Small Business Funding Entities

Small Business Funding Entity:

An entity established for the sole purpose of providing funding to small, micro, and medium enterprises (SMMEs).

Section 10(1)(cQ) read with Section 30C

A major challenge in the growth of small, medium, and micro enterprises is access to funding due to their inherent risk and lack of collateral together with the fact that they often lack the necessary training and commercial skills to manage and develop the business.

Several funding entities are engaged in activities that support small, medium, and micro enterprises, for example, the provision of developmental funding, business support and training. Relief was previously afforded to funders of small, medium, and micro enterprises only if monies were invested through a venture capital company (VCC), or if approved by the Commissioner as a PBO. Any activity provided to small, medium, and micro enterprises that did not fall under the VCC regime or PBO legislation therefore did not qualify for relief under the Act.

To assist in the development of and to encourage support to SMMEs the following were introduced specifically for SBFEs:

  • Definitions in section 1(1) of the terms “small business funding entity” and “small, medium or micro-sized enterprise”.
  • Section 30C7 setting out the prescribed requirements an entity must comply with to qualify for and retain approval as an SBFE so as to enjoy partial taxation.
  • Section 10(1)(cQ) providing for the exemption from income tax of certain receipts and accruals of SBFEs and the taxation of receipts and accruals falling outside the permissible business undertaking or trading activity categories provided in that section at a rate of tax of 28% of its taxable income.

An entity will enjoy preferential tax treatment under section 10(1)(cQ) only after it has been granted approval by the Commissioner under section 30C(1) and continues to comply with the relevant prescribed requirements as set out in the Act.

Helpful Resources:

EI1 – Application for Exemption from Income Tax – External Form

 EI2D – Small Business Funding Entity Written Undertaking – External Form

Guide for Small Business Funding Entities

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