SARS has published guidance on the preferential income tax treatment available to qualifying companies in designated special economic zones, including a 15% corporate rate under Section 12R.
South Africa’s tax authority, the South African Revenue Service (SARS), issued a new guide to income tax benefits in Special Economic Zones (SEZs) on 27 October 2026. The guide explains the special income tax dispensation under the Income Tax Act 58 of 1962. It does not deal with customs or VAT incentives in detail.
The Section 12R and Section 12S provisions apply to years of assessment commencing on or after 1 January 2031.
Incentives on offer
A qualifying company in an approved zone may access four benefits:
- Reduced rate (Section 12R): a preferential corporate income tax rate of 15%, effective from 6 July 2018 for approved zones. The company elects qualifying status on its ITR14 return, with no separate registration.
- Accelerated building allowance (Section 12S): an annual deduction of 10% of the cost of any new and unused building or improvements owned and used wholly or mainly (more than 50%) for the production of income in the course of trade. Leaseholders improving property under Public Private Partnerships, or on government or tax-exempt land, can be deemed owners under Section 12N.
- Employment tax incentive: under Section 6(a)(ii) of the ETI Act, employees who render services mainly within a zone for a qualifying company qualify without the standard age restriction.
- Additional investment allowance (Section 12I): up to 100% for preferred status projects, or 75% of the cost of new and unused manufacturing assets used in an industrial policy project, for applications received by the Minister on or before 31 March 2020.
Who qualifies
Under Section 12R(1), a company must meet every test each year. It must be incorporated in South Africa or have its place of effective management in the Republic, and carry on a trade from a fixed place of business in a zone approved by the Minister of Finance. At least 90% of its trade-related income must come from business or services within one or more approved zones. Passive income such as interest and dividends is excluded from that calculation.
The company must also satisfy one activity and anti-relocation criterion. It must have traded before 1 January 2013 at a location later approved as a zone, or have started a trade on or after that date that neither it nor a connected person previously carried on in South Africa. Alternatively, its trade started on or after that date must involve new goods, new technology or increased production capacity. Merely adding shifts does not count.
Disqualifications
Under Section 12R(4), a company is disqualified if it distils, rectifies and blends spirits, or manufactures wines, malt liquors and malt, tobacco products, or weapons and ammunition. Bio-fuel manufacture is also excluded if it negatively impacts food security, as are sectors listed in a Government Gazette Notice, including retail and wholesale, financial and insurance services, and real estate.
Activities purely ancillary to manufacturing, such as packaging own goods, do not disqualify a company. Carrying them out as a separate trade for third parties does.
A company is also disqualified if more than 20% of its deductible expenditure, or more than 20% of its trade income, arises from transactions with connected persons who are South African residents or have a South African permanent establishment.
Other exclusions
Section 12S excludes buildings used to provide residential accommodation as a trade, though incidental on-site employee accommodation does not invalidate the allowance. Under Section 12S(8), a company found guilty of fraud, misrepresentation or non-disclosure of material facts concerning any tax administered by SARS may lose all prior and future allowances, regardless of normal prescription periods.
Approved zones
Six zones are approved for Section 12R and Section 12S relief from 6 July 2018: Coega, Dube Tradeport, East London, Maluti-a-Phofung, Richards Bay and Saldanha Bay.
Five zones are not yet approved under Section 12R(3): Atlantis, Nkomazi, OR Tambo, Musina-Makhado and Tshwane Automotive Hub. Entities there are currently ineligible for the incentives.
