I know that there is a tax benefit in certain countries for search funder investors, is there any sources of information that speak specifically to this in the South African context and generally explain this?
My best guess is that since the fund will have no income in the first two years but a bunch of expenses, the assessed loss can be carried over to the years after acquisition. this would mean that the benefit will likely only result in a benefit in the first year since the aim is to purchase a high-growth business with steady revenue.
Is there any other tax benefit that could be offered to investors as a value proposition to investing into a search fund rather than normal PE?
Tax Benefit for Search funder Investors (South Africa)
by a searcher from Gordon Institute of Business Science, University of Pretoria
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
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I'll be sending you a direct message shortly to get more information and discuss our specific requirements. I'm looking forward to connecting with you and learning more about your recommendations.
Generally if your investors are acquiring pref shares or ordinary shares in your vehicle, it'll be capital in nautre. So no upfront tax deductions but capital gains tax treatment on an exit.
The main questions an advisor will ask you is are your potential investors local or foreign as this determines whether an en commandite partnership or holding company structure may work best to optimise the tax position.
Good luck!