WHAT IS A SECTION 12J VENTURE CAPITAL COMPANY (VCC) INVESTMENT?
- With effect from 1 July 2009, investors (ANY taxpayer) can claim income tax deductions in respect of the expenditure incurred in exchange for Venture Capital Company (VCC) shares.
- Qualifying Investors will invest in approved VCC’s in exchange for the issue of Venture Capital Shares and investor certificates. Investors can claim tax deductions in respect of their investments in an approved VCC.
- The approved VCC will, in turn, invest in qualifying investee companies in exchange for qualifying shares.
WHO QUALIFIES TO BE AN INVESTOR?
- Any taxpayer qualifies to invest in an approved VCC.
- Qualifying investors can claim income tax deductions in respect of the expenditureactually incurred to acquire shares in approved VCCs.
- Where any loan or credit is used to finance the expenditure in acquiring a venture capital share and remains owing at the end of the year of assessment, the deduction is limited to the amount for which the taxpayer is deemed to be at risk on the last day of the year of assessment.
- No deduction will be allowed where the taxpayer is a connected person to the VCC at or immediately after the acquisition of any venture capital share in that VCC.
- On request from SARS, the investor must verify a claim for a deduction by providing a VCC Investor Certificate that has been issued by an approved VCC, stating the amount of the investment and the year of assessment in which the investment was made.
- Except in the case of Venture Capital Shares held by a taxpayer for longer than five years, the deduction is recouped (recovered) if the taxpayer disposes of the Venture Capital Shares to the extent of the initial VCC investment (under the general recoupment rules of section 8(4) of the Act)).
- Standard income tax and CGT rules apply in respect of VCC shares.
WHERE DO WE INVEST YOUR FUNDS?
- The Investee must be a registered company in South Africa;
- The company must be a tax resident in South Africa;
- The company must not be a controlled group company in relation to a group ofcompanies;
- The company’s tax affairs must be in order (a tax clearance certificate must berequested from SARS to support this requirement);
- The company must be an unlisted company (section 41 of the Act) or a junior miningcompany; A junior mining company may be listed on the Alternative Exchange Division (AltX) of the JSE Limited;
- During any year of assessment, the sum of the “Investment Income” derived by thecompany must not exceed 20% of its gross income for that year of assessment;
- The company must not carry on any of the following impermissible trades:
- Any trade carried on in respect of immoveable property, except trade as a hotel keeper (includes bed and breakfast establishments);
- Financial service activities such as banking, insurance, money-lending and hire-purchase financing;
- Provision of financial or advisory services, including legal, tax advisory, stockbroking, management consulting, auditing, or accounting;
- Operating casino’s or other gambling related activities including any othergames of chance;
- Manufacturing, buying or selling liquor, tobacco products or arms or ammunition;or
- Any trade carried on mainly outside the Republic.