Regional Industrial Development Incentives are available to new industrial undertakings and are exempt from tax. It is a necessary condition that applicants incorporate as companies or close corporations.
Three incentives are available:
- an establishment grant for the first two years;
- a profit-based incentive for three years thereafter, and
- a relocation incentive.
2.7.1.1. Annual establishment grant
The annual incentive is 10,5% of total operational assets and is paid quarterly. These assets are restricted to a maximum of R15 million for the purposes of this calculation, and include:
- owned land and buildings @ 100%;
- rented land and buildings @ 50%;
- manufacturing machinery and equipment @ 100%;
- commercial vehicles and office furniture @ 100%;
- stocks (to a maximum of two months turnover) @ 50%;
- trade debtors (to a maximum of three months turnover) @ 50%.
2.7.1.2. Profit-based incentive
This is calculated according to the following formula, where the investment has a value greater than R2 500 000 -
(20% of profits before tax) x (1 + 200% of return on assets).
Where the investment is less than or equal to R2 500 000, the profit incentive is a fixed 25% of pre-tax profits.
Payment is made annually on submission of audited financial statements.
This incentive cannot exceed the theoretical annual Establishment Grant and, being profit-based, is forfeited if no profit is earned in any year.
Expansions of existing undertakings are only eligible for this incentive. The annual establishment grant does not apply to them.
2.7.1.3. Areas qualifying for the incentives
The annual establishment grant and the profit-based incentive are available in all areas, subject to the following:
In respect of investments o R2,5m the annual establishment grant is still 10,5% of operational assets but the profit incentive is simply 25% of pre-tax profits (per BDO booklet, p35).
AREA LEVEL OF INCENTIVE PWV & Durban core areas 0% Cape Peninsula, 60% of Establishment Grant Pinetown/Pietermaritzburg and larger Durban functional Area 100% of Profit-based incentive (excluding Durban core area and the deconcentration areas around the PWV)
2.7.1.4. Relocation Incentives
Applications for relocations from outside the Rand Monetary Area will be considered on merit and if approved, foreign undertakings qualify for a relocation grant subject to a maximum of R1 million per project. No incentives are offered to assist internal relocations.
2.7.1.5. Major Export Incentives
Four marketing assistance schemes are now operated :
2.7.1.6. The primary Export Market Research Scheme provides exporters with some reimbursement of costs incurred in developing new export markets through personal contacts with potential clients in international markets. Exporters receive 50% of economy class airfares and R400 per day for a maximum of 15 days under this scheme and R600 for the transportation of samples.
2.7.1.7. The Outward Selling Trade Mission Scheme assists exporters to make contact with foreign buyers through recognised trade associations or the Department of Trade and Industry.
2.7.1.8. The Inward Buying Trade Mission Scheme provides assistance to organisers of inward buying trade missions so that prospective buyers can make contact with South African exporters through recognised trade associations or the Department of Trade and Industry.
2.7.1.9. The Exhibition Assistance Scheme assists South African companies registered as exporters to introduce their products to foreign markets by participating in exhibitions. Assistance is available for individual participation. The assistance comprises 80% of the cost of participating in the trade fair concerned up to a maximum of R15 000. Assistance is also available for official group participation. This assistance comprises total cost of participating except airfares, accommodation, insurance and transport of products.
All four of these schemes are only available to undertakings registered as exporters with the Department of Trade and Industry.
2.7.2. General Export Incentive Scheme
The General Export Incentive Scheme continues in operation for the present. The incentive payments are taxable. Persons claiming the incentives must submit returns which contain details relating to the performance of the claimant in relation to the Government's Reconstruction and Development Program objectives, such as human resource development, work organisation and research and development. A small portion of GEIS payments due to claimants will only be paid out when satisfactory evidence is furnished that the claimant has complied with certain targets in respect of those objectives. Details as to the portions concerned had not been finalised at the time of going to press. The Government has announced its intention to terminate the GEIS program entirely on 31 December 1997.
This scheme grants assistance on the basis of the following formula:
Z = U x (M +- E) x (P) where Z = the assistance provided to exporters; U = export sales value (normally f.o.b); M = manufacturing level factor, which is divided into four categories. Category 1 for primary products, is 0%. Category 2 for beneficiated primary products, is 7,5%. Category 3 for material intensive products, is 12,5%. Category 4 for manufactured products, is 25%; E = exchange rate factor through which M is adjusted for inflation and exchange rate fluctuations; P = local content factor.
Following the Minister of Finance's Budget introduced in March 1996, there are indications that the payment basis will be substantially reduced for the remaining life of the Scheme. This will mean changes in this formula, but no details are yet available.
Other Incentives for Exporters:
- export credit incentives - the Industrial Development Corporation makes financing available at reduced rates for selected expansion schemes that are expected to result in increased foreign exchange earnings. Financing of credit for exporters of capital goods is also available through the IDC or private-sector merchant banks at reduced rates;
- customs and excise duty refunds, drawbacks and rebates - provision is made in the Customs and Excise Act for general refunds as well as a large number of specific drawbacks and refunds of customs and excise duties to exporters. These concessions are available to manufacturers as well as to merchants who import goods for re-export;
- special import facilities for exporters - additional import permits are available to importers who are also exporters;
- reduced rail rates - reduced rail rates are granted on commodities destined for territories overseas on a contract basis;
- road transport concessions - exporters may apply to their local Road Transportation Board for road transport exemptions in deserving cases. Exemptions are negotiated on a contract basis;
- reduced ocean freight rate - if exporters decide that their products cannot be marketed abroad at competitive prices because of normal shipping costs, they may make representations accordingly, either directly to the shipping line or to the South African Shipping Board;
- export credit insurance - the Credit Guarantee Insurance Corporation provides substantial export credit insurance for qualifying transactions against political and/or commercial risks. To qualify, the export transaction must include substantial South African content of goods and/or services.
For further information please contact: Werksmans Attorneys Werksmans Chambers, 22 Girton Road, Parktown, Johannesburg 2193 or P.O. Box 927, Johannesburg 2000 South Africa Enquiries: Mr Charles Butler Telephone 27 (011) 488-0000 Telefax 27 (011) 484-3100/3200 E-Mail Address cbutler@werksmans.co.za
