Small and medium sized companies engaging in manufacturing and tourism are now eligible for a tax-free cash grant of up to R30 million thanks to the Department of Trade and Industry’s (DTI) Enterprise Investment Programme (EIP).

The programme, which was launched on 21 July 2008 replaces the DTI’s Small Medium Enterprise Development Programme (SMEDP) that was suspended in August 2006. The new programme provides a cash-based incentive to companies engaging in manufacturing and tourism through two of its sub-programmes, the Manufacturing Investment Programme (MIP) and the Tourism Support Programme (TSP). All qualifying companies can receive the tax free incentive.

The EIP allows companies to claim back between 15% and 30% of their investment on a regressive scale over a two year period. The qualifying investment for the incentive in the case of manufacturers includes plant, machinery, commercial vehicles land and buildings or in the case of tourism projects, land and buildings, furniture and fittings, and tourism vehicles. Companies involved in transport, metals fabrication, chemicals, plastics, pharmaceuticals, furniture and automotives will fall into the highly sought after priority sectors under the MIP.

Dave Edwards, MD of Indevco Incentives explains “The incentives are received by submitting claims to the DTI on a 6-month basis over 2 years for companies with an investment of more than R5 million, or 3 years for companies with an investment of less than R5 million.”
“It is important to be aware” adds Edwards, “that the application process must be completed and approval granted prior to the acquisition of any qualifying assets. This must be done at least three months prior to start of production or acquisition of the investment asset.  Foreign-owned applicants may also qualify for a Foreign Investment Grant of 15% of the value of qualifying new machinery relocated from abroad up to a maximum of R10 million.”
According to Edwards a significant improvement in the programme is the ability for applications to be made by divisions of legal entities. “Companies with divisional structures were previously forced to incorporate these divisions to meet audit criteria, and the inclusion of this provision significantly increases the scope for application.”
Companies will be limited to one application per legal entity in a geographical area, and may not claim concurrent capital based incentives such as the Productive Asset Allowance (PAA), or SMEDP. Investments are capped at R200 million, and projects above R200 million in qualifying investment will receive benefits up to the limit.
The incentive aims to stimulate investment in manufacturing and tourism. It will increase production capacity and output as well as grow foreign direct investment (FDI). The programme will focus on job creation and sustained growth in line with the government’s blueprint for economic development – the National Industrial Policy framework. The programme’s monitoring criteria requires that companies achieve 80% of the jobs creation projected in their application documents. Emphasis on job creation is also in the criteria for approval, which places a heavy emphasis on the number of jobs created per rand value of investment and incentive benefit. 
Broad Based Black Economic Empowerment (BBBEE) features significantly in the program. It requires that all applicants submit proof of their BBBEE contribution levels with their application and each subsequent claim.

In conclusion, Dave Edwards recommends, “When evaluating projects that qualify for the incentive, companies should consider whether they have already committed to the project, whether they are able to demonstrate a funding gap between the required funds and available funds, prove that the project is viable, and show that the incentive will improve its viability.”

Indevco Incentives is a specialist in helping companies access these Incentives, while, IQuad Verification Services focuses on providing advice and support with respect to BBBEE credentials. For more information on how to qualify for an incentive contact Dave Edwards on 041 363 4169 or Dylan Jessup on 011 797 8400.