IP Valuation

Apart from Capital Gains Tax (CGT) requirements, significant tax advantages may be realised when acquiring a business which owns intellectual property. In particular, the South African tax regimes provide that any company purchasing intellectual property (excluding trademarks) is entitled to deduct the purchase price from its pre-tax earnings over the lifetime of the intellectual property. Please note that the company would still be able to depreciate the intellectual property whether or not it takes advantage of the above tax relief.

Whilst companies often spend considerable amounts on securing intellectual property rights, experience has shown that a proper valuation of such intellectual property, in particular the technology aspects thereof, is rarely carried out. By properly reflecting the intellectual property as an asset in the balance sheet as required by the Generally Accepted Accounting Practices (GAAP), a company could significantly improve its shareholder value and benefit from an often neglected, yet important source of value creation.