South African companies can qualify for a 150% Tax Deduction on Research and Development Expenditure
Section 11D of the Income Tax Act
- A company undertaking R&D in the Republic of South Africa can qualify for a 150% ‘Super’ Tax Deduction on its Operational R&D Expenditure
- This incentive is available to businesses of all sizes in all sectors of the economy that are registered in South Africa.
- All eligible R&D expenditure will qualify for an automatic 100% tax deduction.
- An additional 50% uplift applies to expenditures on R&D activities that have been approved by the Minister of Science and Technology, based on the provisions of Section 11D of the Income Tax Act.
BENEFITS OF THE TAX ALLOWANCE
SUPER DEDUCTION
South Africa provides a ‘Super’ Deduction equal to 150% of the qualifying Operational Expenditure incurred directly for purposes of R&D.
Your company needs Pre-Approval from the Department of Science and Technology (DST) to qualify for the 150% ‘Super’ Deduction.
ACCELERATED DEPRECIATION
Capital expenditure incurred to develop or construct assets used in the conduct of qualifying R&D activities qualify for favourable accelerated depreciation.
For new and unused plant or equipment purchased specifically for the approved project:
- 50% in the year that the asset is brought into use for the first time by the taxpayer
- 30% in the second year of assessment
- 20% in the final year of assessment.
WHO CAN APPLY
THE R&D TAX INCENTIVE IS AVAILABLE TO BUSINESS OF ALL SIZES AND IN ALL SECTORS OF THE ECONOMY
TO QUALIFY FOR THE TAX BENEFIT, YOUR BUSINESS MUST MEET CERTAIN ELIGIBILITY REQUIREMENTS
- Be a for-profit company, incorporated in South Africa or be a company incorporated under a foreign law that is a South African resident for tax purposes – and the R&D activities are undertaken in South Africa
- Planning to develop a new or unique product or service. Alternatively, you are planning to make a significant improvement to the same.
- You will be employing R&D professionals such as Scientists, Engineers, Software Developers, Technologists and Managers
- You will invest in new equipment and other resources specifically for research and development activities
WHAT IS R&D?
For the purposes of the R&D Tax Incentive, R&D is defined as follows:
- to conduct a series of experiments to obtain results that can be used to establish a new finding or conclusion
- to make a new scientific discovery – or to discover a new technology
- to create or develop a new invention, functional design or computer program
- to create new knowledge that is essential for the use of the invention, functional design or computer program
- to make a significant improvement that results in improved functionality, performance, reliability or quality of an existing product, design or computer program
- to create or develop a multi-source pharmaceutical product
- to conduct a clinical trial with human participants
