Any ‘qualifying company’ as defined in section 12J of the Income Tax Act, No. 58 of 1962, as amended, which the approved venture capital company will invest in, in order to own ‘qualifying shares’.
A company that meets all of the following requirements will qualify as a qualifying company (investee):
- The Investee must be a company which is a resident and must not be a controlled group company in relation to a group of companies of which a venture capital company to which that company has issued any share forms part from the date of issue of any such share and at any time during any year of assessment after that date;
- The company’s tax affairs must be in order [a Tax Compliance Status (TCS) Pin must be requested from SARS to support this requirement];
- 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 of that company that ends after the expiry of a period of 48 months commencing on the first date on which that company issued any share to a venture capital company—
- the sum of the “Investment Income” as defined in section 12E (4) (c), derived by that company does not exceed an amount equal to 20 percent of the gross income of that company for that year; and
- not more than 50 per cent of the aggregate amount received by or that accrued to that company from the carrying on of any trade was derived, directly or indirectly, from a person—
- who holds a share in that venture capital company; or
- who is a connected person in relation to a person who holds a share in that venture capital company;
- No person who holds a share in a venture capital company to which that company has issued any share holds, directly or indirectly and whether alone or together with any connected person in relation to that person, more than 50 per cent of the participation rights, as defined in section 9D (1), or of the voting rights in that company; and
- That company does not carry on any trade in relation to a venture, business or undertaking or part thereof that was acquired by that company, directly or indirectly, from a person—
- who holds a share in a venture capital company to which that company has issued any share; or
- who is a connected person in relation to a person who holds a share in that venture capital company;
- 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.
