South Africa rethinks its venture capital tax incentive

South Africa looks at ways to increase the uptake of its venture capital tax incentive scheme which has not attracted many applications since it was launched in 2009.

The government of South Africa is rethinking its venture capital tax incentive program after very few firms have taken up the deal since it came into effect in 2009, according to IOL.

The scheme provides investors with an upfront tax deduction from their income equal to the amount spent on acquiring shares. It applies to VC firms acquiring shares in junior mining companies, whereby they can claim up to R500m ($32m), or shares in small private companies, whereby they can claim up to R50m.

However, Etienne Louw, senior tax consultant at professional services firm Mazars said that uncertainty about the application of some of the provisions has discouraged uptake.

Indeed, in 2013 only three venture capital firms were active in South Africa out of the 31 registered.

To qualify for the scheme, a VC firm must be based in the country and have the sole objective of the management of investments in qualifying companies. It must be licensed by the Financial Advisory and Intermediary Services Act and have its tax accounts in order.

The country's treasury confirmed in its budget review last month that measures to mitigate the “unintended consequence” relating to the “application of provisions” were being explored. However, when pressed for more information by IOL they did not respond.

See more from this Government Report: South Africa

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