BUSINESS NEWS - Over the past two years Section 12J investments have gained a lot of attention due to their attractive tax benefits.
Essentially, the entire amount investment into a Section 12J venture capital company (VCC) is tax deductible in the year in which it is made, and that deduction will be permanent if the investment is held for five years.
This is more beneficial to individuals and trusts than businesses, since they are likely to be paying higher marginal rates.
However, there is another aspect to Section 12J investments that could potentially be of significant value to local companies.
Because Section 12J VCC’s invest into emerging companies, if a fund is correctly structured and targets black-owned businesses, it is possible that an investment into such a vehicle could qualify as spending on enterprise and supplier development under the BEE codes.
In other words, companies could get empowerment credits by using these vehicles.
“If a company invests into a Section 12J fund, and that fund invests into qualifying small businesses, the investing company will receive credit for the empowerment spend,” says Jonty Sacks, a director at Jaltech.
“We have received an opinion from a BEE rating firm that if the investment is into a qualifying entity, the company will not only receive their points in year one, but every year they hold the investment they will get credit for 70% of their spend.”
