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South Africa: R&D tax incentive

South Africa: R&D tax incentive

Government officials at a 2 March 2018 meeting considered comments and feedback concerning progress made in implementing recommendations for a research and development (R&D) tax incentive and potential improvements.

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Background

A government-industry task team was established in 2015 to review the R&D tax incentive. The task team tabled a report in April 2016 with findings and 17 recommendations on improving the administration and implementation of the R&D tax incentive. Since then, 15 of the 17 recommendations have been implemented (either in full or with modifications) including those to make the incentive more accessible to business in South Africa. The recommendations included measures such as simplifying the administration of the tax incentive and clarifying uncertainty on what is considered eligible R&D or eligible R&D activities. 

Future considerations

The current exclusion relating to software development for internal use (i.e., internal business processes) is being evaluated. Any changes to this provision are expected to be communicated in future draft legislation. Based on information in the recent budget 2018 speech, it is expected that the complexity pertaining to this area will be simplified.

Current guidelines for what constitutes innovation or an innovative activity are also the subject of recommendations for clarification. For instance, it is recommended that the focus of what constitutes innovation be redirected to technological advancements that the R&D activity will bring in the local context and economy, rather than on a “first to the world” basis. 

Another action step would be to allow companies 14 days to provide further information if there is a risk of non-approval by the committee (a change from the “rejection letter” being issued without any consultation). In line with simplifying the administration of the R&D tax incentive, the turnaround time for application processing is being reduced to a targeted 90 business days. 

 

Read a March 2018 report [PDF 96 KB] prepared by the KPMG member firm in South Africa

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