains competitive in
attracting large budget film productions from abroad. A finite
sum has been allocated over an
initial three-year period. The maximum rebate for each project
will be R10 million in order to attract an optimum number
Marketing & Investment Assistance Scheme (EMIA)
EMIA Scheme partially compensates exporters and investors
for costs incurred in respect of activities aimed at developing
export markets, and assists with the facilitation of investments
into South Africa. Any assistance provided under the EMIA
Scheme is at the discretion of the CEO of Trade and Investment
South Africa (TISA).
applicants for the scheme are:
African based manufacturers of products including small,
medium-sized and micro enterprises (SMMEs), previously disadvantaged
individuals (PDIs) and other businesses
African export trading houses
African commission agents representing at least three SMMEs
previously disadvantaged individuals (PDI)-owned businesses;
African export councils, industry associations and joint
representing at least five South African entities.
forming part of a group, joint venture or partnership will
qualify for EMIA assistance at the discretion of the EMIA
2010, the South African Treasury gazetted regulations relating
to tax incentives, as announced by Minister of Finance Trevor
Manuel in the 2008 budget, in support of the government’s
industrial policy strategy.
define the pre-requirements for an industrial policy project
to qualify for the tax incentives and the point scoring system
applicable to brownfield and greenfield projects. Prerequisites
include energy efficiency, skills development and investment
the points system, an industrial policy project will achieve
“qualifying status” if it achieves at least five
out of a total of 10 points and a “preferred status”
if it achieves at least eight out of a total of 10 points.
Qualifying status projects may deduct from their taxable income
an additional 35% of the costs of the investment in manufacturing
assets, up to a maximum of R550m (USD54m). Preferred status
projects may deduct an additional 55% of the cost of the investment
in manufacturing assets, up to a maximum of R900m. An additional
training allowance of R36,000 per employee may be deducted
from taxable income. The maximum total additional training
allowance per project is R20m in the case of a qualifying
project and R30m in the case of a preferred project.
for the incentives, investment projects must also adhere to
minimum standards of energy efficiency and spend at least
2% of their total wage bill on training and skills development.
There is a R200m ceiling on greenfield investments, and a
R30m limit on brownfield investments (or the lesser of R200m
or 25% of the value of existing assets).
will not, however, be able to avail of these incentives if
they are benefiting from other government programmes, such
as the Enterprise Investment Programme.