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]