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A long-awaited guide on venture capital companies published for comment
- 19 December 2019
- Corporate Tax
- Gigi Nyanin
Monday, 25 June 2018
Important:
This article is based on tax law for the tax year ending 28 February 2020.
Author: Gigi Nyanin (Cliffe Dekker Hofmeyr)
The VCC tax regime was introduced into the Income Tax Act, No 58 of 1962 (Act) in 2009 and is aimed at encouraging investment into small and medium-sized enterprises and junior mining companies. Section 12J of the Act encompasses the relevant legislation governing VCCs and provides for the formation of an investment holding company, described as a VCC, where investors subscribe for shares in the VCC (venture capital shares) and claim an income tax deduction for the subscription price incurred. The VCC, in turn, invests in “qualifying companies” (ie investee companies).
Various legislative amendments to s12J have given rise to an increased participation in the asset class, evidenced by the increasing number of approved VCCs. According to the SARS website, 116 companies have been approved as VCCs, while 2 have had their VCC status withdrawn, as at 18 June 2018.
This article provides a high-level overview of specific aspects of the Guide. It is important to note that the Guide is not an official publication as defined in s1 of the Tax Administration Act, No 28 of 2011 and accordingly does not create a practice generally prevailing under s5 of that act.
Requirements for a VCC
A company must be approved as a VCC if the Commissioner for SARS is satisfied that, amongst other requirements, the sole object of such company, which must be a resident of South Africa, is the management of investments in qualifying companies.
Please click here to read more.
This article first appeared on cliffedekkerhofmeyr.com.