The Tshwane Urban Development Zone (UDZ) was approved by the Minister of Finance and promulgated in Government Gazette No. 27077 on 10 December 2004.

Applications after that date for new developments, alterations, additions and extensions to buildings (ie land use applications and/or building plans) in the UDZ area will qualify for the accelerated depreciation allowance introduced by the National Treasury in terms of Section 13quat. of the Income Tax Act, 1962 (as amended by Section 33 of the Revenue Laws Amendment Act, 2003 (Act 45 of 2003) and Section 23 of the Revenue Laws Amendment Act, 2005 (Act 31 of 2005)).

The Tshwane UDZ comprises 582 hectares the Tshwane inner city and includes the Pretoria CBD, parts of the Nelson Mandela Development Corridor, parts of Pretoria West adjacent to the central business district and Marabastad.

The UDZ boundaries are roughly as follows (see map):

• North: Boom Street, the Belle Ombre Station and Pretoria Zoo, and including Marabastad
• West: Schutte Street/railway line up to Soutter Street in the south and Retief Street in the north
• South: Railway line up to Nelson Mandela Drive
• East: Nelson Mandela Drive

The Urban Development Zone Tax Incentive is designed to stimulate investment in inner city areas. This innovative incentive, which is in the form of an accelerated depreciation allowance, is aimed at promoting refurbishment and new construction in inner city areas that are decaying. The benefits of this incentive are to revive inner cities, create more jobs and attract more people to live and work in these areas.

The tax incentive is a substantial subsidy that should stimulate the inner city's property sector. This incentive is quite novel in that it allows the accelerated depreciation to be set off against any other income (including personal income tax) and not only income from that particular building (as long as the building is receiving an income or is used for the owner's trade). For individuals and companies, this incentive offers a great opportunity to invest in inner cities, or to maintain their current investments and participate in urban renewal and development.

The incentive will also support government's housing policy, because it encourages private investments in affordable rental housing in the inner city. It will complement other initiatives such as the formation of business-improvement districts, which allow the private sector to provide supplementary urban management in the form of additional security, cleaning and marketing services.

The incentive for improvements is more generous, as the goal is to favour the refurbishment of existing buildings in which capital has been sunk rather than the replacement of buildings.

For the refurbishment of existing buildings, investors are eligible to receive a 20% tax deduction in the first year of earning income, plus an annual depreciation of 20% over four years. For new developments, this incentive offers a tax deduction of 20% in the first year, plus an annual depreciation of 5% for the next 16 years.

For taxpayers who purchase buildings or part of buildings from developers for the purpose of trade -

The National Treasury has published a guide explaining the tax incentive to potential investors (see downloads below).

Any enquiries about tax implications should be directed to SARS and the National Treasury, or tax experts.

Anyone who wishes to submit a development application to the City of Tshwane Metropolitan Municipality (CTMM) for the UDZ area is required to register as a potential UDZ developer with the Municipality before commencing with application procedures (land use and/or building plans).

The purpose of this registration is (i) to confirm that the properties in question are located in the UDZ, (ii) to confirm that the proposed development complies with the requirements for the tax incentive, and (iii) to establish a database of all developments in the UDZ. The information in the database will be used to compile the quarterly and annual reports that are required by the National Treasury. Also, development applications for the UDZ area will receive special attention to facilitate the development process, provided that these applications (land use and/or building plans) adhere to all legislative and policy requirements.

To register, please download the registration form, fill in the details and return it to the CTMM.

On receipt of the registration form, it is signed and stamped by an official after the validity of the development has been verified. After that, the original is returned to the applicant and a copy kept for the Municipality's records.

After a development in the UDZ area has been completed, the Municipality issues the developer a locational certificate and an occupation certificate, both of which must be submitted to SARS with the tax returns.

The tax incentive only becomes effective on completion of the development, and does not apply during the development phase.

At its meeting on 23 June 2005, the Council resolved that all investors in the UDZ who have registered with the Municipality, will receive a 50% rebate on building plan fees, with effect from 1 July 2005.

A summary of the requirements that an investor must comply with to qualify for the UDZ allowance are set out below for information purposes only. Investors must, however, ensure that their development complies with all the relevant taxation laws relating to the UDZ to ensure that it qualifies for the tax incentive. The CTMM does not accept any responsibility for the financial implications of the tax incentive.

• To qualify for a UDZ allowance, a person must have -
  1. completed a whole new commercial or residential building;
  2. extended, added to or improved an entire existing commercial or residential building or part of such a building representing a floor area of at least 1 000 m²; or
  3. purchased a commercial or residential building or part of a commercial or residential building directly from a developer that complies with all three of the following requirements:
     • The developer erected, extended, added to or improved the building or part of the building representing a floor area of at least 1 000 m².
     • The developer did not claim any UDZ allowance for the building or part of the building.
     • In the case of the improvement of a building or part of a building, the developer has incurred expenditure for these improvements which is equal to at least 20% of the purchase price paid by the person for the building or part of the building.
• The development must be located inside the boundaries of the UDZ.
• The taxpayer must use the building or part of the building for the purposes of trade.
• Only development processes that started after 10 December 2004 qualify.
• Improvements to buildings are seen as structural improvements to the building's exterior and/or interior, while preserving a substantial part of the building's existing structural or exterior framework.
• The property must be owned by the investor (ie the person claiming the incentive).
• The tax incentive is only effective until 31 March 2009. Any building or part thereof which is brought into use after that date will not qualify for the tax incentive.
• The development must comply with development criteria, policies and plans set by the CTMM. The aim of the UDZ tax incentive is to promote the regeneration of healthy, functional and sustainable inner city areas, and not merely to promote development for the sake of development.

Registration Form
National Treasury UDZ Website
Revenue Laws Amendment Act, 2003
Revenue Laws Amendment Act, 2005
National Treasury Guide for Investors
1st Annual Report December 2005
Johannesburg Urban Development Zone
Cape Town Urban Development Zone