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South Africa

South Africa offers any company undertaking eligible R&D activity an additional 50% deduction, i.e. a total 150% ‘super deduction’ on qualifying expenses. Pre-approval is required and turnaround times for processing pre-approval applications can be lengthy, estimated at between 6-12 months.

As the process is a forward looking, pre-approval, process, companies are encouraged to have a high level understanding of the project’s ongoing activities, as well as potential challenges involved over a prospective 1-3 year period.

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south-africa South Af r ica Gen e rosit y Ease of Application Are other R&D Incentives available? Is foreign-owned R&D eligible?R&D must occur in the countryIs pre-approval required? Are previous financial years claimable? 14 %
South Africa all Companies

50% additional tax deduction (150% Super deduction)
Benefit Overview

The South African 150% super deduction scheme requires pre-approval and allows qualifying companies to deduct R&D expenses from taxable income, generating a net tax benefit of 14%. The definition of R&D for tax purposes is slightly different and the R&D project must fit into one of the below definitions to be eligible for the R&D incentive:

  1. Discover non-obvious scientific or technological knowledge
  2. Create or develop an invention, functional design, or computer programme
  3. Create or develop knowledge essential to the use of an invention, functional design, or computer programme
  4. Create significant improvements in functionality, performance, reliability, or quality of the above invention, functional design, or computer programme
  5. Clinical trials and the development of multisource pharmaceuticals or generic drugs.

Approvals are given to companies on a project by project basis and R&D activities must be carried out within South Africa.

Eligible Claim Period

All projects must be approved by the Department of Science and Technology (DST). Companies can claim from the date of submission of the pre-approval application and not just the date of approval, until the project’s completion.
Historical Background

The scheme was originally introduced in 2006, with modifications being made to the incentive in October 2012, introducing the pre-approval application process. In 2017 the DST introduced an online portal to facilitate online submissions.
Regulating Body Policies

  • The R&D tax incentive is administered jointly by the DST and the South African Revenue Service (SARS)
  • DST approves or rejects projects, based on pre-approval applications
  • The qualifying expenditure claim is administered by SARS, through the submission of the company’s annual tax return
  • Turnaround times for pre-approval applications to be processed are currently estimated at 6 – 12 months, after which an approval or rejection letter is received
  • The general deadline for submitting an annual corporate tax return is one year after the financial year end. Companies can elect to claim the incentive in their provisional tax returns, allowing them to benefit from the incentive sooner
  • Special rules now enable the taxpayer to claim the R&D benefit in cases where the DST has taken longer than tax amendment prescription periods (3 years) to adjudicate the pre-approval application submitted.
  • Applications are filled out in a prescriptive online application form. However applicants are allowed to submit supporting project documentation, which is strongly advised.
Eligible Costs

  • Only costs incurred after submission of the pre-approval application will qualify for the incentive. As such, it is best to do the pre-approval before the start of the R&D project
  • As a general rule, qualifying costs are costs that are directly related to the R&D activities. As such, costs do not qualify when they are incurred in respect of indirect R&D or other supporting activities
  • Once approved, costs fall into the following categories when calculating the claim value;
    • Labour
    • Subcontractors
    • Overheads
    • Materials
  • Costs incurred in the creation/development of a prototype/pilot plant will qualify for the incentive as long as it is not intended to be utilised or is not utilised for production/commercial purposes after the R&D is completed.
Issues to Consider

Due to the scheme’s prospective nature, companies should ideally have a projected roadmap of each project’s development and evolution, with identified areas of risk and uncertainty, before applying for the incentive. This will improve the chances of obtaining pre-approval and help ensure continued eligibility of the evolving activities and associated costs to maximise the claim value.

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