Special Economic Zones (SEZ)
The South African Government seeks to transform the economy into a globally competitive industrial economy, built on the full potential of all citizens and regions. One of the critical tools for accelerating the country’s industrial development agenda is on the new Special Economic Zone (SEZ) Programme, which was mandated by the SEZ Act, proclaimed in February 9, 2016. SEZs are a tool to help:
- Promote industrial agglomeration
- Build the required industrial infrastructure
- Promote coordinated planning among key government agencies and the private sector, and (iv) guide the deployment of other necessary development tools. Below is a list of designated and planned SEZs in South Africa.
The below map outlines the various operational, proposed and designated SEZ’s.
Click on the map to enlarge it.
SEZ Programme
Special Economic Zones (SEZs), are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country.
The 2014/15 – 2016/17 Industrial Policy Action Plan – IPAP identifies SEZs as key contributors to economic development. They are growth engines towards government’s strategic objectives of industrialisation, regional development and employment creation.
Special Economic Zones may be sector-specific or multi-product and the following categories of SEZs have been defined as per the SEZ Act No. 16 of 2014:
- “Industrial Development Zone” means a purpose-built industrial estate that leverages domestic and foreign fixed direct investment in value-added and export-oriented manufacturing industries and services.
- “Free Port” means a duty-free area adjacent to a port of entry where imported goods may be unloaded for value-adding activities within the Special Economic Zone for storage, repackaging or processing, subject to customs import procedures.
- “Free Trade Zone” means a duty-free area offering storage and distribution facilities for value-adding activities within the Special Economic Zone for subsequent export.
- “Sector Development Zone” means a zone focused on the development of a specific sector or industry through the facilitation of general or specific industrial infrastructure, incentives, technical and business services primarily for the export market.
SEZ TAX INCENTIVES
To complement the dtic SEZ strategy, a package of tax incentives will be available to companies locating in certain SEZs, subject to specific criteria. The tax incentives that companies may qualify for include VAT and customs relief if located within a Customs- Controlled Area (CCA), employment tax incentive, building allowance and reduced corporate income tax rate.
The design and eligibility criteria for each incentive seeks to strike a balance between achieving the objectives of higher levels of investment, growth and employment creation, and ensuring that the incentives are appropriately targeted for efficiency purposes, while minimising any deadweight loss to the fiscus.
Business located within a CCA will qualify for VAT and customs relief (similar to that for the current IDZs). The employment tax incentive will be available to businesses located in any SEZ. Businesses operating within approved SEZs (by the Minister of Finance, after consultation with the Minister of Trade, Industry and Competition) will be eligible for two additional tax incentives. Firstly, all such businesses can claim accelerated depreciation allowances on capital structures (buildings) and, secondly, certain companies (carrying on qualifying activities within an approved SEZ) will benefit from a reduced corporate tax rate (i.e. 15% instead of 28%).
Companies located within a CCA will be eligible for VAT and customs relief, as per the current IDZs. Characteristics of a CCA include the following:
- Import duty rebate and VAT exemption on imports of production-related raw materials, including machinery and assets, to be used in production with the aim of exporting the finished products.
- VAT suspension under specific conditions for supplies procured in South Africa and
- Efficient and expedited customs administration.
More information on CCAs can be found on the SARS website www.sars.gov.za
All employers of low-salaried employees (below R60 000 per annum) in any SEZ will be entitled to the employment tax incentive (ETI). This aims to encourage employers to hire young and less experienced work seekers. However, the employee age restriction will not apply to SEZs. It reduces an employer’s cost of hiring people through a cost-sharing mechanism with Government, while leaving the wage the employee receives unaffected. The employer can claim the ETI and reduce the amount of Pay-As-You-Earn (PAYE) tax payable by the amount of the total ETI calculated in respect of all qualifying employees.
Businesses operating within approved SEZs (by the Minister of Finance, after consultation with the Minister of Trade, Industry and Competition) will be eligible for an accelerated depreciation allowance on capital structures (buildings). The special rate of capital (depreciation) allowances in lieu of normal allowances will be available for erecting or improving buildings and other fixed structures. This rate will equal 10% per annum over 10 years.
Companies engaged in the following activities, based on the Standard Industrial Classification Code issued by Statistics South Africa, will not qualify for the building allowance:
- Spirits and ethyl alcohol from fermented products and wine (SIC code 3051)
- Beer and other malt liquors and malt (SIC code 3052)
- Tobacco products (SIC code 3060)
- Arms and ammunition (SIC code 3577)
- Bio-fuels if that manufacture negatively impacts on food security in South Africa
