Businesses need to be alert to developments and initiatives in their surroundings that can be of benefit to them. One such initiative from the South African government is the Special Economic Zones (SEZs). These were designed to foster industrial development and resilience in the country, through building necessary industrial infrastructure in strategic clusters and promoting planning coordination between private and key public sectors.

What are they?

SEZs are geographical areas allocated by the South African government to target specific economic activities that will bolster national economic growth and the export industry. Local and foreign technology and investment are drawn by the use of various support measures and incentives which we will discuss.

SEZs were created as part of the Special Economic Zone (SEZ) Programme, made public in 2016. There are 4 potential SEZ categories that the Minister of Trade and Industry may use. These are Sector Development Zones (SDZ), Industrial Development Zones (IDZ), Free Trade Zones (FTZ) and Free ports.

Where are they?

The SEZs, each with its specific trade and industry focus, are strategically placed across 7 of South Africa’s provinces. The SEZ’s are listed in the table below:

How to make them work for you

The SEZs are linked to a range of tax incentives. These exist to encourage both the development of these designated areas within South Africa and investment and job creation in the manufacturing industry.

SEZ tax incentive (income tax and building incentives)

This is for approved SEZs only (see Table).

The incentives are:

• reduced corporate income tax rate (15% instead of 28%)
• an accelerated depreciation allowance of 10% on capital structures, on used or unused, new or the improvement of existing buildings

In order to benefit from the income tax incentives, your business must be a “qualifying company” by meeting the following criteria:

• conduct business from a permanent establishment of business within a recognised SEZ
• be incorporated or essentially managed in SA
• at least 90% of business income must be from conducting business or delivering services within that SEZ
• a limit of no more than 20% of income received or 20% deductible expenses incurred from transactions with connected persons, whether resident or non-resident; additionally, the transactions are attributed to a fixed place of business in South Africa.
• Certain companies may not access this incentive. Examples include alcohol, tobacco, arms, and ammunition industries.

Employment tax incentive (ETI)

This is for all SEZs. The incentive is:

• a company that hires low-salaried employees, i.e. under R60k per annum, regardless of their age, can claim the ETI and so reduce the PAYE (pay-as-you-earn tax) due to SARS

Customs and VAT relief incentives

This is for companies that are situated within a Customs Controlled Area (CCA). An SEZ or part of it could be designated as a CCA. A single SEZ could have more than one CCA in it. A company within an SEZ can register as a CCA.

The incentives are:

• import duty rebate and VAT exemption on imports of materials, such as machinery, to be used for production, where the aim is to export the end product
• under certain conditions, the suspension of VAT for products purchased in South Africa
• expedited and efficient customs administration

The formation of SEZs in South Africa may be the avenue for expansion that your company has been looking for.

If you would like further information on setting up rebate stores, bond stores, or excise manufacturing warehouses in an SEZ area, contact our offices on 087 550 1038.