Section 12J - Putting your tax Rands to work for a better South Africa
By: Anuva Investments
Section 12J is South Africa's answer to a popular business expansion scheme launched in the United Kingdom in 1994 – the Enterprise Investment Scheme. The tax incentives offered to UK investors under this scheme underpinned investments in more than 25000 small unlisted UK-based businesses over the decade ending 2015. In July 2009 the South African Revenue Services (SARS) introduced a similar tax incentive to encourage ordinary South African taxpayers to invest into qualifying small, medium and micro-sized enterprises (SMMEs) via an approved 12J VCC. Section 12J seeks to stimulate the local economy and create jobs by offering taxpayers a 100% tax allowance on investments into companies that meet certain qualifying requirements.
Ordinary taxpayers can claim the full tax allowance provided they remain invested in the section 12J compliant opportunity for a period of five years. Although capital gains tax rules apply upon exiting such investments, financial modelling confirms greater efficiency using a 12J in a CGT scenario, together with the potential for significant returns over that period and thanks to the upfront tax allowance.
Interest in section 12J investments picked up in 2014 as investors sought to alleviate their rising tax liabilities on the one hand and bolster ailing investment returns on the other. VCCs offering section 12J structures soon emerged as the preferred instrument for taxpayers to avail of the 12J tax allowance. (VCCs that register with the tax authority as section 12J investment companies can raise capital from taxpayers and invest this capital in qualifying SMMEs, referred to in the legislation as investee firms). Analysts warn that investors should seek out VCCs that stick to the spirit that SARS has for 12J and to invest in real companies that grow the economy, that create employment and who have the potential to deliver long term financial value on the back of high quality investments, rather than purely focusing on the upfront tax benefit.
Anuva's investment team identifies and invests in SMMEs that show real growth potential. "We partner with great companies that have the potential for growth and work with them to improve their competitive position," says Larry Worthington-
Recent acquisitions in services, communication, health and accommodation-
"Section 12J empowers ordinary South Africans to divert some of their tax dues to invest in SMMEs that have the potential to grow wealth, grow the economy and create jobs," concludes Larry Worthington-
"Anuva is an extraordinary opportunity that creates long term shareholder value by skilfully combining capital with select opportunities under the guidance and mentorship of an expert investment team – the returns on offer from our investment activities are enhanced by the generous tax allowances under section 12J".
About Anuva Investments
Anuva Investments Ltd is a section 12J compliant Venture Capital Company (VCC) that creates value by skilfully combining capital with selected business opportunities, under the guidance of an expert investment and management team. Anuva was incorporated in 2014 in accordance with section 12J of the South African Income Tax Act and has raised more than R235 million in capital since. It is licensed with the FSCA as required under the Financial Advisory and Intermediary Services Act.