What are Venture Capital Companies?
One of the main challenges to the growth of small and medium-sized businesses and junior mining exploration is access to equity finance. To assist these sectors in terms of equity finance, Government has implemented a tax incentive for investors in these enterprises through a venture capital company (VCC) regime.
VCCs are intended to be a marketing vehicle that will attract retail investors. An investor is any taxpayer who qualifies to invest in an approved VCC. They have the benefit of bringing together small investors as well as concentrating investment expertise in favour of the small business sector. There are no special tax benefits for the VCC itself, only standard tax rules will apply.
Who are they for?
From 1 January 2009, investors can claim amounts incurred on acquiring VCC shares as a deduction from income. However, from 21 July 2019, investments made by a natural person and trusts will be capped at R2.5 million and for companies, investments will be capped at R5 million. This cap is per tax year. This deduction will not be subject to recoupment if the VCC shares are held for longer than five years.
A company must meet all of the following preliminary requirements to be able to get a SARS approved VCC status:
- The company must be a resident;
- The sole object of the company must be the management of investments in qualifying companies (i.e. investees);
- The company’s tax affairs must be in order; and
- The company must be licensed in terms of section 8(5) of the Financial Advisory and Intermediary Services Act, 2002.
Please note: Persons who intend to or do make investments into a SARS approved VCC, may under no circumstances request a tax directive for purposes of section 12J under paragraph 11 of the Fourth Schedule to the Income Tax Act, in order to reduce his or her tax liability; or accept any advice from persons who indicate that such tax directives may be issued.
The VCC regime is subject to a 12 year sunset clause that ends on 30 June 2021.
How do I apply?
Email a completed application form together with supporting documents proving that the preliminary requirements have been met to
vcc@sars.gov.za (Venture Capital Companies Office) or send by post to:
SARS Large Business Centre
Venture Capital Companies
Private Bag X170
Rivonia
2128
Assistance with the application can be requested by addressing an email to
vcc@sars.gov.za.
Click here to download the application form. You will be contacted once your application has been processed. SARS will assess the application to determine if the company meets the preliminary requirements and if the application is successful, a Venture Capital Company reference number will be given and an approval letter will be sent to the applicant. If the application is not successful, a rejection letter will be sent to the applicant stating the reason(s) for the rejection.
The standard turnaround time of approval of applications is 21 business days. The period may vary depending on the application.
- If, during any year of assessment, after the approval of the Venture Capital Company status, the company fails to comply with the preliminary requirements as listed above;
- The company must satisfy the following additional requirements at the end of each year after the expiry of 48 months from the first date of the issue of VCC shares by the VCC;
- A minimum of 80% of the expenditure incurred by the VCC to acquire assets must be for qualifying shares, and each investee company must, immediately after the issuing of the qualifying shares, hold assets with a book value not exceeding:
- R500 million in any junior mining company; or
- R50 million in any other qualifying company
- The expenditure incurred by the VCC to acquire qualifying shares in any one qualifying company must not exceed 20% of any amounts received by the VCC in respect of the issue of VCC shares.
SARS will issue a written notification to the VCC stating the requirements that have not been met and provide a grace period for the VCC to meet the requirements. If the approved VCC does not take the acceptable corrective steps within the period specified in the written notice, the approved VCC status will be withdrawn from –
- the commencement of that year of assessment if the VCC does not meet the preliminary approval requirements; or
- the date of approval of the VCC status, if the approved VCC does not take the acceptable corrective steps to rectify the connected person requirement within the period specified in the written notice from SARS. In the case of a holding of more than 20% of a class of VCC shares, the withdrawal of the VCC will be from the commencement of that year of assessment during which the 20% holding is exceeded; or
- the commencement of that year of assessment where the VCC does not meet the additional requirements after the expiry of 36 months from the date of first issue of VCC shares.
If the approval of a VCC status is withdrawn, an amount equal to 125% of the aggregate amount contributed by the investor(s) in exchange for VCC shares must be included in that VCC’s income in the year of assessment in which such approval has been withdrawn.
Enquiries:
If you have any enquiries regarding Venture Capital Companies, you can email us on
vcc@sars.gov.za.
