R&D Tax Incentives

The Opportunity
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
Interestingly, qualifying R&D isn't always conducted in a lab. Very often, it occurs on the factory floor, and in the field. In addition, your ability to claim these incentives does not depend on whether the project is successful or not. Under our law, even unsuccessful, incomplete or aborted projects may qualify, provided that they meet the other requirements.

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.

Pre-Approval Required
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.

Disclaimer This document is intended to provide a summary of certain incentives on offer, potentially, to taxpayers generally. It is not intended to be a comprehensive statement of the law, nor does it constitute an opinion or guarantee of any deduction that might (not) be allowable to any taxpayer, and should not be construed as such. It should not be relied upon as a substitute for specific advice regarding particular scenarios. Margo® Attorneys, Inc. cannot accept responsibility for the consequences of any person relying on the contents of this document for any other purpose.