Bullion Venture Capital (Pty) Ltd

VENTURE CAPITAL COMPANIES SHARES (VCCs)

  • One of the main challenges to the economic growth of small and medium-sized businesses and junior mining exploration is access to equity finance.
  • To assist these sectors in terms of equity finance, government has implemented a tax incentive for investors in such enterprises through a Venture Capital Company (VCC) regime.
  • The VCC is intended to be a marketing vehicle that will attract retail investors. It has the benefit of bringing together small investors as well as concentrating investment expertise in favour of the small business sector.
  • With effect from 1 July 2009, investors (any taxpayer) can claim income tax deductions in respect of the expenditure incurred in exchange for VCC shares.
  • The VCC regime is subject to a 12 year sunset clause i.e. it ends on 30 June 2021. This will allow for review of the efficacy of regime and a decision will then be made as to whether it should be continued.

AN OVERVIEW OF HOW IT WORKS

  • Qualifying Investors will invest in approved VCC’s in exchange for the issue of Venture Capital Shares and investor certificates. Investors can claim tax deductions in respect of their investments in an approved VCC.
  • The approved VCC will, in turn, invest in qualifying investee companies in exchange for qualifying shares.

WHO QUALIFIES TO BE AN INVESTOR?

  • Any taxpayer qualifies to invest in an approved VCC.
  • Qualifying investors can claim income tax deductions in respect of the expenditure actually incurred to acquire shares in approved VCCs.
  • Where any loan or credit is used to finance the expenditure in acquiring a venture capital share and remains owing at the end of the year of assessment, the deduction is limited to the amount for which the taxpayer is deemed to be at risk on the last day of the year of assessment.
  • No deduction will be allowed where the taxpayer is a connected person to the VCC at or immediately after the acquisition of any venture capital share in that VCC.
  • On request from SARS, the investor must verify a claim for a deduction by providing a VCC Investor Certificate that has been issued by an approved VCC, stating the amount of the investment and the year of assessment in which the investment was made.
  • Except in the case of Venture Capital Shares held by a taxpayer for longer than five years, the deduction is recouped (recovered) if the taxpayer disposes of the Venture Capital Shares to the extent of the initial VCC investment (under the general recoupment rules of section 8(4) of the Act)).
  • Standard income tax and CGT rules apply in respect of VCC shares.

For more information please contact us at our offices to schedule an appointment:

Tel: +27 (0)87 654 1645

J C Strauss – Director
The Bullion Group (Pty) Ltd