Understanding the Section 12J Marketplace
Political uncertainty, widespread corruption in Government leading to additional reluctance by taxpayers to pay tax, investment diversification, and large tax liabilities have collectively been the catalyst to the success of Treasury’s Section 12J tax incentive with future years looking optimistic for the investment class.
The incentive was introduced to encourage investment in venture capital opportunities in South Africa, thereby encouraging investors to invest in the South African economy as opposed to investing their capital offshore.
Although, the Section 12J incentive was introduced with the intention of promoting pure venture capital investments, the majority of the 140 registered 12J companies invest in post-revenue businesses, with investment significantly weighted towards capital preservation investments such as hospitality property investments and investments in businesses which are asset-backed, such as asset rental businesses.
There are a significant number of 12J companies which look to invest in early-stage businesses, which in turn aim to provide investors with much higher returns. These 12J companies look to invest in industries/areas which investors ordinally wouldn’t have exposure to, such as, technology, agriculture, education, renewable energy, health care, private equity, pure venture capital and mining, all offering investors significantly different investment strategies and returns.
Notwithstanding the diverse Section 12J investment options available to investors, the investment class has attracted a large amount of funds within a relatively short period of time and is anticipated to increase from R3.7 billion to R5.5 billion by the end of this financial year.
What 12J companies should investors invest in? This question is purely dependent on the investor’s risk profile….Listen below for more.