The South African R&D Tax Incentive Programme

~KREEPY KRAULY…….a South African invention

Companies can write-off 150% of Research and Development expenses through the SA R&D Tax Incentive

The R&D Tax Incentive allows a company to reduce its company tax in South Africa. This generous government incentive allows an additional 50% deduction on operational R&D expenses from taxable income. This equates to a net 14% tax benefit that reduces SARS tax liability, and increases the company cash flow.

This means that 14% percent of the money you spend on R&D expenses can be recovered as a tax allowance from SARS. Your business can reduce company income taxes and improve your future cash flows.

The intention of the R&D Tax Incentive is to encourage private-sector investment in research and development, develop skills and stimulate economic growth.

The legislation is also known as “Scientific and Technological Research and Development Tax Incentive in South Africa”.

 

The Taxation Laws Amendment Act 2011 introduced specific enhancements to the existing Scientific and or Technological Research and Development (R&D) tax incentive provided under Section 11D of the Income Tax Act. These changes became effective from 1 October 2012.

 

“Income tax returns are the most imaginative fiction being written today.”

Herman Wouk

 

Here’s the deal:

Section 11D allows a South African business to claim the following benefits-:

  • All eligible R&D operational expenditure will qualify for an automatic 100 % tax deduction.
  • An additional deduction of 50 % will apply to expenditures on R&D activities that have been approved by the Minister of Science and Technology
  • Additionally, a pilot or prototype plant used exclusively for R&D may be claimed at 150 % and written-off in the year that it is brought into use rather than writing off these assets over an extended period of time.
  • An Accelerated Depreciation Allowance is available for machinery and plant [other than a pilot/prototype plant] bought or implemented for the purpose of R&D. Fifty percent [50 %] can be written off in the year it is brought into use, 30 % in the year thereafter and 20 % in the third year.

 

Therefore, a company undertaking R&D in the Republic of South Africa qualifies for an overall 150 % tax deduction of its operational R&D expenditure.

The additional 50 % R&D tax deduction can only be claimed from the date that a pre-approval application form has been submitted to the Department of Science and Technology (DST). This means that expenditure incurred on or after the date of submitting the application will be eligible

 

This Tax Incentive is available to businesses of all sizes in all sectors of the economy that are registered in South Africa.

 

The incentive is aimed at encouraging businesses to undertake and invest in R&D in South Africa. The objective is to help companies build capabilities to create new products, processes, devices and techniques, or significantly improve existing ones. This incentive is part of a package of measures that the government of South Africa has introduced to support R&D led innovation, industrial development and competitiveness.

 

South Africa has a solid history in Research and Development and Innovation. This is a great opportunity to make effective use of this incentive, and also improve your business cash flow and profitability whilst you at it.

 

“The best things in life are tax free.”

Joseph Bonkowski

 

 

Estimation of the Super Tax Deduction

The R&D tax incentive is an effective additional 50% ‘super’ tax deduction on eligible R&D expenditure. This equates to an effective 14 % tax benefit. For example, if a company spends R10 million South African Rand (R) on eligible R&D, the tax saving will be R1.4 million (R10 million eligible spend x 50 % super deduction x 28 % corporate tax rate).

 

Application process

To qualify for the South African R&D Tax Incentive Scheme, a company must submit an application to the Department of Science and Technology (DST), which is responsible for the administration of the process. The application form must be completed, sent and received by the DST before commencing with the R&D. Only the expenditure incurred on or after the date on which the DST received the application will be considered. An ‘Approval Committee’ will evaluate the merits of each application. The committee is comprised of three members from the DST, three members from the South African Revenue Service (SARS) and one member from National Treasury.

 

You might be wondering, can I qualify?

All companies are encouraged to take advantage of R&D tax incentive

Science and Technology Minister Mmamoloko Kubayi-Ngubane has urged companies to seize the opportunity presented by the Research and Development (R&D) tax incentive programme. “It is vital for both the companies and the country to derive benefits of the R&D Tax Incentive programme,” Minister Kubayi-Ngubane said.