However, qualifying for the incentive is subject to multiple requirements, and there are various provisions in section 12R that are aimed at preventing abuse of the special regime. For example, a company may not be a “qualifying company” if more than 20% of its deductible expenditure or income stems from transactions with connected persons. Companies should not be allowed to artificially shift profits to the zones.

It is now proposed that this disqualifying criterium be re-evaluated on the basis that it could unduly impact businesses already operating in these zones, and discourage further investment, in the context where parties want to use the zones to develop and strengthen their own supply chains

Specifically, National Treasury is considering a different approach, which would entail assessing whether companies are trading with connected parties outside the zone at market-related prices in order to ensure that profits are not shifted into the zones.