2. Introduction: Catalyst Solutions
Catalyst is a boutique grants and incentives
consultancy offering a focused, efficient, value adding
service offering
• 13 years combined experience
• assisted clients to get access to various grants and
incentives in excess of R3bn
• Part of a global organization that focuses on cost
saving solutions
3. Grants and Incentives: Introduction
S11D R&D Tax
Tax Incentives
Incentive
R&D
SPII
Cash Incentives
TIA
4. R&D Tax Incentive
“To raise new questions, new possibilities, to
regard old problems from a new angle requires
creative imagination and marks real advance in
science.”
Albert Einstein
5. Section 11D R&D Tax Incentive: Background
• Enacted in 2007 - backdated to November 2006
• Introduced to increase the amount of R&D
expenditure in SA
• Target for GERD as percentage of GDP of 1%
by 2008
• In first 2 years of the incentive, 80 submissions
with approximately R900 million of R&D
expenditure
• New target has been set of 1.4% by 2015
• Hence the change in legislation
6. Section 11D R&D Tax Incentive: Current Incentive
• Section 11D(1) – Operational R&D Expenditure
• 150% tax deduction on expenditure directly
related to R&D
• Bottom line additional tax saving of 14% of
qualifying R&D costs
• Section 11D(2) – Capital R&D Expenditure
• Accelerated depreciation of 50/30/20
• New and unused
• Solely used for R&D
7. s11D: Current Incentive - Qualification Criteria
• R&D must be conducted in South Africa:
• In the production of income
• For the purpose of:
• Discovery of novel, practical and non
obvious information; or
• Devising, developing or creating
• Inventions - patentable
• Designs - registerable
• Computer programs
• Knowledge essential to the above
8. s11D: Current Incentive - Software Development
• All coding is copyrightable and therefore
qualifies
• Despite the act not requiring it, SARS does still
like to see an element of novelty
9. s11D: Current Incentive - Relevant Exclusions
• Any software developed for Management &
Internal Business Processes (MIBP) even if for
sale to third parties. For example:
• HR Packages
• Accounting / ERP packages
• Administrative packages
• Time sheet software
• Sales or marketing promotion. For example:
• Website development
• Internet Sales Systems
10. s11D: Current Incentive - Qualifying Costs
• Any costs incurred directly in respect of R&D
activities.
For example:
• Payroll costs – Developers
• Sub-contractor costs
• Overheads
Excluded:
• Rental
• Finance Costs
11. s11D: Current Incentive - Funding Issues
• Funder of R&D can make the claim
• Fundee can make claim if the Funder is unable
to. I.e.:
• Financial Institutions
• Foreign Funding
• Government Grants = 2 x Grant is excluded
12. s11D: Current Incentive – Administrative Issues
• Statistical form submitted to DST
• Can reopen tax returns for 3 years from date of
assessment
13. s11D: New Legislation – Why The Change
• Increase utilization
• Clarification of grey areas
• Better control of incentive
• Allow for better budgeting by companies
14. s11D: New Legislation – Main Changes
• Implementation date: 1 October 2012
• Pre-approval process through DST
• Improvements of previous software now eligible
• Only companies can claim
• No longer the ‘funder’ who can make the claim,
but rather the company which ‘determines or
alters the methodology of research’
• Govt. Grant = only 1 times grant is excluded
• MIBP is allowed if for sale to third parties
15. Support Program for Industrial Innovation
“Never before in history has innovation offered
promise of so much to so many in so short a time.”
Bill Gates
16. SPII: Basics
Support Program for Industrial Innovation (SPII)
Intended to promote technology development in SA
• Product Process Development (PPD) Scheme
• Matching Scheme
• Partnership Scheme
Applicable scheme is determined by the size of the
company and the funding required
17. SPII: Basics
• Taxable non-repayable cash grants of 50 - 75%
of qualifying costs incurred in ‘pre-competitive’
development activity
• Maximum grant = R5m
• Funding is provided on a per-project basis (only
1 project at a time)
• 2 – 3 months approval time
18. SPII: Qualification Criteria
• At the discretion of IDC (as opposed to s11D
which is law)
• Intended to lead to commercialization of the
developed product
• Major portion of the project must take place in
SA
• IP must remain in SA registered co. for 3 years
post development
• Cannot be developed for a single client
• Project must not be more than 50% complete
19. SPII: Qualification Criteria
What is the committee looking for?
1) Technological Innovation
2) Economic Merit – is the solution commercially
viable
3) Team capabilities – to perform the project
4) Financial Ability – to complete the project &
raise the rest of the finance
20. SPII: Technological Innovation - Software
• Global technological advance
• Functionally unique and advanced
• More efficient / lower cost / easier to use /
faster
• Innovation should be the result of technical
development
• New and unique product - attributes that
have never been seen before
• Enhancements – new features added so the
entire product is seen as innovative
21. SPII: Technological Innovation - Software
• Global technological advance (cont)
• Innovation that is not available in other
products on the market
• Integration may be innovative – if
components have never been combined
before and if it results in significant
functionality improvements not currently
available.
22. SPII: Technological Innovation - Software
• Only costs from commencement date
• Salary and Labour (timesheets)
• personnel directly involved
• Management costs – directly involved
(technically)
• Project Management
• Material
• Sub-contractors
24. TIA: Basics
Technology Innovation Agency (TIA)
• Established in 2008
• Promote development of technology – ICT is a
focus sector
• From proof of concept to early commercialization
• Looking for ‘high social impact’ projects
25. TIA: Basics
3 main programs for commercial entities:
• Idea Development Fund
• Industry Matching Fund
• Equity Fund
Each deal is unique and is structured on an
individual basis
26. TIA: What’s available?
• Funding from R100k - R50m (matching finance)
• Repayable as a soft loan or royalty (from
revenues)
• Each deal is unique
• IRR required by TIA is dependent on social
impact
• No collateral required
• Access to TIA advisors incl. – Patenting /
Certification
27. TIA: Requirements
• Global Innovation
• Does not need to be radical or novel
• Must create a competitive advantage
• Must be a market need for the invention
• Majority local shareholding
• IP to remain in SA
