SARS delivers on venture capital tax incentives - Grovest

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SARS delivers on venture capital tax incentives

Johannesburg, 31 July. Two proposed changes to Section 12J of the Income Tax Act will have a positive impact on the South African venture capital industry and stimulate investment into privately owned entrepreneurial businesses in South Africa.
A higher investee asset threshold, as well as a permanent investment deduction, will increase the appeal of venture capital as an investment asset class, at the same time giving a boost to small business development and job creation.
Government first implemented a venture capital company (VCC) tax regime in 2009. A VCC is an investment vehicle through which a number of investors can fund a portfolio of business interests.
“The original tax concessions in the VCC regime were intended to promote access to equity finance by privately owned businesses — but the take-up of the allowance has been limited,” says Southern African Venture Capital & Private Equity (SAVCA) CEO, Erika van der Merwe. “Our industry and its partners, including the SiMODiSA initiative, have been working closely with government on enhancing these provisions, and the recently released Draft Taxation Laws Amendment Bill demonstrates Treasury’s commitment to stimulating investment across the venture capital industry.”
The Section 12J amendments have been welcomed by venture capital funds. “They significantly enhance the attractiveness of tax incentives available to venture capital investors,” says van der Merwe, “And in turn this should stimulate greater levels of investment into small and medium-sized businesses in South Africa.”
Van der Merwe commends the efforts of Treasury and government. “We have been impressed with SARS’ willingness to engage in open dialogue in this regard. Many small businesses struggle to obtain growth capital as there are not many investment companies that focus on the SME space. The Section 12J improvement is yet another step by government to make it easier for smaller businesses to function and thrive, grow sustainably and create jobs. We trust that, in time, additional steps will be taken to support entrepreneurship and funding of early-stage ventures.”
The first key taxation amendment is that the total asset limit for qualifying investee companies (being the businesses in which the VCC may invest) has been increased to R50 million.
“Previously the VCC tax regime allowed VCCs to invest in companies with a maximum book value of R20 million,” explains Rick Basson, co-founder of Broadreach Capital, a SAVCA-member firm which has a registered VCC fund. “We believe that was too low and one of the principal reasons why the S12J incentive wasn’t taken up to any significant degree. A venture fund and its investment assets need to be of a certain size in order to appeal to fund managers. Quite simply, it was not economical for fund managers to set up funds to invest solely in assets of that size, and the level of risk involved in such small investments kept most investors away.”
Basson is confident that with the increase to a R50 million asset limit, these concerns will largely be removed.
The increased asset threshold should have a positive effect on the economy. “This incentive will support very early stage tech companies and start-ups with almost no assets. And it will also stimulate investment in the real job creators, being the SMEs, across various industries,” says Basson. “Particular beneficiaries will be the many established and growing SMEs in education, franchising, telecommunications and renewable energy industries. These businesses have asset bases of over R20 million, and with the proposed changes to Section 12J, we will be now be able to invest in them.”
Jeff Miller of Grovest, South Africa’s first Section 12J VCC, also comments on this welcome change: “Being able to invest in qualifying companies with assets of up to R50 million certainly increases our potential investment universe.”
The second Section 12J amendment relates to the deduction available to an investor subscribing for shares in a VCC. At present, this deduction is immediate and for the full amount of the investment made – however, it is recouped and becomes taxable if the investor sells the VCC shares at any time.
The improvement to this provision is that SARS will now allow the investment deduction to be permanent, as long as that investment is held for a five-year minimum period. There will be no reversal of the deduction on eventual disposal of an investment in a VCC, provided this holding period requirement is met.
Miller comments: “I have no doubt that, with the Section 12J allowance now becoming a permanent deduction, this will attract a large flow of investment into our fund, as individuals and trusts with high taxable income will want to take advantage of this new tax-efficient asset class.”
Broadreach Capital compares the local taxation amendments to the UK and is hopeful that venture capital will now have broader appeal, particularly to individual investors. “The improved VCC regime mirrors the very successful Venture Capital Trust framework established in the United Kingdom,” says Basson. “We hope that, as is the case in the UK, a VCC investment will eventually form part of the investment portfolio of most ordinary taxpayers once they realise the unique combination of excellent returns and economic stimulation that this form of asset class offers.”
Keet van Zyl from SiMODiSA commends the announced changes, and expresses optimism that further amendments will follow to boost the South African venture capital industry. “The amendments to the VCC regime are welcome; our view is that additional steps are required to ensure that this tax structure is employed enthusiastically – and is truly effective. The changes indicated in the February Budget, which importantly covered, amongst other things, capital gains tax concessions for investors into VCCs, have not yet been implemented in full. We strongly believe their inclusion will significantly add to the potential impetus for industry growth that is much needed in our country.”
The proposed Section 12J amendments will come into effect on April 1 2015.

Malcolm Segal | B.Com CA (SA) CPA (ISR) | Non Executive Chairman

After qualifying as a Chartered Accountant, Malcolm practised as a partner of Grant Thornton (Chartered Accountant and Business Advisors) and was elected Managing partner of the Johannesburg office in 1986 and National Executive Chairman in 1989. Malcolm established MDM Private Equity Investment Fund in 1997 which he managed until acquired by Sasfin Holdings Limited in 2005. In February 2012, Malcolm resigned from the boards of both Sasfin Holdings Limited and Sasfin Bank Limited to enable him to pursue his passion – entrepreneurship and entrepreneurial funding activities. Malcolm currently sits on the boards of various companies in which he holds a private equity investment and, inter alia, is also an External Member of the Special Credit Committee of the IDC (Industrial Development Corporation of South Africa Limited) and a member of the Listings Advisory Committee of AltX (Alternate Exchange of the Johannesburg Securities Exchange).

Jeff Miller | B.Com B.Acc CA (SA) | Chief Executive Officer

Jeffrey is a Chartered Accountant having completed his articles at Grant Thornton and has over 30 years’ experience investing in unquoted companies across numerous industries. Jeffrey co-founded Brandcorp, which was listed on the Johannesburg Stock Exchange in 1997. He brings many years of operational and investment skills to the company. He was a co-founder of KNR Flatrock, Balboa Finance, Born Free Properties, Eurosuit, Bride & Co., Seed Engine, Seed Academy and VCMS. Jeffrey is a pioneer of Section 12J Venture Capital Companies in South Africa and is an active member of various subcommittees of SAVCA and Simodisa, both of which focus their efforts on the South African Venture Capital industry.

Daniel Rubenstein | BCom (Hon), CA(SA) | Non-executive director

Daniel is a Chartered Accountant. He qualified in 2009 after completing his Articles at PKF. He has been involved in property from a young age and is well networked in the property industry. Daniel was one of the founders of Annuity Properties Limited, a property fund which was started in 2010 and listed on the JSE in 2012. Annuity Properties Limited was sold to Redefine Properties Limited in 2014. Daniel was instrumental in creating a property portfolio valued at R2 billion in a period of three years. Since Redefine’s acquisition of Annuity, Daniel has been involved in various property transactions within South Africa and Europe. During the past twelve months Daniel established Glenrock International which has acquired commercial property in Germany at a cost price of twenty five million Euros. He has a proven track record of sourcing attractive property investment opportunities, structuring transactions and raising acquisition finance, both locally and abroad.

Jarod Kolman | (Hon), Finance. HDip Co.Law. | Non-executive director

Jarod attended Wits university where he qualified with a B.Com (Hon) Finance and an HDip Co.Law. In 2008, Jarod co founded The Capital Group with Marc Wachsburger and successfully sold out his equity interest in 2011. Jarod is the founder of Limestone Property Group, which has successfully developed over 400 sectional title units and has to date sold in exess of 7000 buy-to-let properties. In 2014, Jarod co-founded The Luxury Lifestyle Group which focuses on the management and servicing of fully furnished self catering apartment hotels. Jarod has a track record of finding opportunities in the apartment hotel market and understands the needs of his guests and constantly designs new products to meet the every changing demands of the hotel guest.

Ran Neu-Ner CFA Non-executive director

In 2001 Ran co-founded The Creative Counsel. The company is today (since 2011) South Africa’s largest agency group. In 2015, TCC was sold in the largest agency transaction in Southern Africa for over R1 billion where he remains in the capacity of Co-Group CEO.Ran is an active investor in the property, hospitality and technology space and has access to a large network of deals.Ran is on the board of YPO and an active member of EO.

Jeffrey Livingstone | B.Com CA (SA) HDip Tax Law | Non Executive Director

Jeffrey is a practising Chartered++Accountant and Chairman of Light & Livingstone Inc., Registered Accountants and Auditors. He qualified in 1976 after completing his articles at PKF and completed the Higher Diploma in Tax Law in 1981. Jeff provides a wide range of professional services to a broad spectrum of industries and has acted as a director and consultant to several public and private companies. He was instrumental in the listing of Net1 Applied Technology Holdings Limited on the Venture Capital Market of the Johannesburg Stock Exchange in 1997 and together with Jeff Miller, played a significant role in the listing of Brandcorp Holdings Limited on the Johannesburg Stock Exchange in 1997.Jeff is currently a non-executive director of ADvTECH Limited, VCMS (Pty) Ltd and a director of numerous other companies, as well as a trustee of numerous trusts.

Clive Butkow | B.Sc Computer Science and Applied Mathematics | Chief Executive Officer

Clive is the former Chief Operating Officer (COO) of Accenture South Africa and has 28 years management consulting experience. During his tenure at Accenture (formerly Arthur Anderson and Anderson Consulting), he played numerous leadership roles including Managing Director of Accenture South Africa’s Technology business as well as Managing Director of Accenture’s Resources and Utilities businesses. In addition to his COO role, during the last 6 years, he led sales for Accenture’s Technology business, cultivating an entrepreneurial mindset which helped grow Accenture into one of the top emerging markets globally. Clive has deep technology skills from working across multiple industries including Financial Services, Resources, Retail, Automotive and Communications. He has leveraged these technology and business transformation skills and helped drive significant shareholder value for many South African clients. Since January 2013, he has supported and mentored many technology businesses, assisting them in driving growth. Clive joined Arthur Anderson in 1985 (now Accenture) after graduating from the University of the Witwatersrand with a B.Sc degree in Computer Science and Applied Mathematics.

Fatima Habib | Mcom Economics, Bcom (Hon) Applied Physcology, B.Sc Social Sciences

Fatima Habib, has a strong academic pedigree, and holds a MSoc Sci (economics and industrial and labor studies) from The University of Natal, Honors in Applied Psychology from The University of Witwatersrand and a BSoc Sci from The University of Natal. Fatima successfully began her career with Deloitte and Touche, progressing to very senior positions in both corporate SA and the SA government, as time progressed. A seasoned executive, with 20 years’ experience within both the public and private sector that spanned various environments from telecommunications, to a Wall Street firm in New York, and then private banking; following which a career move to contributing to the public sector. Fatima has over 20 years of experience within all areas of business - HR, Finance, IT, Operations, Strategy. She has held a number of Executive positions in her diverse career, including being the Executive Director: Corporate Services at the City of Cape Town , Executive: Corporate Services at the JDA, Regional HR executive at Telkom, GM of Absa Private Bank, Chief of Shared Services at SITA, Assistant GM at Smarte Carte, inter alia.

Gil Oved | • B.Com Economics and Marketing (Cum Laude), CFA | Non-Executive Director

A serial entrepreneur and astute businessman, Gil Oved is group co-CEO of The Creative Counsel (TCC) which he co-founded in 2001. What started as a tiny promotions company has grown into South Africa’s largest agency group with an annual turnover of R700 million. Employing just over 1 500 full time staff and thousands of temporary staff, TCC runs sales and marketing campaigns for the largest multi-nationals and large local marketing spenders. Over this time Gil has been involved in many successful start-up businesses and has invested in many others. TCC was recently bought by Publicis Groupe, a leading global marketing, communication, and business transformation company in the largest deal in advertising history in South Africa and the continent. Gil feels passionately about entrepreneurship and mentorship and invests much of his spare time in advising, guiding and inspiring entrepreneurs on the continent. He was one of the Dragons in the launch series of Dragons Den South Africa and has co-authored a book, I’M IN with the other four dragons on the show. The book seeks to inspire entrepreneurs through their collective lessons learnt in business with the other four dragons, all proceeds of which go to an entrepreneurial charity.

Arnold Basserabie | Non-Executive Director

Arnold was the Group Chief Executive of Fedsure Financial Services Group from 1988 – 2001, during which time its asset base grew by 25% pa compound to R40b and its share price by about 20% pa compound. Since then he has been a Strategic Business Consultant, focussing on strategy and business development, mergers and acquisitions, and related activities, in a diverse range of industries. Arnold obtained a B.Sc (Math & Math Stats) from Wits University, is a qualified actuary and a certified financial planner. His awards include Insurance Man of the Year, IMM Marketing Man of the Year, Jewish Business Achiever of the Year and Lifetime Achiever, and the World Presidents Organisation’s International Best of the Best Regional Chair.

Nicholas Liebmann | Non-Executive Director

Nic completed a commerce degree majoring in finance at Bond University where after he gained some international exposure working abroad in the United Kingdom. Nic Established a Wealth Management Firm which was absorbed by Sasfin Bank where he also gained work experience for more than 4 years.
Nic has been in Finance for over 15 years and is currently the co-founder and joint-CEO of Caleo Capital, an asset manager whose expertise range across Private Equity, Wealth Management, Financial Advisory Property and Venture Capital. Caleo also manages a private equity stake in the renowned Maboneng Precinct in central Johannesburg.

Romeo Kumalo | Non-Executive Director

Romeo is currently the CEO of Washirika Holdings, an investment holding company with focus in communication, construction, energy and ICT infrastructure. He was previously the CEO of Vodacom/Vodafone International, responsible for all the Africa markets. An accomplished leader and commercial strategist, with over 20 years’ experience in Information, Communication and Telecoms industries, a proven track record of building teams, creating value and turning around underperforming businesses. An excellent communicator with well-established networks in Africa. He has worked, lived, and travelled extensively across the continent. He was appointed to the Board of Vodacom South Africa as Executive Commercial Director in 2007 and was a member of the Vodacom Executive Committee until 2015. He served as non-executive director of Vodacom Tanzania, Lesotho, Mozambique, DR Congo and other Vodacom group of companies. Romeo serves on various private company boards and holds a Master Degree in Commerce and executive management certificates from WITS, INSEAD, and HARVARD Business School.

Mafika Mkwanazi | Non-Executive Chairman

Mafika Edmund Mkwanazi was the Non –Executive Chairman of Transnet SOC from December 2010 to December 2014 and also non-executive director of Eskom from July 2011 to December 2014. He completed a B.Sc. degree in Mathematics and Applied Mathematics at the University of Zululand in 1978. He also graduated with a Bachelor of Science Electrical Engineering from the University of Natal (Howard College) in 1984. He was at some stage CEO of Transnet and Chairman of Letseng diamonds, Western areas gold mine and non-executive director of Nedbank for 9 years.
He is currently Non-Executive Chairman of HULAMIN, and is Non- Executive Director of MSC South Africa as well as Stefanutti and Stocks.

Dr Bonakele Mehlomakulu | Non-Executive Director

Dr Bonakele Mehlomakulu is the CEO of the South African Bureau of Standards (SABS). Under her leadership, the almost 70 year-old institution has undergone a significant transformation, gearing itself towards service relevance within the 21st century. She holds a PhD in Chemical Engineering and her leadership philosophy centres around the empowerment of those entrusted in her care. Her professional career started at Sasol before joining the Department of Science and Technology (DST) in 2003. In September, 2009 Dr Mehlomakulu took over as the Chief Executive of the SABS, South Africa’s foremost body, promoting and maintaining standards and quality. Dr Mehlomakulu was an Eskom non-executive director for more than 5 years. She was Chairman of the Sustainability subcommittee of the board.

Rodney Love | Non-Executive Director

Rodney is an experienced and dynamic businessman with a strong background in building intuitive and innovative business concepts focused on growth and expansion. Rodney also founded ESA in 2012 having identified the energy reduction opportunity management which has resulted in self reliance of energy allowance in Photo Voltaic solar energy plants.
Rodney started Suburban Services (Pty) Ltd over 20 years ago. Suburban Services provider to blue-chip clientele of soft services that include major retailers, listed property funds, national commercial portfolios. Rodney has a profound interest in the growing renewable energy space and is constantly analyzing ways of commercializing energy-based opportunities.

Paul Jenkins |Non-Executive Director

Paul qualified at Randse Afrikaanse Universiteit in 1981 with a BCom and LLB degree and was admitted as an attorney and notary in February 1986. He became a partner of Webber Wentzel in 1988 and left his position as senior commercial legal partner in 1999 to join the Johnnic group full time. In this capacity he served as a director of numerous listed companies and was CEO of Johnnic Entertainment. He is currently self-employed and provides business and legal advisory services to a select group of clients. He holds the position as non-executive Chairman of Caxton and CTP Publishers and Printers

Gil Sperling | Non-Executive Director

After graduating with a B.Sc Electrical Engineering from Wits University, Gil Sperling founded Popimedia at age 23. With his passion for tech, entrepreneurship and pure tenacity, Gil took Popimedia to being the only Facebook Marketing Partner in Africa, one of 40 companies around the world. As one of the leading Ad Tech companies, Popimedia serves fortune 500 brands globally using its proprietary platform meedee8. At age 30 Popimedia was sold to Publicis Group. Through his journey of entrepreneurship and scaling a company to exit, Gil invested, consults and mentors several technology companies, while also sitting on the board and investment committee of GroTech.