Company benefits

The R&D tax incentive is available to companies of all sizes in any sector of the economy. To be eligible, a company must be an incorporated entity and recognised as a company under the Income Tax Act. Individuals, non-profit organisation and trusts are not eligible.

At Corporate Tax Rate of 28%, the incentive translates into 14 cents per Rand spent on R&D. The following is an illustration of how the section 11D deduction is estimated:




                       Without R&D

With R&D


 1 000

 1 000

Operating Expenditure (60%)



R&D Expenditure



Operating Profit



Tax Payable (28%)






Total Saving



At the level of a firm, the tax deduction helps to reduce the after-tax price of R&D (“user cost of R&D”). With reduced cost of R&D, a firm can be able to finance its R&D and scale up or undertake its R&D activities sooner than otherwise. From government point of view, the incentive deduction represents a tax revenue forgone. Its benefits should be visible by encouraging new and larger number of companies to perform and upgrade their R&D in the country and should see the private sector increasing R&D and improving South Africa's innovation performance (new and improved products, services, processes, enterprise, etc.)

In terms of section 11D(4) & (5), a company funding R&D undertaken by another company can qualify for R&D tax deduction, provided that the funded company does not claim. A company can also claim deduction of R&D it outsources to a South Africa university or science council. Companies in joint ventures (JVs) can claim to the extent that they fund the R&D. These provisions not only serve to encourage various forms of R&D collaboration and partnerships, but also help in mitigating the R&D funding gaps given the high costs and levels of uncertainty associated with R&D.

Section 11D(7) acknowledges that a firm can receive other funding from government, public entity or municipality towards its R&D activities.  An amount equal to such a funding will be excluded when the R&D tax deduction is calculated. This is to ensure that only the R&D expenditure incurred by the company qualifies. A company does not claim for the R&D tax deduction of 150% for the amount of a government grant for the R&D expenses.