A suite of tax and financial Investment incentives have been made available by the Department of Trade Industry and Competition (DTIC) to qualifying companies located within special economic zones (SEZs).
The Ease of Doing Business (EODB) Centre, through its one-stop shop service offering, with key partners, assists investors with understanding and applying for these tax incentives.
Access to Tax Incentives
The services offered in the EODB Centre include:
- Access to the information on eligibility criteria, application processes and simplified procedures;
- South African Revenue Service (SARS) officials, available either in–person or virtually, can facilitate bespoke projects and requests. Please email email@example.com to make a booking;
- Access to a database of private consultants who specialize in SEZ tax incentives.
In terms of the Special Economic Zone Act No. 16 of 2014 (SEZ Act), a person who intends to conduct a business in an SEZ must apply to the SEZ Board, in the manner and form prescribed to, and that application should be guided by the following qualifying criteria:
- A qualifying company can only benefit from the tax incentive if the SEZ has been approved by the Minister of Finance, based on financial considerations to the state, as required by section 12R (3);
- The company must be a registered legal entity and have its place of effective management in South Africa;
- The company must carry on permitted trades in an SEZ;
- The company derives not less than 90 per cent of its income from carrying on a trade within one or more SEZs.
The following exclusions and limitations must be noted.
The company must not be engaged in:
- Distilling, rectifying and blending of spirits (SIC code 1101);
- Manufacture of wines (SIC code 1102);
- Manufacture of malt liquors and malt (SIC code 103);
- Manufacture of tobacco products (SIC code 12);
- Manufacture of weapons and ammunition (SIC code 252); and
- Manufacture of bio-fuels that negatively impacts food manufacture in South Africa;
- Major division 6: Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods; hotels and restaurant;
- Major division 7: Transport, storage and communication;
- Major division 8: Financial intermediation, insurance, real estate and business services.
Transactions with connected persons that are a resident (or is a non-resident but the transactions are attributable to a South African permanent establishment of the non-resident) are:
- More than 20 per cent of its deductible expenditure is incurred; or
- More than 20 per cent of its income was received or accrued.
The SEZ tax incentives include:
- S12R – Reduced Corporate Income Tax Rate
In the Income Tax Act 58 of 1962, S12R provides a preferential income tax rate of 15% for qualifying companies operating in SEZs, compared to the standard rate of 28%. Freeport Saldanha is one of the SEZs gazetted by the Minister of Finance for access to the incentives.
This incentive is currently available until 2024 and for a period not exceeding ten years after a company is established and starts trading from its location in the SEZ.
- S12S – Accelerated Building Allowance
In the Income Tax Act 58 of 1962, S12S provides for an accelerated depreciation allowance for erecting or improving buildings and other fixed structures for qualifying businesses operating within SEZs. Freeport Saldanha is one of the SEZs gazetted by the Minister of Finance for access to the incentives.
The special rate of the depreciation allowance is 10% per annum over ten years in comparison to the standard allowance of 50 years.
- ETI – Reduction of PAYE tax payable
Found in the Employment Tax Incentive (ETI) Act No. 26 of 2013, this incentive reduces an employer’s cost of hiring people by reducing the amount of pay-as-you-earn (PAYE) tax payable by the amount of the total employment tax incentive calculated in respect of all qualifying employees. Qualifying employers and qualifying employees are required. No age restriction applies to an entity located in an SEZ.
CCA Enterprise Application
Customs Controlled Area – Customs and VAT Benefits in a CCA Within an SEZ
This incentive is based on the Customs and Excise Act No. 91 of 1964 and Value Added Tax (VAT) Act No. 89 of 1991. If an investor has premises permanently located in a customs controlled area (CCA), the investor can register as a Customs Controlled Area Enterprise (CCAE) with SARS Customs.
A CCAE has access to customs and VAT benefits in the form of a full rebate of import duty and a VAT exemption on imported goods that remain within the SEZ or are subsequently exported. Furthermore, the VAT Act allows for the zero-rating of movable goods supplied to a CCAE, as well as the supply of fixed property in a CCA under specified conditions. Registration is required with SARS Customs for a CCAE.