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More changes expected to venture capital incentive

Friday, 18 March 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (Moneyweb)

Following sluggish uptake of an attractive tax incentive.

The sluggish uptake of an attractive venture capital tax incentive for investments in small businesses has once again forced National Treasury back to the legislative table.

Government acknowledged that the application of certain provisions on venture capital companies "may result in potential investors abandoning plans to take up this incentive”, it said in the February budget review.

The venture capital company (VCC) regime became effective in 2009, aiming to encourage equity funders to invest in small businesses. To date there are only 31 registered venture capital companies. In 2013 only three companies were active.

In terms of the incentive, investors receive an upfront tax deduction from their income equal to the amount they spent on acquiring shares in the VCC.

The VCC may acquire shares to the value of R500 million in any junior mining company, or R50 million in any other small private company.

Etienne Louw, senior tax consultant at Mazars, says although its experience with the regime has been limited, uncertainty about the application of some of the provisions seems to discourage a rigorous uptake.

Treasury said in the February budget review measures to mitigate "unintended consequence” relating to the "application of certain provisions” will be explored.

Treasury did not respond to questions on what these unintended consequences were, or which provisions were being referred to.

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