What is 12J and how does it work?

Section 12J is woven into South Africa’s Income Tax Act and enables investors to provide much-needed capital to Small-to-Medium Enterprises (SMEs). With Section 12J funds, investors have 100% of their investment value deducted from their taxable income in the year of assessment in which the investment is made (Note that if the investor decides to sell the shares within 5 years from purchase date, they will forfeit this deduction). This type of investment is open to all South African taxpayers — including corporates, trusts and retail investors. High-income earners, in particular, can obtain up to a 45% return in the form of tax savings in the first year of their investment. It is important to qualify this and state that the investor may not be a connected person.

What is required for a company to register as a VCC?

An application form must be completed by the company. The application form is available electronically and can be accessed by following the steps below:

  • On the SARS website (www.sars.gov.za), click on Businesses and Employers
  • From the drop-down list select Venture Capital Companies
  • Select the link Click here to download the application form

The following supporting documents must accompany the application form:

  • A Tax Compliance Status (TCS pin) to substantiate that the company’s tax affairs are in order
  • A registration certificate as issued by the Companies and Intellectual Property Commission (CIPC).
  • Memorandum of Incorporation and (if applicable) the Certificate of Confirmation that the amendment of memorandum of incorporation was accepted by the CIPC to confirm that the sole object of the company is the management of investments in qualifying companies
  • A copy of the Financial Sector Conduct Authority (FSCA) licence certifying that the VCC is licensed as a Financial Service Provider (FSP).

More information can be found here: Official SARS document.