Incentives available to establish outsourcing business in South Africa
Local and foreign investors interested to invest in South Africa‘s business process outsourcing and offshoring (BPO&O) sector can benefit from various incentives.
What are BPO&O Investment Incentives?
BPO&O occurs when a company relocates processes that it used to perform in-house, as follows:
- Outsourcing occurs when a company employs third-party providers to perform these activities/services; and/or
- Offshoring occurs when these activities/services are performed in a foreign location.
The BPO&O Investment Incentives, offered by The Enterprise Organisation (TEO) of the Department of Trade and Industry (the dti), comprise an Investment Incentive Grant, ranging from R37,000 (US$5,093) and R60,000 (US$8,260) per seat, and a Training and Skills Support Grant, towards costs of company-specific training, up to a maximum of R12,000 (US$1,652) per agent. These incentives are offered to local and foreign investors, establishing projects that aim primarily to serve offshore clients.
The objective of the incentives is to attract BPO&O investment, thereby creating employment opportunities. The BPO Investment Incentives are effective from 6 December 2006 to 31 March 2011.
Qualifying applicants include the following:
- Registered legal entities in South Africa and taxpayers in good standing; and
- Those who have obtained approval for their investment projects to proceed.
- A qualifying investment project may involve starting a new operation or expanding an existing operation in order to perform BPO&O activities.
- To qualify for BPO&O incentives, the applicant must apply and obtain approval for the project prior to the commencement date of commercial operations.
- The project must establish an operation of at least one hundred (100) seats and create employment for at least two hundred (200) agents (defined as full-time equivalents) by the end of its second year in operation.
- The investment project must commence its commercial operations within one year from the envisaged date of BPO Incentive Grant approval.
- The investment project can be a cost centre of an existing operation, a branch of an existing entity or a joint venture between entities. In a joint venture arrangement, at least one of the parties must be registered in South Africa as a legal entity.
- The investment project must operate activities classifiable as that of BPO&O and generate at least 90% of its revenue from activities that service offshore clients. An exception to this requirement is, however, applicable to operations that have been in existence and operating in South Africa before 1 April 2006, wherein a minimum threshold of 70% offshoring activities can be accepted.
- Those projects locating in a designated area will be excluded from the 90/70% requirement mentioned above.
- Projects expected to displace existing jobs within South Africa, for example, by way of relocating an existing BPO&O facility, in full or part, within South Africa; and/or transferring the capacity from a client, competitor, or an associated operation in South Africa, will not qualify for the incentives.
- Projects receiving or approved to receive industrial incentive benefits under the Small and Medium Enterprise Development Programme (SMEDP) or its successor.
Investment Incentive Grant
- The Investment Incentive Grant ranges from R37,000 and R60,000 per seat, depending on the level of qualifying investment expenditure and employment creation.
- A project employing between 200 and 499 agents with Qualifying Investment Expenditure of more than R74,000 per seat, is eligible for an Investment Incentive Grant between R37,000 and R44,600 per seat.
- A project employing 500 or more agents with Qualifying Investment Expenditure greater than R89,200 per seat, is eligible for a Grant between R44,601 and R60,000 per seat.
- Should a project have qualifying investment expenditure of less than R74,000 per seat, but employ 200 or more agents, said project will be eligible for a Grant ranging from R37,000 and R52,500 per seat. The approved Grant may not exceed 50% of the salary costs of agents for the first two (2) years of the project.
Qualifying Investment Expenditure
Qualifying investment expenditure comprises bona fide investment expenditure required to establish a new BPO&O operation or expand an existing one, such as:
- Capitalised Initial Facility Costs;
- Capitalised Equipment ‘Hardware Costs’;
- Capitalised Software Costs; and
- Capitalised Telecoms Installation Costs.
Items acquired from connected parties may be considered, provided they are valued at lower than the original
cost at acquisition from a third-party entity not connected to the project.
Costs for operational leases are not considered in respect of the Investment Incentive Grant. Only assets
acquired through financial leases may be considered as part of the Qualifying Investment Expenditure.
The following items are not eligible for financial support via the Grant:
- Staff recruitment costs;
- Non-capitalised costs, e.g. salaries, wages, electricity, storage garages, parking facilities, etc.;
- Telecommunications costs, such as line rental and calling costs;
- Legal administration and regulatory costs;
- Costs of purchase and operating motor vehicles;
- Costs of land;
- Costs incurred on operational leases; and
- Costs of purchasing and rental of buildings.
Four Stages of Grant Disbursement
The approved Grant will be disbursed in four (4) stages, over three (3) financial years. The first 25% of the Grant can be claimed after six (6) months from the date of commencement of the project, and another 25% at the end of the first project year, resulting in 50% of the Grant being disbursed in the first year of the project. The third and fourth claims can be submitted at the end of the second and third project years, respectively.
Training and Skills Support Grant
The Training and Skills Support Grant provides financial assistance to support company-specific training requirements. The same eligibility criteria apply as per the Investment Grant, with the exception that the applicant must prove that he/she has incurred expenditure on qualifying training and skills development activities.
- The Training and Skills Support Grant is calculated as 50% of qualifying training expenditure, up to a maximum of R12,000 (US$1,652) per agent.
- Qualifying Training and Skills Expenditure
- The qualifying training and skills development expenditure is for company/client-specific skills costs in the following areas:
- Company-specific training, e.g. product, language, systems training;
- In-house trainer development/skills development facilitator/in-house assessor training;
- Development of learning materials/programmes;
- Trainer secondment in South Africa; and
- Purchase and installation of training equipment and facilities.
Costs of generic training requirements, such as the following items, are not eligible for financial support via the Grant:
- Basic Information Technology (IT) skills;
- Financial skills;
- Communication (verbal and written) skills;
- Customer service skills;
- Entrepreneurship skills; and
- Business acumen skills.
For further information on BPO&O incentives, regarding the guidelines, application and claim forms, please contact:
Programme Manager: BPO&O Incentives
The Enterprise Organisation (TEO)
Department of Trade and Industry (the dti)
the dti Campus , 77 Meintjies Street , Sunnyside, Pretoria , 0002
The Enterprise Organisation, Private Bag X84, Pretoria, 0001
Guidelines, application and claim forms can also be accessed via the dti website: www.thedti.gov.za
BPO&O programme manager: (012) 394 1040/1874
the dti Customer Contact Centre: 0861 843 384