Why would anyone want to open a business in a country where people get killed for less than $5? There are many good reasons. South Africa may be the country with the highest crime and AIDS rate in the world, but it offers several incentives that cannot be overlooked.
Apart from the economic benefits, it is a vibrant, sunny and beautiful country with friendly people, cultural diversity and tolerance, a rich wildlife, and endless opportunities.
Incentives for new business and investment – The South African government aims for a 6% annual economic growth and has implemented several incentive measures to curb the high unemployment rate. The main goals of the incentives are to promote export, spatial improvement, industrial growth, enterprise development, and decrease unemployment. The incentives are geared toward foreigners who want to invest or open a business in South Africa. Certain zones have been identified as prime priority, and Johannesburg as part of the Gauteng province, is one of them.
The Department of Trade and Industry (DTI), and the Industrial Development Corporation (IDC), oversee the incentives schemes in the form of non-tax grants. The incentive grants are limited to three years for any project. Ventures from the following segments qualify: manufacturing; agriculture; aquamarine; biotechnology; tourism; IT; communications; agro-processing; cultural enhancement; business development; motor industry; textiles; engineering, and science development. The allowances can be grouped under the following categories:
Broad-spectrum incentives
The general assistance takes the form of electricity allowances for larger companies, assistance programs for industrial originality and joint ventures, expertise support programs with concessions for instruction of new employees, as well as the skill and workforce program to encourage the transferring of knowledge. This applies to businesses that endeavor to expand their operations. Compensation is limited to half the cost for training the new workforce.
Economic incentives
The IDC offers below average interest rates on business loans for sizable endeavors based on the feasibility of the projects. They also provide incentives for small enterprises through awards and compensation in the third year of operation. The allowances are based on the ratio of worker salaries to development expenditures.
Foreign venture incentives
DTI provide allowances to foreign companies to a maximum of $150,000 for each project where capital goods, equipment, and machinery are brought into the country for the purpose of establishing a business in South Africa. This decreases the initial setup or relocation costs of businesses by covering a portion of the shipment expenses of the equipment.
Industrial zones
A number of industrial development areas have been identified for capital investment and government assistance. The aim is to provide facilities for export related industries. Under the scheme, businesses that fall in one of the zones can apply for tax-free imports of capital products.
Assistance for small and medium enterprises
The small and medium business assistance program is aimed at employment creation, investment promotion for tourism, manufacturing, IT, agricultural developments, and sustainable business projects. Compensation for a maximum of 10% of the original investment cost is provided to these businesses.
Manufacturing incentives
Companies with manufacturing as their exclusive operation can apply at the Regional Development Offices for a tax break for up to six years. They must apply for project approval before they start with the venture.
Urban development areas
Several urban zones have been identified for renewal and development. The aim is to promote inner city regeneration across South Africa over the next 10 years. Johannesburg and Cape Town are two of the sixteen cities. The incentives are in the form of accelerated reduction grants. A tax deduction of 20% is provided in the first year of renovation or development.
Companies that own commercial or industrial property in the city zones can apply at the city councils for compensation when they refurbish property in the areas. The program also includes residential property and the construction of new buildings.
The following must be included in the application: descriptions of the structure; renovation plans; cost projections, and construction plans. Occupancy and location certificates must be obtained and a tax return completed with the South African Revenue Service (SARS), together with the financial statements for the upgrading or new development.
Tactical investment assistance
A division of the DTI, called the Enterprise Organization provides and investment incentive scheme for industrial endeavors that exceed R50 million ($8 million) in eligible industrial resources. The purpose of the program is to draw foreign private entity investment. Businesses involved in manufacturing, IT, and research qualify. The manufacturing of tobacco related products are excluded. Companies must proof that they create job opportunities and they must increase the annual production of goods. Apart from this, they must not have a negative impact on local products and jobs.