Now section 12j of the Income Tax Act allows investors a tax deduction of the capital amount of their investment in a registered Venture Capital Company “VCC” from their taxable income. Yes , believe it or not, this is true! Investors are entitled to deduct 100% of their investment as a tax deduction in the tax year in which the investment is made.
SARS has followed best practise from the UK , with their Venture Capital Trust “VCT ” regime, and have introduced this tax deduction into the South African Income Tax act.
This tax deduction, effectively reduces the risk in the investment to 60% in the case of a marginal tax payer, whist still enjoying 100% of the upside.
Tax deductions when it comes to investments are not normally allowed. Usually tax deductions are only allowed on expenditure used in the production of income. The sec 12j tax deduction is only allowed when investments are made into a VCC registered with SARS.
Grovest is one of the first Sec 12j operational venture capital companies in South Africa. It is managed by Venture Capital Management Services “VCMS”. The VCMS team is a profesional team of experienced venture capital veterans who oversee the Grovest venture capital portfolio on a daily basis.
Grovest issue tax certificates to investors, entitling them to make the tax deduction from their taxable income. An investor should keep the VCC tax certicate with all their other tax documentation.
Jeff Miller the CEO of Grovest, is quietly confident that the tax deduction into venture capital companies will become a common occurrence in South Africa. He says that investors are getting a 40% tax deduction on a potentially high return investment.
This tax deduction makes venture capital an extremely compelling investment choice.