The South African Revenue Service (SARS) has published a tax guide regarding Urban Development Zone (UDZ) tax incentive.
In 2003, the UDZ incentive was announced in the form of an accelerated depreciation allowance under the income tax code to develop investment in 16 designated inner cities, 15 of which now have demarcated UDZs within their boundaries.
The purposes of the UDZ incentive are to address renouncement and downfall in South Africa’s largest cities and to promote urban renewal and development by promoting investment by the private sector in the construction or improvement of commercial and residential buildings, including low-cost housing units, situated within demarcated UDZs. The incentive also intends to encourage investment in urban transport infrastructure for trains, buses or taxis.
The 100 percent allowance with carry forward if it makes an assess loss can be exercised. The deduction was originally only available until March 31, 2014, but it has now been extended for a further six years until March 31, 2020. In addition, the guide also explains that, in the event of a purchase of a building or part of a building from a developer, a deduction will be allowed for 55 percent of the purchase price of that building, in the case of a new building erected, extended or added to by the developer; or 30 percent of the purchase price of that building, in the case of a building improved by the developer.
