| South
African Fiscal Incentives |
Introduction
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
four of the major initiatives set up by the new regime: Industrial
Development Zones (IDZ), the International Headquarter Company
exemption, the Small and Medium Enterprise Development Programme
(SMEDP), and the Strategic Investment Project (SIP) programme.In
addition to these specific schemes, the Revenue Laws Amendment
Act, passed in 2002, introduced strategic tax incentive measures
to attract industrial investment to South Africa and to promote
employment-generating projects in excess of R50 million, by
allowing those investing in manufacturing and IT a tax deduction
of up to 100 per cent.
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Industrial
Development Zones
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 incentive mechanism
- Effective
infrastructure
IDZs usually
consist of two zones of operation:
| 1)
|
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.
|
| 2) |
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. |
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Small and Medium Enterprise
Development Programme (SMEDP)
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.
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Strategic Investment Incentives
The
Strategic 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).
Although
there was a delay in implementing the scheme, the trade and
industry department announced in April 2002 that the scheme
had come on stream after finalising the criteria for the evaluation
of projects.
The
SIP incentive is accessible to industrial projects participating
within the following sectors:
- Manufacturing
of products: all listed manufacturing activities excluding
tobacco and tobacco related products; Computer and computer
related activities: hardware consultancy, software consultancy
and supply, data processing (excluding standard secretarial
services), and database activities;
-
Research and development activities: research and experimental
development on natural sciences and engineering
The proposed project should:
-
Comprise investment in new qualifying assets equal to or
exceeding R50 million; Increase annual production of the
relevant industry sector within South Africa; Not substantially
displace products or jobs in the relevant sectors;Demonstrate
long term commercial viability; Promote employment and production
in the same economic sector in which the project is to be
established;
-
Not concurrently be benefiting from certain other schemes
as per the relevant legislation.
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