SARS issues a further ruling on venture capital companies

Authors: Mansoor Parker and Anuschka Wischnewski. On 6 June 2017, the South African Revenue Service (SARS) issued binding private ruling 274 (BPR 274). BPR 274 deals with a venture capital company (VCC) investing in a company providing and expanding plants for the generation of solar electricity. This brings the number of binding private rulings that SARS has issued in respect of venture capital companies to four. Below, we compare the rulings in this matter with prior rulings issued by SARS to determine whether there are any trends with regard to rulings issued by SARS in respect of venture capital companies.

Investment by a venture capital company

Author: Gigi Nyanin (Associate at Cliffe Dekker Hofmyer). The South African Revenue Service (SARS) released Binding Private Ruling 274 (BPR 274) on 6 June 2017, which deals with the investment by a venture capital company (VCC) in a company providing and expanding plants for the generation of solar electricity. By way of background, the VCC tax regime was introduced into the Income Tax Act, No 58 of 1962 (Act) in 2009 to encourage investment into small and medium-sized enterprises and junior mining companies. The relevant legislation, which is found in s12J of the Act, provides for the formation of an investment holding company, described as a VCC. Investors subscribe for shares in the VCC and claim an income tax deduction for the subscription price incurred. The VCC, in turn, invests in qualifying companies (ie investee companies).

Are we seeing more positive developments in the venture capital companies regime?

On 15 June 2016 the South African Revenue Services (SARS) released Binding Private Ruling 242 (Ruling), which provides clarity on the interpretation and application of certain provisions of the Income Tax Act, No 58 of 1962 (Act) in the context of venture capital companies. Specifically, the Ruling deals with the interpretation and application of the terms “controlled group company”, “equity share” and “hotel keeper”, as defined in s1 of the Act, and the terms “qualifying company” and “qualifying share” as defined in s12J of the Act.

Venture capital companies – summary of the latest tax rulings

Author: Mansoor Parker and Anuschka Wischnewski (ENSafrica). Introduction The venture capital company (“VCC”) regime was introduced in 2009, with an aim to encourage investors, by way of substantial tax benefits, to invest in small South African trading companies. VCCs are private investment companies, although they need not be, as the Income Tax Act does not prevent VCCs from listing their shares on the Johannesburg Stock Exchange. The past two years have seen a phenomenal increase in the number of VCCs. There are now 36 South African Revenue Service (“SARS”) approved VCCs, of which 29 were approved in the past two years.

Budget 2016 – Venture Capital Companies

Section 12J of the Income Tax Act was introduced in 2008 to stimulate much-needed equity funding for small businesses. It provides for the formation of an investment holding, described as a Venture Capital Company (VCC). Investors subscribe for shares in the VCC and claim an income tax deduction for the subscription price incurred. The VCC must then deploy most of these subscription proceeds within three years by subscribing for shares in investee companies.

Venture capital embraces tax breaks

Author: Stephen Timm (BDlive) The number of venture capital companies approved by the South African Revenue Service (SARS) to take advantage of a venture capital tax incentive has increased to 19, following amendments to tax legislation that took effect in April. The incentive was introduced in 2009 by the National Treasury in terms of section 12J of the Income Tax Act to spur investments in small businesses through approved venture capital companies. However, because of the onerous criteria, there was initially limited interest. By August 2013 only one small business had benefited from an investment using the new tax regime.