South African Commercial law: Venture capital companies in terms of section 12 – an introduction

One of the main challenges to the growth of small and medium-sized businesses is access to finance. To assist, South African Commercial law has evolved and Government has implemented a tax incentive for Investors in these enterprises through a venture capital company (“VCC”) regime.

From 1 January 2009, in terms of Section 12J of the Income Tax Act No. 58 of 1962 (the “Act”), Investors have been able to claim amounts incurred on acquiring VCC shares as a deduction from taxable income and should ideally be held for longer than five years. Section 12J was introduced to cater for the deductions in respect of expenditures incurred in exchange for the issue of venture capital company shares.

The VCC regime is subject to a 12-year sunset clause i.e. it ends on 30 June 2021. This will allow for review of the efficacy of the regime and a decision will follow thereafter as to its future in the context of South African Commercial law.