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Broad-Based Black Economic Empowerment

Blog_BEEBBBEE is fast becoming a certainty in the business environment in South Africa, and it is imperative that businesses incorporate this in their operational and strategic planning.

An effective and successful implementation of a BBBEE strategy may have a significant impact on other aspects of the business, such as operations, tax planning and long-term business strategy. Proper consultation with skilled advisors is vital to avoid costly mistakes and ensure the achievement of the long-term goals of the business.

The calculation of an entity’s BBBEE scorecard is regulated by the Broad-Based Black Economic Empowerment Act No. 53 of 2003, together with the Codes of Good Practice (the Codes). Furthermore, certain sectors of the economy have their own charter in terms of which the scorecard of business in that sector will be calculated, rather than the generic codes. In most cases, only an accredited verification agent may conduct the verification process and issue the resulting BBBEE certificate. Verification agents are currently accredited by either IRBA or SANAS.

In terms of the Codes, a business will fall into one of three categories, which will then determine how the BBBEE score is calculated. If a sector charter applies, these criteria might be different from those set out in the generic codes.

The first category is Exempted Micro-Enterprises (EMEs). These will be entities with an annual turnover of less than R5 million, or start-up enterprises (newly formed businesses that have been in operation for less than twelve months). These EMEs will have an automatic recognition level 4, or automatic recognition level 3 in the case where the EME has black ownership of more than 50%. A registered auditor, accounting officer or BBBEE verification agent may issue such a certificate, and the certificate is valid for a period of 12 months.

The second category is Qualifying Small Enterprises (QSEs). These are entities with an annual turnover between R5 million and R35 million. In such cases (according to the QSE Codes) the entity only has to be measured against four of the seven elements of the scorecard, which simplifies the verification process and gives the business a better chance to obtain a good score. Only an accredited verification agent may conduct the verification process and issue the BBBEE certificate to the business. The certificate is valid for a period of 12 months.

The third category is businesses with an annual turnover of more than R35 million, which will be measured according to the Generic Codes. A score will be calculated for all seven elements on the scorecard, which will then determine the BBBEE score of the entity. Only an accredited verification agent my conduct the verification process and issue the BBBEE certificate to the business. The certificate is valid for a period of 12 months.

To ensure the minimizing of costs, an effective verification process and the least amount of disruption to the operations of a business, the help of professional and skilled advisors is vital.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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