The Foreign Investment Grant (FIG) is a cash incentive plan, under the broad umbrella of the Small and Medium Enterprise Development Programme (SMEDP), assisting foreign investors who are looking to invest in new manufacturing businesses in South Africa. The grant aims to compensate foreign investors for the cost of relocating new machinery and equipment to South Africa from abroad. The grant is available to any company operating in the manufacturing sector, provided the company is a registered incorporated legal entity in South Africa, not merely an investor from the Southern African Development Community (SADC) or from the Southern African Customs Union (SACU). The grant will not exceed R3-million, and cannot exceed the actual cost of relocating, or 15% of the value of the new machinery and equipment relocated from overseas.
To apply for assistance from the FIG, foreign investors must:
- obtain and complete an application form in duplicate; and
- attach proof of registration of the business and the equipment specifications.
The FIG aims to promote foreign investment in South Africa and, through its funding, to increase direct foreign investment. Through the attainment of these dual goals, the scheme hopes to contribute to overall economic growth in South Africa and the collective improvement of quality of life for all South Africans.
Foreign Investment Grant for Qualifying Foreign Investors
The Foreign Incentive Grant (FIG) compensates qualifying foreign investors for costs incurred in moving qualifying new machinery and equipment (vehicles excluded) from abroad to the Republic of South Africa (RSA).
The Grant is available only to foreign entities establishing production facilities for the first time in the RSA, and is offered once only to any single entity. It will be the lower of 15% of the cost of qualifying imported machinery and equipment or the actual transport costs of relocating qualifying new machinery and equipment from abroad to a maximum of R10m.
The Grant is not available for foreign investment from South African Customs Union (SACU) countries, and the Southern African Development Community (SADC).
The FIG is only available to projects of registered incorporated legal entities in the RSA.
The FIG is conditional to the approval of the MIP project for the incorporated legal entity in the RSA. The application for the FIG is to be submitted prior to shipment from abroad and together with the MIP application.
Relocations are limited to a maximum of two (2) phases per project, provided that all phases are executed within one (1) year of commencement of production.
Only new machinery and equipment (vehicles excluded) acquired from abroad and required for a manufacturing project in the RSA will be considered. In exception cases, second-hand or usedmachinery and equipment may qualify, where a dti-appointed consulting engineer (CE) certifies that the machinery and equipment represent the latest technology. In this case 5.6.5(a) will not be applicable.
The Grant will not be considered where obsolete technology is to be relocated to the RSA, irrespective of whether the machinery and equipment is new.
The following expenditure might be considered as qualifying for the Grant:
9.10 The following expenditure is considered to be non-eligible for the Grant:
The effective exchange rate, as on the date of all documents relating to the importation of machinery and equipment, will be used for conversion purposes of foreign currency.
There must be at least a 50% direct foreign shareholding and this must be maintained for a period of at least two (2) years after completion of the investment project and certification of being in production. the dti may recoup the grant advanced if the level of foreign direct shareholding is not maintained at a minimum of 50% in this two (2) year period.
If the holding company of the project is liquidated, the Grant approval will terminate with immediate effect.
If the entity received FIG and were to sell or re-export any of the imported machinery and equipment or terminate manufacturing operations within a period of two (2) years from the date of production, as stated in the agreement, the dti will institute action to reclaim the FIG.
The payment of the FIG will only be effected if all of the approved machinery and equipment is imported within one (1) year of the commencement date of production, as certified by the accredited consulting engineer. Thereafter, no payments will be effected.
Relocated machinery and equipment must be free of any financial liability or lien in order to qualify for the FIG. Such machinery and equipment must, therefore, be the property of the foreign investor or be purchased with foreign funds.
If the machinery and equipment was financed by means of a foreign shareholder(s’) loan(s), such loan(s) may not be transferred to any citizen of the RSA or any financial institution in the RSA during the payment period of the investment grant or the validity thereof. Foreign shareholder(s’) loans must also be maintained for a period of at least two (2) years after completion of the transfer of machinery and equipment, and the certification of being in production, as provided by the CE.
All imported machinery and equipment considered for relocation costs must be accompanied by an auditor’s report certifying that the equipment meets all the above requirements of the Grant.
The dti will appoint a registered CE, accredited to the South African Association of Consulting Engineers. The CE will evaluate the project, verify the technology and commencement of production, and recommend payment of the FIG against certified documented expenditure. the dti is responsible for payment of the CE’s fees.
If the actual expenditure is less than the CE’s estimate, or machines and equipment have been used other than those originally approved, or if the same machines and equipment, as approved, are imported but the machine value, as determined locally by the CE (appointed by the dti), differs from the original machine values, payments will be made as follows:
- the FIG recommended by the CE; or
- the actual transportation cost; or
- the pro-rata FIG; or
- 15% of the recommended machine value, as determined by the appointed CE’s final report; or
- the approved FIG, whichever is the lower value.
If the value of the imported machines and equipment, as determined locally by the CE (appointed by the dti), is in accordance with or more than the approved value, payments will be:
- the FIG recommended by the CE, or
- the actual transportation costs, or
- 15% of the recommended machine and equipment value as determined by the appointed CE, whichever is the lower value.
If the imported machines and equipment vary substantially in respect of mass, type and value from the original approval, the dti reserves the right to adjust or terminate the agreement.
After completion of the relocation of new machinery and equipment to RSA:
the entity must notify the dti in writing within thirty (30) calendar days of commencement of production;
a site visit will be conducted by the CE and a representative of the dti; and
a production certificate will be issued by the CE, reflecting the production status of the project and recommendation of payment.
The financial statements must separately reflect the relocation costs of machinery and equipment under the notes to the financial statements, where capitalised on the balance sheets.
For more information visit this site: www.ctcp.co.za