How the section 11D research and development tax incentive supports a company’s own R&D — and why a tax break funds research, not off-the-shelf software.

dgm is an independent integration partner for osFoundry — it is not affiliated with osFoundry’s maker (OS LLC) and has not yet completed an integration project for any client.

The section 11D research and development tax incentive supports a company that conducts or funds its own R&D — by giving it a tax deduction. It is a tax break for research, not a fund to buy off-the-shelf software.

What section 11D is

  • A 150% income-tax deduction on approved qualifying operational R&D expenditure — the standard 100% plus an additional 50% uplift.
  • Pre-approval by the Department of Science and Innovation (DSI) is mandatory; SARS allows the deduction only where the R&D was pre-approved and the taxpayer holds a DSI approval letter.
  • The incentive applies to qualifying expenditure incurred up to and including 31 December 2033, following a ten-year extension.
  • The benefit accrues to the company doing or funding the R&D — there is no concept of an accredited software vendor under section 11D.

What it means for an AI project

  • If your company is developing a genuinely novel AI capability, that R&D activity may qualify — buying a subscription does not.
  • A tool such as osFoundry can be used inside qualifying R&D, but the deduction rewards the research, not the purchase of software.

The honest framing

Public support in South Africa funds the company’s own research, development or innovation, or gives it a tax break — it does not buy an off-the-shelf AI subscription. The section 11D R&D tax incentive offers a 150% deduction on approved R&D, requires pre-approval by the Department of Science and Innovation and has been extended to 31 December 2033; the Technology Innovation Agency (TIA) and the Small Enterprise Development and Finance Agency (SEDFA, formed in 2024 from SEDA and SEFA) fund innovation and small enterprises; and DTIC sector programmes such as the Global Business Services (GBS) incentive and the automotive APDP support specific industries. Separately, Broad-Based Black Economic Empowerment (B-BBEE) is a procurement and empowerment scorecard, not a grant: a supplier’s B-BBEE level affects how many procurement points its customers earn, so it shapes who buyers prefer rather than paying for software. dgm is not a registered or accredited provider of any of these programmes; it can advise a beneficiary or act as a subcontractor.

Where dgm comes in

dgm is an independent integration partner that helps organisations in South Africa adopt the osFoundry platform — from identifying the first practical use case, to setting it up, to connecting AI to the systems you already run. dgm can help identify which parts of your activity might qualify — without committing that any incentive will be granted. dgm operates separately from osFoundry’s maker (OS LLC) and has not yet completed an integration project for any client, so everything above is a proposed service rather than a delivered outcome. If you would like to weigh up a practical first step, dgm would be glad to think it through with you. Arrange an introductory call with dgm.

This article is general information and is not legal, financial or tax advice. Incentives, tax rates and regulations change; always confirm the current position with an official source (SARS, the Department of Science and Innovation, the dtic, the Information Regulator, the FSCA or the relevant authority) or a qualified adviser before you act.