South Africa is a legal tax haven

Zane de Decker, MD of Flyt Property Investment

I’m still quite astounded at how many investors and financial advisors don’t fully understand the workings of SARS 12J tax incentive, which incidentally has a cut-off date of June 2021.

Think about this; 100% of what you earn can be tax deductible via the 12J structure. Since the introduction of the limit to the total amount permitted to be invested annually (those in the know were taking advantage) an individual still has the opportunity to invest R5m (R2.5m this year and R2.5m in 2021) and a company is limited to R10m (R5m this year and R5m next year). So, essentially, if you are an entrepreneur who owns your own company, you can easily – and legally – enjoy a R15m tax deduction.

Stimulate investment

Salary earners, too, need to be taking advantage of the structure. Let’s say you earn R1m per annum; you are permitted to invest R2.5m per annum into a Section12J fund (so a total of R5m investment cap over the next two years). If you invest the R5m, you’ve created a tax loss that will shield the next R5m of your salary. In other words, you will pay no tax for the next five years. The South African Revenue Service (SARS) will reimburse you your monthly tax deductions when you submit your tax return.

I find it strange that many high net-worth individuals send their money offshore to favoured tax havens such as Isle of Man or The Bahamas. Now that sounds wonderful to be sending your hard-earned cash on an island holiday, but what does it really mean? As a start, it means you’ve probably invested in a random company or fund, that you know very little about, which yields a low ROI and attracts very handsome set-up costs and ongoing management fees. This all somewhere exotic you’re hoping to go and visit one day.

But, more importantly, we must not forget the intention of Section 12J is to stimulate investment into certain sectors of our economy with the end goal of creating jobs. Any South African investor, especially in these trying times, who has the opportunity to invest would be missing a huge opportunity to boost the economy, be a part of the solution and take complete advantage of the short-lived tax haven status we are currently legally enjoying.