If you are a start-up company or even if your business has been in operation for some time, you will benefit from the expertise offered by BEE consultants. South Africa, though a land of business opportunities, is also a country plagued by the economic and political policies of previous governments.
Black Economic Empowerment or BEE was introduced by the present government to address inequalities of the past. However, the system had its challenges and the government, in order to speed up the process of transformation in South Africa introduced the Broad-Based Black Economic Empowerment (B-BBEE) initiative in order to benefit a larger section of the black population.
However, much confusion exists regarding the changes and requirements of the new B-BBEE Codes. The 2007 BEE Codes was replaced with the 2013 B-BBEE Codes, which came into effect in September 2015.
Understanding in which category of business your company falls is essential in determining which requirements to be met. BEE consultants in South Africa can help you determine whether your business falls within the Exempt Micro Enterprise (EME), Qualifying Small Enterprise (QSE) or Large Enterprise – Generic category.
Some of the aspects surrounding the changes from the old BEE Codes to the new B-BBEE Codes are briefly discussed below to help you gain a better understanding of how the new Codes affect your business in South Africa.
If your business falls within the EME category, you won’t need to have the business verified in terms of the BEE scorecard. Your business will automatically gain its BEE status. You will, however, benefit from obtaining the certificate to state your business BEE status.
If your business has an annual turnover below R10 million then it qualifies as EME and it is thus not necessary to be scored according to the B-BBEE scorecard. If your business annual turnover is below R50 million and above R10 million per year, it falls within the Qualifying Small Enterprise (QSE) category and then scoring is done according to the requirements for QSEs. If the business has a turnover more than R50 million per annum then it is a Large Enterprise and it is scored against the Generic scorecard.
To obtain Level 1 B-BBEE status as EME or QSE, your business must be 100% black-owned. If the black ownership is more than 51%, the business gains Level 2 status. If the business black ownership is below 51%, then as EME it will gain a Level 4 status. However, in the instance of a QSE, black ownership below 51% means having to be evaluated against the QSE scorecard to determine the B-BBEE status.
Importance of Compliance with the Priority Elements
There are three priority elements in which your business must reach the target of 40% minimum if it is a Large Enterprise:
If your business qualifies as QSE with black ownership below 51% then, in order to get a good score, it must meet the 40% target for either black ownership and skills development, or black ownership and enterprise & supplier development.
Although the new scorecard contains fewer elements the requirements to be met are strict and targets are higher. Under the new scoring system employment equity and management control merged to form one element – management control. The enterprise and supplier development element is made up of the two merged elements of preferential procurement and enterprise development.
Why get a B-BBEE Certificate?
Though not compulsory for businesses in South Africa, the B-BBEE certificate does provide the holder with a competitive edge in tendering for government projects. With B-BBEE compliant businesses being able to improve their scores when doing business with other companies that have high B-BBEE scores, a certificate makes it more attractive for companies to do business with certificate holders. Having a good B-BBEE score can be used in the marketing initiative to highlight the company’s commitment to economic transformation in South Africa.
What to Avoid
Avoid window dressing practices of falsifying BEE certificates or stating that your company is compliant if it is not. Don’t lie about black ownership and don’t just get a black partner for fronting. True commitment to compliance is necessary to protect your company’s reputation. If you are unsure about the requirements or how to apply for a certificate we recommend that you contact one of The Tax Shop BEE consultants in South Africa for professional assistance.