Tax incentives are one of the most powerful tools available to South African businesses to reduce their tax liability while investing in growth, jobs, innovation, and sustainability. This guide covers all major tax incentives from Employment Tax Incentive (ETI) for youth employment to 125% renewable energy deductions and R&D tax credits.
Who This Is For
- Employers hiring young people (18-29 years)
- Businesses investing in solar or renewable energy
- Companies conducting research and development
- Employers running learnership or apprenticeship programmes
- Small businesses with turnover under R20 million
- Manufacturers investing in industrial projects
About Tax Incentives
Tax incentives are provisions in the Income Tax Act that allow businesses to reduce their tax liability by undertaking certain activities deemed beneficial to the economy, such as job creation, innovation, or sustainable development.
Cash vs Non-Cash Benefits
| Benefit Type | How It Works | Cash Flow Impact |
|---|---|---|
| Cash Refund (e.g., ETI) | Direct reduction in PAYE payable to SARS. Claim reduces your monthly PAYE payment, effectively giving you cash back. | Immediate cash |
| Enhanced Deduction (e.g., Solar, R&D) | Deduct more than 100% of qualifying expenditure from taxable income, reducing tax owed. | Tax savings |
| Accelerated Allowance (e.g., Section 12I) | Claim depreciation faster than normal, bringing tax benefits forward in time. | Deferred cash |
| Lower Tax Rate (e.g., SBC regime) | Small businesses pay progressively lower corporate tax rates on profits up to R550,000. | Direct savings |
Available Tax Incentives
1. Employment Tax Incentive (ETI)
Overview
The ETI is a cost-sharing incentive that reduces employers' monthly PAYE payments when hiring young workers aged 18-29. It's designed to make youth employment more affordable.
Benefit Amount
- R1,000 per month per qualifying employee (Year 1)
- R500 per month per qualifying employee (Year 2)
- Maximum 24 months per employee
Who Qualifies
- Employee aged 18-29 years
- Monthly remuneration under R6,500
- Not a connected person to employer
- Employed on or after 1 October 2013
Claiming Process
Claimed monthly via EMP201 (PAYE return). Reduces PAYE payable to SARS each month, providing immediate cash flow benefit.
2. Renewable Energy Deduction (Section 12B)
Overview
Businesses can claim a 125% tax deduction in the first year for investment in renewable energy assets (solar PV, wind, hydroelectric). Introduced in 2023 to accelerate business adoption of clean energy.
Deduction Rate
- 125% in Year 1 of bringing asset into use
- No further depreciation after Year 1
- Replaces normal Section 12B 50/30/20 schedule
Qualifying Assets
- Solar photovoltaic (PV) panels and inverters
- Wind turbines
- Hydroelectric generation equipment
- Must be new and unused
- Must be owned (not leased) by taxpayer
Example Calculation
Install R500,000 solar system → Claim R625,000 deduction → Tax saving of R168,750 (at 27% corporate rate) → Effective cost: R331,250
3. Research & Development Tax Incentive (Section 11D)
Overview
Businesses conducting qualifying R&D can claim a 150% tax deduction on R&D expenditure, effectively reducing the after-tax cost of innovation.
Deduction Rate
- 150% deduction on qualifying R&D expenditure
- Standard 100% deduction remains if not qualifying
Qualifying R&D Activities
- Systematic investigation or experimentation
- Development of new products, processes, or services
- Improvement of existing products/processes
- Must involve technological uncertainty
- Not routine product development or customization
Pre-Approval Required
You must apply for pre-approval from the Department of Science and Innovation (DSI) before claiming. Applications submitted via DSI's online portal.
Eligible Costs
- Salaries of R&D staff
- Consumables and materials used in R&D
- Depreciation of R&D equipment (pro-rated)
- Payments to third parties for R&D services (limited to 50%)
4. Industrial Policy Projects (Section 12I)
Overview
Tax allowance for greenfield and brownfield industrial projects. Administered by DTIC. Note: This programme is in sunset phase—new applications may be limited.
Allowance Rates
- Greenfield (new): 55-100% of investment over 4 years
- Brownfield (expansion): 35-75% of investment over 4 years
- Training Allowance: R36,000 per employee trained
Minimum Requirements
- Minimum R50 million investment
- Manufacturing or industrial activity
- Pre-approval required from DTIC
5. Venture Capital Company (Section 12J)
Overview
Section 12J allowed investors to claim a 100% tax deduction for investments in approved Venture Capital Companies (VCCs). This incentive sunset on 30 June 2024 and is no longer available for new investments.
Historical Details
- 100% deduction on investments up to R2.5 million per year (individuals)
- 5-year lock-in period required
- No longer accepting new investments as of 1 July 2024
6. Urban Development Zones (Section 12R)
Overview
Accelerated building allowances for construction or improvement of buildings in designated Urban Development Zones (UDZs).
Allowance Rates
- New buildings: 20% per year for 5 years (100% total)
- Improvements: 20% per year for 5 years
Designated UDZs
- Johannesburg CBD
- Cape Town CBD
- eThekwini (Durban) CBD
- Tshwane CBD
- Nelson Mandela Bay CBD
- Other proclaimed urban development zones
Requirements
- Building must be within proclaimed UDZ
- Minimum cost of R20,000
- Used for trade or let to tenants
7. Learnership Allowances
Overview
Employers who enter into registered learnership agreements can claim tax allowances based on the NQF level of the learnership.
Allowance Amounts (2025/26)
| Learnership Level | Commencement Allowance | Completion Allowance |
|---|---|---|
| NQF Level 1-6 | R20,000 | R40,000 |
| NQF Level 7-10 | R30,000 | R60,000 |
Requirements
- Learnership agreement registered with relevant SETA
- Learner must complete all requirements
- Claim commencement allowance when learnership starts
- Claim completion allowance when learner qualifies
Additional Allowances
- Persons with disabilities: Additional R40,000-R60,000
- Youth (18-29): May qualify for enhanced allowances
8. Small Business Corporation (SBC) Tax Regime
Overview
Small Business Corporations (SBCs) benefit from progressive tax rates significantly lower than the standard 27% corporate tax rate.
SBC Tax Rates (2025/26)
| Taxable Income | Tax Rate | Standard Rate (27%) |
|---|---|---|
| R0 - R95,750 | 0% | R25,853 |
| R95,751 - R365,000 | 7% | R98,550 |
| R365,001 - R550,000 | 21% | R148,500 |
| Above R550,000 | 27% | 27% |
Qualifying Requirements
- Gross income under R20 million per year
- Private company (Pty Ltd)
- Not personal service company
- Shareholders must be natural persons
- Not more than 20% investment income
Detailed Claiming Guides
ETI: How to Claim
Monthly Claiming Process
- Register for ETI
Complete EMP501 (Employer Annual Return) indicating you want to claim ETI. No separate application required.
- Calculate ETI Amount
For each qualifying employee: Check age (18-29), salary (under R6,500), and months employed. Calculate R1,000 (Year 1) or R500 (Year 2) per month.
- Submit EMP201 Monthly
In your monthly EMP201 PAYE return on eFiling, declare ETI amount claimed. This reduces your PAYE payment due to SARS.
- Pay Net PAYE
Pay PAYE less ETI claimed. If ETI exceeds PAYE, the balance carries forward to next month (no cash refund).
- Submit EMP501 Annually
At year-end, reconcile all ETI claims on EMP501. Ensure supporting records are retained.
Solar: Claiming 125% Deduction
Step-by-Step Process
- Install Qualifying Asset
Install new, unused solar PV system or other renewable energy asset. Must be owned (not financed/leased) by your company.
- Bring Asset Into Use
Asset must be operational and used for trade. The tax year in which it's brought into use is when you claim.
- Calculate Deduction
Total cost × 125% = Allowable deduction. Include all capital costs (panels, inverters, batteries, installation).
- Claim in ITR14 Return
Include deduction under Section 12B allowances in your company tax return (ITR14). Attach schedule of assets and costs.
- Retain Documentation
Keep: Purchase invoices, proof of payment, installation certificates, commissioning reports, proof of ownership.
R&D: Pre-Approval & Claiming
Pre-Approval Process
- Confirm R&D Eligibility
Review DSI guidelines. R&D must involve systematic investigation, technological uncertainty, and result in new knowledge.
- Submit Pre-Approval Application
Apply online at DSI portal: www.dst.gov.za (Section 11D). Submit project description, methodology, expected outcomes.
- DSI Assessment (60-90 days)
DSI reviews application for scientific/technological merit. May request clarifications or site visit.
- Receive Approval Certificate
If approved, DSI issues certificate confirming project as qualifying R&D. Valid for period specified (usually 1-3 years).
- Incur R&D Expenditure
Track all qualifying R&D costs separately: salaries, consumables, equipment depreciation, third-party services.
- Claim 150% Deduction
In ITR14, claim 150% of qualifying R&D expenditure. Attach DSI approval certificate and detailed cost breakdown.
- Submit Annual R&D Report to DSI
Report project progress and outcomes to DSI annually. Required to maintain approval status.
Learnership Allowances: NQF Levels
Allowance Structure
| NQF Level | Description | Start | Complete | Total |
|---|---|---|---|---|
| 1-2 | Basic education, foundational learning | R20,000 | R40,000 | R60,000 |
| 3-4 | Further education, trade certificates | R20,000 | R40,000 | R60,000 |
| 5-6 | Diplomas, occupational certificates | R20,000 | R40,000 | R60,000 |
| 7 | Bachelor's degrees, advanced diplomas | R30,000 | R60,000 | R90,000 |
| 8-10 | Honours, Masters, Doctoral degrees | R30,000 | R60,000 | R90,000 |
Claiming Process
- Register learnership agreement with relevant SETA
- Claim commencement allowance in year learnership starts (ITR14)
- Track learner progress through formal assessments
- Upon successful completion, claim completion allowance (ITR14)
- Retain: SETA registration, learnership agreement, completion certificate
Eligibility by Incentive
| Incentive | Key Eligibility | Pre-Approval? |
|---|---|---|
| ETI | All employers (private and public) | No |
| Solar (12B) | All taxpayers with trade income | No |
| R&D (11D) | Companies conducting qualifying R&D | Yes (DSI) |
| Section 12I | Manufacturing, min R50M investment | Yes (DTIC) |
| Section 12J | N/A (sunset 30 June 2024) | N/A |
| Urban Dev (12R) | Buildings in proclaimed UDZs | No |
| Learnership | Employers with registered learnerships | No |
| SBC Regime | Companies, turnover under R20M | No |
How to Claim Tax Incentives
eFiling Process
Most tax incentives are claimed via SARS eFiling when you submit your monthly PAYE (EMP201) or annual tax return (ITR14).
Monthly Claims (ETI)
- Log in to SARS eFiling
- Navigate to: Returns → EMP201 (Monthly Employer Declaration)
- Complete PAYE calculation for the month
- Enter ETI claim amount in designated field
- Submit return and pay net PAYE (PAYE - ETI)
Annual Claims (Solar, R&D, Learnership, etc.)
- Log in to SARS eFiling
- Navigate to: Returns → Income Tax → ITR14 (Companies)
- Complete financial information
- In allowances section, declare specific incentive claimed
- Attach supporting schedules (asset registers, cost breakdowns)
- Submit return before deadline (usually 31 October for companies)
Required Documentation
General Requirements (All Incentives)
- Valid Tax Clearance Certificate (TCC)
- Registered taxpayer with SARS
- Compliant with PAYE, VAT, and corporate tax filings
ETI Documentation
- Employee birth certificates or ID copies (proving age 18-29)
- Payroll records showing monthly remuneration under R6,500
- Employment contracts with start dates
- EMP501 reconciliation
Solar/Renewable Energy Documentation
- Purchase invoices for solar equipment
- Proof of payment
- Installation and commissioning certificates
- Proof of ownership (not lease/finance)
- Technical specifications showing qualifying asset type
R&D Documentation
- DSI pre-approval certificate
- Detailed project plan and methodology
- Cost breakdown by category (salaries, consumables, etc.)
- Payroll records for R&D staff time allocation
- Third-party service agreements (if applicable)
- Annual progress reports submitted to DSI
Learnership Documentation
- SETA learnership registration certificate
- Learnership agreement (employer-learner-provider)
- Proof of commencement (date learnership started)
- Completion certificate from SETA
- Assessment records
Common Mistakes to Avoid
- ETI: Claiming for ineligible employees (over 29, earning above R6,500, or connected persons). Verify eligibility before each claim.
- Solar: Claiming on leased or financed assets. The 125% deduction only applies to assets you own outright.
- R&D: Claiming without DSI pre-approval. Apply for approval before incurring expenditure—retrospective approval is difficult.
- R&D: Over-claiming non-qualifying activities. Routine product customization and standard engineering are not R&D.
- Learnership: Claiming before SETA registration. Agreement must be registered with SETA before commencement allowance can be claimed.
- SBC: Exceeding R20M turnover threshold. Monitor turnover closely—exceeding the limit disqualifies you from SBC rates for that year.
- Poor record-keeping. SARS can request documentation up to 5 years after a claim. Retain all supporting documents in an organized system.
Key Legislation
- Income Tax Act (58 of 1962) - Primary legislation for all tax incentives
- Section 6C - Employment Tax Incentive (ETI)
- Section 12B - Renewable energy depreciation allowances
- Section 11D - Research and Development tax incentive
- Section 12I - Industrial policy projects
- Section 12R - Urban development zones
- Section 12H - Learnership allowances
- Section 12E - Small Business Corporation tax regime
Next Steps
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