Navigating the enhanced section 11D R&D incentive

Navigating the enhanced section 11D R&D incentive

• 21 October 2025
• Corporate Tax
• Stevie Coetzee (Director) & Mphoti Chilwane (Senior Manager)

The section 11D of the Income Tax Act, No. 58 of 1962 (“the Act”) Research and Development (“R&D”) tax incentive is and has been a strategic policy instrument introduced by the South African government to promote private sector investment in scientific and technological innovation. This incentive recognised the critical role of research and development in driving industrial competitiveness, economic growth, and job creation, and provides tax relief to companies undertaking qualifying R&D activities within South Africa.

Section 11D has been in place since 2006, but in 2023, the incentive underwent significant legislative refinement, effective from 01 January 2024. These changes were driven by the need to simplify the application process, enhance clarity around qualifying activities, and align the incentive with international best practices – particularly the principles outlined in the OECD Frascati Manual. More specifically, according to the Frascati Manual, R&D is defined as “Creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available

knowledge”. It further categorises R&D into three types: 1. Basic research: Experimental or theoretical work undertaken primarily to acquire new knowledge, without any particular application in view. 2. Applied research: Original investigation directed primarily towards a specific practical aim or objective. 3. Experimental development: Systematic work drawing on existing knowledge gained from research and practical experience, aimed at producing new products, processes, or services, or improving existing ones.

Prior to these amendments, the incentive was often criticised for being administratively burdensome and conceptually vague, especially around the definition of R&D and the requirement for innovation. The OECD Frascati Manual principles are now embedded in South Africa’s section 11D R&D tax incentive as a result of the 2023 amendments. The revised framework ensures that South Africa’s definition of R&D is internationally benchmarked, making it easier for companies to understand and apply for the incentive. Moreover, it now provides a clearer, more inclusive, and practical approach to determining eligibility, thereby improving accessibility for companies of varying sizes and sectors.

Key legislative enhancements (2023)

To improve the effectiveness and accessibility of the section 11D R&D tax incentive, several legislative enhancements were introduced in 2023. As indicated, these changes were designed to simplify the definition of qualifying R&D, align the incentive with international standards, and broaden its scope to include a wider range of activities and business models. Below are the key legislative enhancements that companies should be aware of:

• The definition of R&D was simplified to focus on activities aimed at resolving scientific or technological uncertainty. If a skilled professional could resolve the uncertainty without engaging in systematic investigative or experimental activities, the incentive does not apply.
• The previous “end result” approach – where R&D had to lead to outcomes such as patentable inventions – was replaced with a more flexible framework. Activities must now be novel, uncertain, systematic, and transferable or reproducible, in line with the OECD Frascati Manual.
• Internal business processes are no longer excluded. If such processes involve qualifying R&D activities, they are eligible for the incentive regardless of whether the outcome is intended for sale or internal use.
• In the context of software development, only those software development activities that are systematic investigative or systematic experimental ones of which the result is uncertain may be eligible
• A six-month grace period was introduced, allowing taxpayers to submit their application within six months of commencing the R&D project.
• The SARS Commissioner is now permitted to share certain taxpayer information with the Minister of Higher Education, Science and Innovation to support improved monitoring and evaluation of the incentive.

Tax benefits

Companies approved in terms of section 11D are entitled to a 150% income tax deduction for qualifying R&D expenditure. This applies to costs directly and solely incurred in the production of income and in the carrying on of a trade. Additionally, taxpayers may claim an accelerated capital allowance on capital assets used in approved R&D activities, following a 50:30:20 schedule over three years. It is important to note that SARS’ Interpretation Note 50, which previously provided guidance on the incentive, was withdrawn in July 2024. Companies should now refer directly to the legislation and updated guidelines issued by the Department of Science and Innovation (“DSI”).

Eligibility criteria

To qualify, the taxpayer/applicant must be a company as defined in the Act. The company must either conduct the R&D itself or fund R&D carried out by another party on its behalf, subject to specific conditions outlined in subsections 11D(4) to (6).

Crucially, the company must obtain pre-approval for the R&D project from the DSI. Only expenditure incurred within six months prior to or on or after the date of receipt of the application will be considered for the incentive.

Qualifying R&D activities

Eligible R&D activities must involve systematic investigative or experimental efforts aimed at resolving scientific or technological uncertainty. The resolution must not be readily deducible by a person skilled in the relevant field. The activities should be undertaken for one or more of the following purposes:

• Discovering new scientific or technological knowledge
• Creating or significantly improving products, processes, or services
• Developing multisource pharmaceutical products in accordance with World Health Organisation guidelines and South African regulations
• Conducting clinical trials as defined by the Department of Health’s guidelines and relevant regulations

Excluded activities

Whilst section 11D offers generous tax benefits for qualifying R&D activities, it is equally important to understand which activities are explicitly excluded from the incentive. These exclusions are intended to ensure that only genuine scientific or technological research – characterised by uncertainty, novelty, and systematic investigation – receives support. The following activities do not qualify for the R&D tax incentive under section 11D:

• Routine testing, analysis, and quality control conducted in the normal course of business
• Market research, market testing, and sales promotion
• Research in the social sciences, arts, and humanities
• Oil, gas, or mineral exploration (unless developing technology for such exploration)
• Creation or development of financial instruments or products
• Creation or enhancement of trademarks or goodwill
• Expenditure related to the registration of intellectual property (e.g., patents, designs, trademarks

Application and review process

To benefit from the section 11D R&D tax incentive, companies must follow a formal application and approval process administered by the DSI. The process ensures that only qualifying R&D activities receive approval and that the incentive is applied consistently and transparently. Below is a summary of the key steps involved in the application and review process:

1. Pre-approval applications must be submitted via the DSI’s online portal.
2. The Minister of Science and Innovation is responsible for approving or rejecting applications.
3. If an application is declined or approval is withdrawn, the Minister must provide adequate reasons
4. Applicants dissatisfied with the Minister’s decision may seek judicial review under the Promotion of Administrative Justice Act (“PAJA”) by approaching the High Court
5. 5. The R&D tax incentive has a sunset clause of 31 December 2033.

Takeaway

The enhancements to section 11D mark a significant step forward in making South Africa’s R&D tax incentive more accessible, transparent, and aligned with global standards. By adopting the principles of the OECD Frascati Manual and removing previous administrative and definitional barriers, the revised framework empowers companies to invest confidently in innovation. However, whilst the incentive is now clearer and more inclusive, navigating the technical definitions, eligibility criteria, and application process still requires careful planning and strategic insight.

Source : PWC

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