S12J Primer


One of the keys to unlocking economic growth is through small business. In line with this notion, government has incentivised inventors through S12J Venture Capital Companies (VCC), subject to the provisions of the Income Tax Act No. 58 of 1962. The goal of this section of the Tax Act is to create a pooling mechanism for investors to channel funds into small private companies and obtain attractive income tax benefits. The VCC regime is subject to a sunset clause making such benefits applicable until 30 June 2021.



  • Qualifying Investors, which comprise individuals, trusts and companies, will invest in VCCs in exchange for Venture Capital Shares and share 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.


  • The full amount invested by the investor is deductible from their taxable income in the year in which the investment is made. This applies to individuals, companies and trusts.
  • An investor will therefore obtain an immediate tax deduction of up to 45% (for an individual tax payer at maximum marginal rate) at the time of investment, provided the investor subscribes for equity shares as opposed to buying them in the secondary market.
  • If the investment is held for a minimum period of 5 years, the tax benefit conferred at the date of investment will become permanent, i.e. NO recoupment of the tax benefit in the hands of the investor when the investment is subsequently realised.
  • There is no annual limit or lifetime limit.


  • The shares are unlisted and therefore there is no market for secondary trade however, the VCC would offer exit mechanisms in the following forms:
    • trade sale of investments by the VCC followed by a distribution of cash to investors;
    • a repurchase of the investors’ VCC shares by the VCC; or
    • a consolidation and listing of underlying investments and distribution of shares as dividends in specie to the investors.
  • Capital Gains Tax (CGT) is payable upon the sale of the VCC shares.
  • Dividends received by the investors in respect of their VCC shares are subject to the 15% dividends tax unless the investor qualifies for an existing dividends tax exemption.
    • SA resident company VCC investors will enjoy the company-to-company dividends tax exemption.
    • Individual VCC investors remain subject to the 15% dividends tax.



The VCC must satisfy the following requirements by the end of each year of assessment after the expiry of 36 months from the first date of issue of Venture Capital Shares:

  • 80% or more of the subscription proceeds advanced by various investors must be utilised by the VCC to subscribe for qualifying shares in underlying investee companies and each investee company must hold assets with a book value not exceeding:
    • R500 million in any junior mining company; or
    • R50 million in any other qualifying company
  • Qualifying shares acquired in any one qualifying company must not exceed 20% of the aggregate subscription proceeds received from its investors.



  • The Investee must be a company;
  • The company must be a resident;
  • The company must not be a controlled group company in relation to a group of companies;
  • The company’s tax affairs must be in order;
  • The company must be an unlisted company (section 41 of the Act) or a junior mining company; A junior mining company may be listed on the Alternative Exchange Division (AltX) of the JSE Limited;
  • During any year of assessment, the sum of the “Investment Income” derived by the company must not exceed 20% of its gross income for that year of assessment;
  • The company must not carry on any of the following impermissible trades:
    • Any trade carried on in respect of immoveable property, except trade as a hotel keeper (includes bed and breakfast establishments);
    • Financial service activities such as banking, insurance, money-lending and hire purchase financing;
    • Provision of financial or advisory services, including legal, tax advisory, stock broking, management consulting, auditing, or accounting;
    • Operating casino’s or other gambling related activities including any other games of chance;
    • Manufacturing, buying or selling liquor, tobacco products or arms or ammunition; or
    • Any trade carried on mainly outside the Republic.
  • There are no special tax rules for investee companies. The standard tax rules will apply.



  • Immediate tax deduction of up to 45% (for an individual tax payer at maximum marginal rate) at the time of investment
  • No recoupment of the tax deduction if the investment is held for a minimum period of 5 years.

Please contact us on connect@bowden.co.za if you are considering an investment in a S12J fund.

Importance of succession planning

One of the wealthiest CEOs in SA, Investec CEO Stephen Koseff says the board must decide when he should step down. But though he believes the company culture is so well embedded that the bank will survive without him, letting go won’t be easy. On the other hand some think Investec has become stale and that now, in the wake of its successful cleanup, would be a good time to name a new CEO.

Koseff remains, at least for now, the larger-than-life leader of Investec with no obvious successor waiting in the wings. He is himself “embedded” in a way that will make it difficult to hand over to Investec’s next leader.

His outsized character, whose presence seems fundamental to Investec’s culture, values and staff morale, raises questions about what will happen to the bank when he leaves. Bankers say it will be a huge blow. “I have huge respect for Stephen,” says one individual who joined the bank as an articled clerk more than eight years ago.

Whether he likes it or not, Koseff is still a dominant presence at Investec. All major deals are passed by him, and he sits even on those credit committees charged with overseeing relatively small amounts. He is far less immersed in the asset management and wealth arms of the business, but they effectively function as independent businesses anyway.

As part of its succession planning, Investec appointed new heads of its three core businesses — banking, asset management, and wealth and investment — in November 2015.

He plans to leave it to the Investec board to decide when it is time for him to go. But letting go won’t be easy.