What is a Section 12J VCC?

A Section 12J VCC is a company which has been registered as Financial Service Provider (FSP) with the Financial Sector Conduct Authority (FSCA) and been approved by the South African Revenue Service as a Venture Capital Company. The sole objective of the Section 12J VCC is to manage investments in qualifying companies, which should stimulate local investment in small to medium enterprises (SMEs) and address unemployment in South Africa. This is done by providing the investor (South African taxpayers) with a tax incentive for investing in a Section 12J VCC.

What are the benefits of S12J?

Investors in a Venture Capital Company are allowed to deduct 100% of their capital investment from their taxable income, whether the Investor is an individual, a company or a Trust. This effectively reduces the amount of “risk capital”, from the initial capital amount invested to the amount less the investor’s tax bracket percentage and increase return on net funds invested.

There are two main limitations for the investor:

  1. In order to retain the tax deduction, an investor must hold the shares in the Section 12J VCC for a minimum period of 5 years. If the investor disposes of these shares prior to the 5-year period, the investor would be required to pay back the full tax deduction with no interest or penalties incurred.
  1. When an investor exits the Section 12J VCC, the investor’s base cost for capital gains tax (CGT) purposes will be reduced to zero. This means the investor will pay CGT on their investment amount as well as any growth on the investment. By way of example, if the initial investment amount is R1 million and the investment fails to increase in value, the investor will incur CGT on the R1 million.