The Department of Trade and Industry has established various special economic zones (SEZs) within designated areas in South Africa.
SEZs are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements and systems that are often different from those that apply in the rest of the country.
These SEZs are supported by means of government-provided infrastructure, business support services and streamlined approval processes. A number of targeted tax incentives are provided by Government to ensure SEZs’growth, revenue generation, creation of jobs, attraction of foreign direct investment and international competitiveness, which include income tax, value-added tax (VAT) and customs-related incentives.
The taxation incentives applicable to these zones are currently under review as part of the Draft Income Tax Amendment Bill, Draft Taxation Laws Amendment Bill and Draft Tax Administration Laws Amendment Bill currently in draft format for public commentary and still ongoing as at 18 November 2019.
South Africa has 7 SEZs in different provinces, namely:
- Coega IDZ (Eastern Cape)
The largest and first Industrial Development Zone in Southern Africa was designated in 2001. It is located in the Nelson Mandela Bay Metropolitan Municipality. The IDZ has attracted investment in the agro-processing, automotive, aquaculture, energy, metals logistics and business process services sectors.
- Richards Bay IDZ (Kwazulu-Natal)
A purpose-built and secure industrial estate on the north-eastern South African coast. The IDZ is linked to an international sea port of Richards Bay. It boasts tax- and duty-free incentives which is believed to encourage international competitiveness.
- East London IDZ (Eastern Cape)
Established in 2003 and known for its innovation, sustainability and efficiency. The East London IDZ (ELIDZ) is located in Buffalo City and is one of the first IDZs in South Africa to be operational.
- Saldanha Bay IDZ (Western Cape)
This IDZ is aimed to serve as the primary oil, gas and marine repair engineering and logistics services complex in Africa. This IDZ is situated two hours north of Cape Town.
- Dube Tradeport (Kwazulu-Natal)
Functions as a catalyst for global trade. This IDZ is located 30 km north of Durban, with a focus on manufacturing and value-addition primarily for automotive, electronics and fashion garments.
- Maluti-a-Phofung SEZ
Located in Free State, this IDZ offers exporters a logistics base that facilitates access to the Port of Durban, and intermodal logistics solutions for the transfer of freight between road and rail.
This SEZ also intends on attracting agro-processing industries.
- OR Tambo IDZ (Gauteng)
This IDZ will undergo phases over a 10-15 year period. It aims to develop land around OR Tambo International Airport in order to stimulate economic growth. This IDZ supports the minerals and metals sector with a key focus on light, high-margin, export-oriented manufacturing of South African precious and semi-precious metals.
Corporate income tax incentives
Companies carrying on business within an SEZ are subject to an annual income tax rate of 15%. This lower income tax rate is very attractive as it is almost half of the normal corporate income tax rate. Only a qualifying company doing business within an SEZ approved by the Minister of Finance may benefit from this lower tax rate.
Qualifying companies are able to reduce their taxable income by means of a special allowance which is related to expenditure incurred on the cost of any new or unused building or improvement to such building. This allowance may be claimed at a rate of 10% per annum on the cost of such building or improvement.
Employment tax incentive
The employment tax incentive (ETI) is an existing tax incentive designed to encourage the employment of young persons. It allows employers hiring people 18 to 29 years old to reduce the amount of employees’ tax paid on behalf of their employees whilst leaving the wage received by the employee unaffected. Effectively this creates a cost-sharing mechanism between employers and Government in respect of employee wages.
Customs and excise incentive
Goods imported into a customs controlled area (CCA) situated in an SEZ are relieved from applicable import customs, excise duties and economic restrictions whilst stored and undergoing manufacturing (which includes processing, cleaning and repair) within the CCA. Goods manufactured in the CCA and subsequently supplied to the local domestic market are subject to the payment of the import customs and excise duties that were relieved at time of importation on the imported goods (raw materials). The liability for customs and excise duties, which enjoyed relief on imported goods used in manufacturing in the CCA, cease upon subsequent export.
Value-added tax incentives
The value-added tax (VAT) regime was amended to allow for goods and services that are acquired from the domestic market to be charged with VAT at the 0% and to allow the import of goods to be exempt from VAT. These incentives are available to a business that is situated in a customs controlled area (CCA) of an SEZ or the operator of the SEZ operator for purposes of developing the CCA within the SEZ. Importantly, the VAT incentive applies only in the CCA of the SEZ and not to other areas within the SEZ.
Author : Craig Tonkin