Estate Living Magazine Invest SA - Issue 45 September 2019 | Page 42

I N V E S T & D E V E L O P sectors include: • car rentals • asset rentals franchising • mining and contract mining • plant and equipment rental • manufacturing • renewable energy • logistics. Registering a Section 12J VCC Although there are many benefits to registering a Section 12J VCC, there are challenges in the process as well as with ongoing compliance. It’s not simply a matter of registering a parent company that can invest in subsidiaries. Some of the nuances are that: • No investor into the Section 12J VCC may be a ‘connected person’ in respect of the Section 12J VCC. This essentially means that no taxpayer can own 20% or more of the shares in the Section 12J VCC (directly or indirectly). No more than 20% of the capital raised through the issue of shares may be invested into any one investee company. • An investee company cannot be a ‘controlled group company’, meaning that a Section 12J VCC cannot own 70% or more of the equity shares in an investee company. • To be recognised by SARS, the Section 12J VCC must be registered in accordance with Section 7 of the Financial Advisory and Intermediary Services Act, 2002 (FAIS), meaning that the company must have a ‘key individual’ in its employment, the Financial Services Conduct Authority (FSCA) must issue it with a licence, and it must be registered with SARS as a VCC. These limitations ensure that the Section 12J legislation is not simply used by wealthy individuals as a way to avoid taxation, and the VC company cannot just be used to channel money between entities.  With only around 160 approved Section 12J VCCs, there is definitely opportunity for new businesses to enter the market and take advantage of the incentivised process of raising capital, and in turn invest in SMEs to stimulate the economy, create new jobs and generate good returns. Bottom line The Section 12J asset class has already boosted the economy tremendously, but time may be running out because its efficacy in achieving the desired outcomes will be assessed in the next few years, so we may see changes to the legislation. As it stands, only those who invest prior to 30 June 2021 will be able to claim the upfront tax deduction, which implies that those wishing to raise capital via Section 12J should not wait too long. For more information, [email protected]