Sunset clause of VCC – what happens at the end?

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Section 12J was inserted into the Income Tax Act No. 58 of 1962 to provide a tax incentive to investors of qualifying venture capital companies (“VCC”). The intention of the section 12J incentive was to provide the investor with an upfront tax deduction in respect to expenditure incurred in exchange for VCC shares while also giving access to equity finance to businesses in the small to medium business sector, boosting our economy.

Amendments to section 12J provided for a sunset clause of 30 June 2021 in order to review and assess the effectiveness, impact and role of the incentive. National Treasury has found that the incentive, since its introduction, has not adequately achieved its objectives or has been implemented in the manner National Treasury initially envisaged.

The incentive has instead been subject to various avoidance structures which were outside the initial policy intent and provided a generous tax deduction to wealthy investors. Most support has gone to low-risk ventures that would have attracted funding without the incentive. The Minister of Finance, therefore, announced during the 2021 Budget Speech that the section 12J incentive will not be extended beyond its current sunset date.

The discontinuation of the incentive does not affect qualifying investments made before the sunset date and will not impact persons who intend to invest before 30 June 2021. This means that investors have a limited window to take advantage of the 12J incentive, should they wish to do so.

Should you need expert tax advice, we encourage you to get in touch with Frances Burger on 021 840 1600 or

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