The South African Revenue Service (SARS) has issued an updated Guide to the Urban Development Zone (UDZ) allowance on 17 January 2025.

This incentive, introduced in 2003, aims to drive investment in 16 UDZs across 15 inner cities by offering accelerated depreciation allowances for qualifying buildings.

For newly erected buildings, extensions, and additions, the depreciation rate is 20% of the qualifying costs in the first year, followed by 8% per year for the next 10 years. For building improvements, 20% of the qualifying costs can be depreciated annually over five years, starting from the year the improvement is put into use.

In the case of low-cost residential units, newly erected buildings, extensions, and additions can be depreciated at 25% in the first year, 13% for each of the following five years, and 10% in the seventh year. Improvements to low-cost residential units are eligible for 25% depreciation annually over four years.

Additionally, when a building is purchased from a developer, 55% of the purchase price is considered as the qualifying cost for new constructions, while 30% is applicable for improved buildings.

The UDZ Allowance has been extended several times, and the latest version of the guide confirms that it applies to buildings brought into use by 31 March 2025.

Earlier, the National Treasury of South Africa  invited interested parties to participate in the urban development zone (UDZ) tax incentive online survey on 6 November 2024. The consultation is set to conclude on 29 November 2024.

The objective of the survey is to collect data which will assist in evaluating the effectiveness of the UDZ tax incentive in achieving its objectives. Data sourced from the survey will be used to inform future tax policies on whether to continue with the incentive beyond this sunset date and if it continues, whether the current policy design is still appropriate. Decisions on the incentive’s future will be based on evidence of its value and impact made to date.

In the 2023 Budget Review, the National Treasury announced an extension of the UDZ tax incentive sunset date to 31 March 2025 to consult stakeholders as part of a review of the incentive.

The incentive aims to address urban decay by stimulating property development in South Africa’s inner-city areas demarcated as urban development zones. It came into effect in 2004 and is legislated in terms of section 13quat of the Income Tax Act (No. 58 of 1962). In the 2024 Budget Review, the government estimated that the UDZ tax incentive claims by companies resulted in ZAR 2.7 billion in tax revenue for the period 2012 to 2022.