INVESTING OR GROWING YOUR BUSINESS IN SOUTH AFRICA

Article by: Midrand Accountant: Mollen Mkuze

Want to invest or grow your business in South Africa? Unlock the Potential of Special Economic Zones (SEZs)

Introduction to SEZs: A Gateway to Economic Growth

In the dynamic landscape of South Africa's economy, businesses and potential investors must stay vigilant to the developments that can provide a competitive edge. One such groundbreaking initiative is the Special Economic Zones (SEZs), introduced by the South African government to spur industrial growth and bolster the nation’s economic resilience.

SEZs promises a wealth of incentives designed to attract local and foreign investment. We will discuss more about the SEZs opportunities in this article

What Exactly Are SEZs?

Special Economic Zones (SEZs) are designated geographical areas within a country where specific economic regulations and incentives are implemented to attract businesses and investments. In South Africa, SEZs are a pivotal part of the government’s strategy to boost industrial development and enhance economic growth. These zones offer a conducive environment for businesses through a combination of infrastructural support, fiscal benefits, and streamlined regulatory processes.

The Purpose of SEZs

The primary aim of SEZs is to create hubs of economic activity that can drive industrialization, enhance the country's export capabilities, and attract both local and foreign investment. By clustering industries in specific locations, SEZs facilitate coordinated planning and infrastructure development, which can lead to more efficient and competitive industrial processes.

Launched in 2016, the SEZ Programme encompasses four main types of zones:

• Sector Development Zones (SDZ): Tailored for specific sectors, providing focused infrastructure and support.
• Industrial Development Zones (IDZ): Promoting manufacturing and industrial activities with advanced infrastructure.
• Free Trade Zones (FTZ): Facilitating trade with duty-free importation and streamlined customs procedures.
• Free Ports: Offering significant customs and tax benefits to import-export businesses, positioning South Africa as a competitive trade hub.

Where Are These SEZs Located? South Africa's SEZs are strategically positioned across seven provinces, each with a unique industry focus to maximize economic impact. Here’s a detailed look at where these zones are and the incentives they offer:

Province	SEZ	Income Tax & Building Benefit	Employment Tax Benefit	Website
Eastern Cape	Coega SEZ	Yes	Yes	www.coega.co.za
	East London SEZ	Yes	Yes	www.elidz.co.za
KwaZulu-Nata	Richards Bay IDZ	Yes	Yes	www.rbidz.co.za
	Dube Tradeport	Yes	Yes	www.dubetraceport.co.za
Western Cape	Saldanha Bay IDZ	Yes	Yes	www.freeportsaldanha.co.za
	Atlantis	No	Yes	www.freeportsaldanha.co.za
Free State	Maluti-a-Phofung	Yes	Yes	www.mapsez.co.za

How to Leverage SEZs for Your Business Growth- The Benefits

1. SEZ Tax Incentives: Boosting Your Bottom Line

One of the most compelling reasons to establish operations in an SEZ is the attractive tax incentives designed to stimulate business investment and development. Here’s what you can look forward to:
• Reduced Corporate Income Tax Rate: Enjoy a significantly lower corporate income tax rate of 15%, compared to the standard 27%.
• Accelerated Depreciation Allowance: Benefit from a 10% per annum accelerated depreciation on capital structures, applicable to new buildings or improvements



Eligibility Criteria for Tax Incentives To qualify for these incentives, your business must meet the following criteria:

• Operate from a permanent establishment within a recognized SEZ.
• Be incorporated or effectively managed within South Africa.
• Ensure that at least 90% of your business income is derived from activities within the SEZ.
• Limit transactions with connected persons to no more than 20% of income received or deductible expenses



Industries Excluded from Tax Incentives

Certain industries, such as alcohol, tobacco, arms, and ammunition, are not eligible for these incentives.

2. Employment Tax Incentive (ETI): A Key Benefit for Businesses in SEZs



What is ETI

The Employment Tax Incentive (ETI) is a vital component of South Africa’s strategy to promote employment, especially among young and low-income workers. This incentive is designed to reduce the cost of hiring for employers, thereby encouraging businesses to create more jobs. Within Special Economic Zones (SEZs), the ETI offers significant benefits that can enhance the attractiveness of these zones for business operations.

Key Objective of ETI

The primary goal of the ETI is to combat high unemployment rates, particularly among the youth, by making it financially advantageous for businesses to hire young workers. The ETI provides a direct reduction in the amount of Pay-As-You-Earn (PAYE) tax that employers are required to pay to the South African Revenue Service (SARS).

How ETI Works

Employers who qualify for the ETI can reduce their PAYE liability by the amount of the incentive. Here’s a detailed look at how the ETI functions:

Eligibility Criteria for Employers

To be eligible for the ETI, an employer must meet the following criteria:

• Registration: The employer must be registered for PAYE with SARS.
• SEZ Location: If the business is located within an SEZ, it may qualify for additional benefits related to the ETI.
• Compliance: The employer must be compliant with South African tax laws and regulations.



Eligibility Criteria for Employees

Employees must meet specific criteria for their employer to claim the ETI:

• Age: The employee must be between 18 and 29 years old. For employees working in an SEZ, there is no age restriction.
• Salary: The employee must earn a monthly salary of less than R6,500 (approximately R60,000 per annum).
• Employment Status: The employee must be employed on or after 1 October 2013.
• Exclusions: Certain employees are excluded, such as domestic workers, connected persons (e.g., family members of the employer), and those earning more than the threshold.)



For more information about ETI refer to the blog ETI Explained

3. Customs and VAT Relief:

Import Duty Rebates and VAT Exemptions: Businesses within SEZs can benefit from rebates on import duties and VAT exemptions on materials used for production aimed at export.

VAT Suspension: VAT can be suspended for products purchased within South Africa under specific conditions.

Streamlined Customs Procedures: SEZs offer expedited and efficient customs administration, reducing delays and simplifying processes.

Eligibility and Exclusions

To qualify for these benefits, businesses must operate within an SEZ, be incorporated or managed in South Africa, and derive at least 90% of their income from activities within the SEZ. However, industries such as alcohol, tobacco, arms, and ammunition are excluded from these incentives.

Conclusion: A Strategic Move for Growth

SEZs in South Africa provide businesses with a unique opportunity to enhance their competitive edge through strategic location, infrastructural support, and a range of incentives. By leveraging the benefits offered by SEZs, businesses can drive growth, increase efficiency, and contribute significantly to South Africa's economic development. Whether you are looking to expand your operations or start a new venture, SEZs offer a promising environment for sustainable success.

For more information, please visit our website www.brendmo.com or give us a call on 011 026 3052