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How It Works:

HomeGuide
01

Qualifying investors (any taxpayer) will invest in approved VCC's.

02

The VCC will issue shares to you the investor and a 12J Tax certificate. The investor can then claim a tax deduction in respect of their investment in the approved VCC.

03

The VCC invests in qualifying investee companies.

04

In exchange, the 12J company will receive a return on investment from the investee company.

Introduction

The terms “Section 12J” or “12J” are making reference to Section 12J of the South African Income Tax Act, 1962 (Act No. 58 of 1962).
Section 12J came into effect on the 1st July 2009 and was created specifically for the purpose of inviting investors to participate in the capitalisation of promising small and medium size qualified enterprises in the Republic of South Africa. Taxpayers who invest in a Venture Capital Company (“VCC”), through the acquisition of shares in the VCC, in return are entitled to a 100% tax deduction of these monies invested, subject to the provisions of Section 12J, thereby achieving an immediate return on investment of up to 45% (being the reduction in taxes payable).

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Participating

Venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from high net worth investors, investment banks and financial institutions. It is the acquiring of investment capital where the venture capital firm invests in a new start-up or fast-growing business that has the potential for significant returns. Small and medium and new start-up businesses are not large enough to access the global capital markets available to large, established corporations. Many of these businesses still need sizeable amounts of capital to scale their businesses into meaningful entities.

  • Investor acquires shares in a Section 12J compliant VCC.
  • The VCC will provide the investor with a certificate which will allow the investor to claim a tax deduction on the expenditure incurred in acquiring the VCC shares.
  • The VCC will, in turn, invest and acquire shares in qualifying companies.
  • Qualifying companies operate to generate an additional return for the shareholders.

How Does An Investor Receive The Tax Benefit?

Here is a quick 4 point guide:

  • Investor subscribes for shares in an FSCA and SARS approved 12J Company.
  • Investor recieves VCC share certificate in return for investment.
  • Investment into a Section 12J Company is allowed as a deduction against regular taxable income.
  • Investor provides SARS with Proof of Investment.
  • Have a look at our Calculator to see how it works.
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Who Qualifies To Be An Investor?

  • Any taxpayer qualifies to invest in an approved VCC.*
  • Have a look at our brochure for more information.

Which Companies May Be Invested In By a VCC?

The VCC’s investment into the qualifying companies must be pure equity.

  • A company which is a resident, and which is not a controlled group company in relation to a group of companies. Note: The VCC cannot acquire more than 69% of the shares in qualifying companies.
  • The 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 an unlisted company (section 41 of the Act) or a junior mining company. A junior mining company may be listed on the Alternative Exchange Division (AltX) of the JSE Limited.
  • 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 of assessment.
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Which Compnaies May Not Be Invested In By A VCC?

The company may not be seen as reasonably carrying on any trade in respect of the following:

  • Immovable property
  • Banking
  • Long- and Short-term insurance
  • Money lending
  • Hire-purchase funding
  • Financial or advisory services
  • Legal services
  • Stock broking services
  • Management consulting services
  • Tax advisory services
  • Auditing or accounting services
  • Gambling
  • Liquor
  • Tobacco
  • Arms or ammunition
  • Trade carried on mainly outside South Africa

FAQ'S

How does a section 12J tax deduction work?

An investor qualifies for a deduction equal to the amount invested in a 12J VCC, duly registered with the FSB and SARS, in the tax period the investment is made. The effective saving for the taxpayer is therefore the amount of the investment multiplied by his or her marginal tax rate.

When do I need to make the investment?

In the tax period you wish to claim the deduction in, e.g. if your financial year end is 28 February 2021, you need to make the investment, and have the cash paid over, on or before 28 February 2021.

Is there risk involved?

Yes. The performance of the fund will be directly linked to the performance of the investee companies. Risk will be mitigated through careful selection of investee companies, performance of due diligence investigations and the fact that a VCC may only invest up to 20% of capital raised in a single investee company, in essence forcing diversification.

Can I reinvest dividends, and will such an additional investment also quality for the deduction?

Yes.