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Incentives - Investment Support
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South Africa offers various attractive investment incentives, targeted at specific sectors or types of business activities. These incentives are administered by the national Department of Trade and Industry (the dti). In KwaZulu-Natal, Trade & Investment KwaZulu-Natal – the official investment promotion agency for the province – offers facilitation services between investors and traders with the dti for the purposes of accessing these incentives and any other services that may be required. There are also other region or municipality-specific trade and investment promotion agencies in the province, which offer similar services to Trade & Investment KwaZulu-Natal, normally to investors and traders within their areas of jurisdiction.
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Section 12i Income Tax Allowance Incentive (ITAI)
The newly launched Section 12i Income Tax Allowance Incentive is designed to support Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). The incentive offers support for both capital investment and training. The objectives of the incentive programme are to support: - Investment in manufacturing assets to improve the productivity of the South African manufacturing sector; and
- Training of personnel to improve labour productivity and the skills profile of the labour force.
The incentive offers: - R900 million in the case of any Greenfield project with a preferred status ;
- R550 million in the case of any other Greenfield project;
- R550 million in the case of any Brownfield project with a preferred status;
- R350 million in the case of any other Brownfield project;
- An additional training allowance of R36 000 per employee may be deducted from taxable income; and
- A maximum total additional training allowance per project, amounting to R20 million, in the case of a qualifying project, and R30 million in the case of a preferred project.
To qualify, the investment must be: - A Greenfield project (new project);
- A Brownfield project (expansion or upgrade); or
- Classified under 'Major Division 3: Manufacturing'.
The project should: - Upgrade an industry within South Africa (via an innovative process, cleaner production technology or improved energy efficiency);
- Provide general business linkages within South Africa;
- Acquire goods and services from Small, Medium and Micro Enterprises (SMMEs);
- Create direct employment within South Africa;
- Provide skills development in South Africa; and
- In the case of a Greenfield project, be located within an Industrial Development Zone (IDZ).
An Industrial Policy project will achieve 'qualifying status' if it achieves at least five (5) of the total 10 points, and a 'preferred status' if it achieves at least eight (8) of the total 10 points.
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The Research and Development Tax Incentive Programme was introduced in November 2006 in terms of Section 11(d) of the Income Tax Act. It is administered by the Department of Science and Technology in conjunction with SARS to encourage innovation, scientific and technological research and development (R&D) by taxpayers/companies in South Africa. The incentive is two-fold. Firstly, it consists of a deduction of 150% in respect of eligible expenditure on eligible scientific or technological R&D undertaken by taxpayers within South Africa. Secondly, it allows for the accelerated depreciation of assets for the purposes of scientific and technological R&D over three years, at a rate of 50:30:20, starting from the year of assessment in which the asset is first brought to use. Taxpayers can claim for eligible scientific or technological R&D expenditure on salaries and wages, materials, buildings, machinery, equipment and contracted R&D. Expenditure on the following activities is deductible: - Exploration and prospecting;
- Management of internal business processes;
- Management of trade marks;
- Social sciences or humanities; and
- Market research, sales or marketing promotion.
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An Industrial Development Zone (IDZ) is a purpose-built industrial estate linked to an international airport or seaport, which contains a controlled customs-secured area. A controlled customs-secured area is exempt from VAT and import duty on machinery and assets. The aim of an IDZ is to provide demand-driven infrastructure, generate sustainable local and foreign investment, and improve international competitiveness. The IDZ also comprise industries and service areas that are designed to: - Provide a location for the establishment of strategic investments;
- Promote and develop links between domestic and zone-based industries to optimise the use of existing infrastructure, generate employment and create technology transfers;
- Enable the exploitation of resource-intensive industries;
- Allow for the smooth operation of investors’ plants within the IDZ;
- Attract advanced foreign production and technology methods in order to gain experience in global manufacturing and production networks; and
- Provide world-class industrial infrastructure.
There are currently four Industrial Development Zones in South Africa, all strategically positioned close to an international seaport or airport. These are: - The Richards Bay Industrial Development Zone (RBIDZ) in KwaZulu-Natal;
- The Coega, and the East London Industrial Development Zones in the Eastern Cape; and
- The OR Tambo International Airport (designated) Industrial Development Zone in Gauteng.
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The Richards Bay Industrial Development Zone (RBIDZ) is a purpose-built and secure industrial estate on the Northern KwaZulu-Natal. It is linked to an international seaport of Richards Bay, tailored for manufacturing and storage of goods to boost beneficiation, investment, economic growth and, most importantly, the development of skills and employment. The RBIDZ aims to encourage international competitiveness through tax and duty-free incentives on importation of production-related raw materials and inputs, as well as world-class infrastructure, specially designed to attract tenants. The RBIDZ also offers: - Suitability for export-oriented production;
- Dedicated customs support services to expedite excise inspection and clearing;
- A zero rate of VAT on supplies procured from South African sources;
- Import status for finished goods which are sold into South Africa;
- Reduced taxation and exemption for some activities/products; and
- Access to the latest information technology for global communications.
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The Critical Infrastructure Programme provides subsidised support for the economic infrastructure required for committed productive investments, including new projects or the expansion of existing projects. It also assists companies with a top-up grant providing funding ranging between 10% and 30% of the qualifying development costs. The scheme aims to: - Improve the competitiveness of South African industries;
- Achieve economic growth and create employment; and
- Support the development of industrial activities that have strategic economic advantage for South Africa; and achieve a geographical spread of economic activities within South Africa and prioritise rural and economically depressed areas.
Private sector enterprises, private/public partners, industrial development project operators, strategic incentive programme applicants and investors in strategic economic projects are eligible to apply for the Critical Infrastructure Programme scheme. Entities may claim for: - Costs incurred directly in the installation, construction and erection of infrastructure;
- Remuneration costs incurred by the applicant for payment of employees undertaking project work;
- Costs of materials directly consumed during the installation, construction and erection of the infrastructure; and
- The cost of new capital items, e.g. test equipment.
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The new Automotive Production Development Programme (APDP), which will replace the Motor Industry Development Programme (MIDP) in 2013, aims to stimulate growth in the automotive vehicle production industry to 1,2 million vehicles per annum by 2020 with associated deepening of the components industry. This would provide an opportunity to increase the local content of domestically assembled vehicles. The APDP has four key elements: - A tariff reduction freeze from 2013 to 2020;
- Production incentives;
- A local assembly allowance; and
- An automotive investment allowance.
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The Enterprise Investment Programme (EIP) is an incentive grant which comprises the Manufacturing Investment Programme (MIP) and Tourism Support Programme (TSP). The incentive is accessible to both local and foreign-owned entities intending to locate their projects in South Africa. The MIP is a cash grant for locally-based manufacturers who wish to establish a new production facility, expand an existing facility or upgrade an existing facility in manufacturing industries. Qualifying investment costs would comprise machinery, equipment, land and buildings and commercial vehicles.
The TSP is an investment incentive grant that is payable over a period of two to three years to support the development of tourism enterprises, and in so doing, stimulate job creation and encourage the geographical spread of tourism investment. Tourism-related activities supported by the grant include accommodation, recreational/entertainment and cultural services, and tour operator and passenger transport services.
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The Foreign Investment Grant (FIG) is designed for international companies investing in plant, new machinery and equipment in South Africa. The grant compensates investors for the transportation of new machinery and equipment to South Africa.
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The Business Process Outsourcing and Off-shoring Investment Incentive (BPO&OII) comprises an investment grant and a training and skills support grant towards the cost of company-specific training. The incentive is offered to local and foreign investors who establish projects that aim to serve offshore clients.
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The Technology and Human Resources for Industry Programme (THRIP) is a partnership programme funded by the dti and managed by the National Research Foundation (NRF). On a cost-sharing basis with industry, the THRIP supports science, engineering and technology research collaborations focused on addressing the technology needs of participating firms and encouraging the development and mobility of research personnel and students among participating organisations.
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The Support Programme for Industrial Innovation (SPII) is a support programme of the dti, managed by the Industrial Development Corporation. The SPII is designed to promote technology development in industry in South Africa through the provision of financial assistance for the development of innovative products and/or processes. The programme for Industrial Innovation specifically focuses on the development phase, which begins at the conclusion of basic research and ends when a pre-production prototype has been produced.
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The Small Enterprise Development Agency (SEDA) Technology Programme (SEDATP) is a special ring-fenced programme of the dti, housed within SEDA. It was created to provide a broad array of business incubation, technology transfer, and quality and standards services and support to small enterprises. As part of the Government’s strategy to consolidate small-enterprise support activities since April 2006, the activities of the Godisa Trust, the National Technology Transfer Centre, the three business incubators of the dti, the Technology Advisory Centre, the technology-transfer activities of the Technology for Women in Business programme and the support programmes for small enterprises of the South African Quality Institute were merged into a single programme – the
SEDATP. The SEDATP seeks to stimulate economic growth and development through facilitating technological innovation and increasing the accessibility to, and utility of, technologies and technical support for small enterprises, whilst at the same time, improving the sustainability and international competitiveness of small enterprises supported through the programme. The SEDATP is therefore responsible for the provision of both financial and non-financial technology transfers, business incubation and quality support services for small enterprises.
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The incentive aims to attract foreign-based film productions to shoot on location in South Africa. This incentive programme consists of the Large Budget Film and Television Production Rebate Scheme, whereby foreign-owned qualifying producers are rebated a maximum of 15% of the Qualifying South African Production Expenditure, capped at R10 million, for the production of large-budget films and television productions. The incentive is effective February 2008 to January 2014.
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Under this incentive scheme, financial assistance is provided to South African feature films, tele-movies, television drama series, documentaries and animation. The objective is to contribute to the local film industry. Production budgets are required to be more than R10 million, with the rebate of 35%, capped at R10 million.
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The purpose of the Clothing and Textile Competitiveness Programme (CTCP) is to build capacity in clothing and textile manufacturers and in other areas of the apparel value chain in South Africa to effectively supply their customers, for example, major retailers, government and niche markets, both local and international. The programme aims to grow South African-based clothing, textiles, footwear and leather goods manufacturers to be globally competitive. Such competitiveness encompasses issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate. These interventions will include activities on people, equipment, materials and processes. The applicable investment grant is as follows: - The incentive programme provides investment support to both local and foreign-owned entities by offering a cost-sharing grant incentive of 75% of project cost on cluster projects and 65% of project cost for company-level projects. These incentives will not cover costs pertaining to machinery, equipment, commercial vehicles, land or buildings in an existing clothing and textile production facility;
- The company level grant will support the competitiveness improvement initiatives of such companies through the provision of 65:35 cost-sharing grants between the Clothing and Textile Competitiveness Programme grant and the company, respectively. Grant support for each company will be limited to a cumulative ceiling of R2,5 million over the five-year period of the programme implementation; and
- The cluster grant will support the development of such clusters through the provision of respective 75:25 cost-sharing grants between the Clothing and Textile Competitiveness Programme grant and the cluster participants. Grant support for each approved partnership will be limited to a cumulative ceiling of R25 million over the five-year period of the programme implementation.
The Clothing and Textile Competitiveness Improvement Programme will run for a period of five years, starting April 2009.
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The Production Incentive (PI) is aimed at structurally changing the clothing, textiles, footwear, leather and leather goods manufacturing industries by providing funding assistance for these sectors to invest in competitiveness improvement interventions. The production incentive consists of two components, namely an upgrade grant facility and an interest subsidy for working capital facility. The PI is a market-neutral incentive offered to the sub-sectors listed below, resulting in an incentive benefit equal to 10% for the year ending March 2011 of a company’s Manufacturing Value-Addition. The Production Incentive will run for a period of five years. The Production Incentive is available to: - Clothing manufacturers;
- Textiles manufacturers;
- Cut, Make and Trim operators;
- Footwear manufacturers;
- Leather goods manufacturers; and
- Leather processors (specifically for leather goods and footwear industries).
The PI specifically excludes any leather and leather goods manufactured for the automotive sector. The above two programmes (CTCP & PI) are administered by the Industrial Development Corporation of South Africa.
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The Export Marketing and Investment Assistance (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 in South Africa. The Scheme provides assistance in the form of air travel expenses, freight-forwarding costs relating to display materials, subsistence allowances, and exhibition space and booth rental costs. Eligible applicants for the scheme include: - South African-based manufacturers of products, including Small, Medium and Micro Enterprises (SMMEs), Previously Disadvantaged Individuals (PDIs) and other businesses;
- South African export trading houses;
- South African commission agents, representing at least three SMMEs or PDI-owned businesses; and
- South African export councils, industry associations and Joint Action Groups (JAGs) representing at least five South African entities.
Entities/divisions/subsidiaries forming part of a group, Joint Venture or partnership qualify for EMIA Scheme assistance at the discretion of the Scheme.
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The Jobs Fund, announced by the President during the State of the Nation Address in February 2011, is aimed at supporting initiatives that pilot new and up scale existing innovative approaches to employment creation, targeting the youth to acquire skills while being productively employed. The Fund’s activities include planning, financing and oversight of the implementation of job creation projects. The Jobs Fund considers proposals in the following areas:
ENTERPRISE DEVELOPMENT: For investments in product development, local procurement, marketing support, equipment upgrading or enterprise franchising. INFRASTRUCTURE INVESTMENT: For local infrastructure investment projects such as light manufacturing enterprise zones, local market and business hub facilities, critical transport and communication links and upgrading of infrastructure services. SUPPORT FOR WORK SEEKERS:For support programmes with a particular focus on unemployed young people such as job search projects, training activities and support for career guidance and placement services. INSTITUTIONAL CAPACITY BUILDING: For projects aimed at strengthening institutions through which job creation is facilitated. ELIGIBILITY: The Fund considers co-financing proposals from municipalities, government departments, private sector and non-governmental organisations that show development potential linked to job creation. This grant funding, is allocated on a competitive basis. Organisations which satisfy the co-funding component of the criteria are assessed favourably.
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