R&D Tax Incentives
If you've invested resources in the development or improvements of products & processes, you may qualify for substantial income tax deductions.
A very attractive incentive is available to taxpayers that conduct "R&D" in South Africa. The incentive takes the form of a supercharged deduction of 150% of all qualifying operating expenses. Essentially, for every R1m of qualifying spend, that amounts to R140,000 cashback benefit to you after tax. The claiming of this incentive has been a particular niche specialisation of Margo® Attorneys, Inc. for many years.
What qualifies as "R&D"?
Many taxpayers think that "R&D" is relevant only to white-coated scientists in chemistry labs. This is not true: Section 11D defines "R&D" extremely broadly. You may be pleasantly surprised to see that, what you're doing as part of your regular day-to-day activities might qualify for these deductions. For example:
- developing new, improved products, processes or techniques
- creating prototype models or pilot plants
- developing certain software solutions
- filing patent applications
- integrating components or technologies (software and/or electro-mechanic components)
- outsourcing technical development work to contractors
Some more specific examples, by industry, include these:
The Application Process
At its most basic level, the R&D tax incentive is administered by the Department Of Science & Technology ("DST"), in a convoluted arrangement with SARS and National Treasury. Regrettably, the process has disintegrated to the point where the claiming of the incentive is virtually impossible. We have advised our clients to approach the claiming of this incentive with extreme caution.
It is also essential to bear in mind that, with effect from 1 October 2012, pre-approval is required from the relevant authorities before the incentive can be claimed. The incentive is, by no means, guaranteed and extensions of time are not permissible.
Prescribed Forms & Guidelines
The authorities have been tasked with the preparation of prescribed forms and a detailed Guideline to the incentive. Regrettably, these remain incomplete, and are now several years overdue. As a result, presently, the process is plagued by uncertainty.
For further information on this topic, we draw your attention to our series of Newsletters click here or invite you to contact us.