SARS Tax Incentive for the Franchise Sector

FASA is proud to announce the launch of the first Section 12J Venture Capital Company (FASA VCC) for the franchise sector, to be utilised exclusively by accredited members.

What this means is that FASA will now be offering its current/new members an opportunity to utilize the FASA VCC in order to attract prospective franchisees.

FASA has partnered with a financial consulting firm Jaltech to provide its members with exclusive access to an approved FASA VCC managed by experts in the industry.

How does Section 12J for franchises work?

Any South African taxpayer now has the opportunity to invest into a franchise of their choice through the FASA VCC and claim a tax deduction of between 28% (for companies) to 45% (for individuals and trusts) on their investment in the franchise.

The table below illustrates an example where the purchase price of a franchise is R3million.

Description Individuals Corporates
Initial purchase price R3 000 000 R3 000 000
Tax relief (in tax year of initial investment) (R1 350 000) (R840 000)
Net purchase price R1 650 000 R2 160 000
Assumed effective tax rate 45% 28%

 

Effectively Section 12J allows prospective franchisees to invest in a franchise at a significant discount through the associated Section 12J tax deduction.

How will the FASA VCC benefit members?

There are a number of benefits for members to encourage prospective franchisees to make use of the FASA VCC, a few examples include:

  • increased marketability of the member’s franchise as prospective franchisees will be in a position to invest in a franchise at a significant discount through the associated Section 12J tax deduction;
  • the significant tax deduction may increase the number of new franchisees leading to increased economies of scale for members; and
  • Jaltech will focus on guiding prospective franchisees through the process thus ensuring a smooth execution of the investment opportunity.

In addition to receiving the tax deduction, new franchisees will have access to FASA members’ benefits which include:

  • networking opportunities;
  • access to the annual franchise convention, the franchise expo held annually and other seminars and workshops where franchisees can learn more about the effective management of a franchise;
  • marketing opportunities; and
  • assistance with developing, growing and any other added benefits for the franchise.

Should you be engaging with prospective franchisees, we encourage you to meet with Jonty Sacks, a partner at Jaltech, in order to understand how to make use of the FASA VCC. Jonty Sacks can be contacted at Jonty@jaltech.co.za

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