Who is the B-BBEE Commission?
We are a regulatory body established as an entity within the administration of the Department of Trade and Industry (“the dti”) by the Broad-Based Black Economic Empowerment Act 53 of 2003, as amended by Act 46 of 2013 (“the B-BBEE Act”), to oversee the implementation of the B-BBEE Act and investigate violation.
Jurisdiction of the B-BBEE Commission
We operate within the dti with jurisdiction throughout the Republic, and be impartial and perform its functions without fear, favour or prejudice, across all provinces.
In terms of section 13F (1) (a) of the B-BBEE Act, we are mandated to oversee, supervise and promote adherence with the B-BBEE Act in the interest of the public. In so doing, we must increase knowledge on the nature and dynamics and promote guidance to the public on the interpretation of the B-BBEE Act and Codes of Good Practice, and clarifications form part of our advisory services.
Nature of clarification provided
We have a mandate to provide clarification on all aspects of the B-BBEE, which includes the generic codes of good practice and the various sector codes. These are some of the issues that have been raised with us.
General Principles (18)
B-BEEE seeks to advance access of black people in the South African Economy. The term “black people” is a generic term which means Africans, Coloureds and Indians—
(a) who are citizens of the Republic of South Africa by birth or descent; Or
(b) who became citizens of the Republic of South Africa by
(i) before 27 April 1994; or
(ii) on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation prior to that date.
The following Entities are measurable under the Codes:
- all Organs of State and Public Entities;
- all Measured Entities that undertake any economic activity with all Organs of State and Public Entities;
- any other Entity that undertakes any economic activity, whether direct or indirect, with any Entity that is subject to measurement under the Codes.
In terms of Code Series 100, an entity may apply the modified-flow through principle to determine black ownership, where in the chain of ownership structure black people have a flow-through level of participation of at least 51%, then only once in that entire ownership structure of the entity such black participation may be treated as though it were 100%.
B-BBEE classify entities based on annual turnover, namely:
- Start-up Enterprise. This is a recently formed or incorporated entity that has been in operation for less than one (1) year. A start-up enterprise does not include any newly constituted enterprise which is merely a continuation of a pre-existing enterprise;
- Exempted Micro-Enterprises (EMEs). This are entities that generate an annual turnover of R0 and less R10 million.
- Qualifying Small Enterprises (QSEs). These entities have an annual turnover of above R10 million and less R50 million.
- Large Enterprises, are entities with an annual turnover of above R50 million.
- All EMEs are exempted from B-BBEE compliance and receive automatic B-BBEE Recognition Level 4.
- An EME which is at least 51% black owned automatically receive level 2 status and those which are 100% black owned receive level 1.
- EMEs only have to obtain a sworn affidavit or CIPC certificate.
- The sworn affidavit must be signed by a Commissioners of Oaths.
- QSEs which are at least 51% black owned or 100% black owned are treated the same as EMEs, they receive automatic B-BBEE Recognition Levels 2 and 1 respectively and also have to only obtain a sworn affidavit.
- The rest of the QSEs (less 51% black shareholding) must be verified through an accredited verification professional.
- Large companies must be verified by an accredited verification professional.
A B-BBEE certificate can only be issued by a verification professional accredited with the South Africa National Accreditation Systems (SANAS).
The codes do not have a provision for consolidation of Sworn Affidavits in joint venture.
Anyone who qualifies as commissioner of oath in terms of Justices of the Peace and Commissioner of oaths Act can commission an affidavit.
No, a Sworn Affidavit must be commissioned by someone with no interest in the company to exercise objectivity.
The 40% sub-minimum is applied as follows:
- 40% on the 8 points for Net Value based on time graduation factor.
- 40% to the total weighting points for skills development (40% to 20 points).
Enterprise and Supplier Development:
- 40% sub-minimum targets for Code Series 400 apply to each category namely, preferential procurement, supplier development and enterprise development.
This is interpreted as 40% to the total points of each of the three categories, meaning 40% of 25 points for preferential procurement, 40% of 10 points for supplier development and 40% of 5 points for enterprise development.
Send the request letter to Mr Madidimalo Ramare at MRamare@beecommission.gov.za
In terms of Para 2.5 Codes Series 000, if an entity splits itself to ensure eligibility as an EME or QSE such would constitute an offence and such will be dealt with in terms of the Act.
The inclusion or identification of priority elements in the Codes is an intervention to accelerate the achievement of an inclusive economy and decent job creation.
Inclusion of the bonus points to calculate the sub-minimums would undermine the objective of accelerating economic transformation, and reducing B-BBEE into a tick box exercise.
In terms of the 2008 verification manual a measured entity which experienced a material change after a B-BBEE certificate was issued, must be subjected to re-verification. This process requires the withdrawal of the initial certificate, and the second certificate must indicate date of issue, date of re-issue and date of expiry.
Where a certificate is re-issued, the second certificate must indicate date of issue, date of re-issue and date of expiry. The date of expiry remains the same date as on the initial certificate, because reissuing a certificate does not extend the validity period
NPOs are already covered as a measured entity in terms of the Codes of Good Practice (the Codes) and are regarded as specialised enterprises (do not have ownership). Their B-BBEE compliance is measured in terms of statement 004 (starts on page 10 of the attached document).
Specialised enterprises are classified in terms of annual turnover, allocated budget or gross receipts. This means that a specialised entity with R0 and less R10 million annual turnover/allocated budget/gross receipts are regarded an as Exempted Micro Enterprise (EMEs), if annual turnover/allocated budget/gross receipts is above R10 million but less R50 million it is called a Qualifying Small Enterprise (QSE), and those with annual turnover/allocated budget/gross receipts of R50 million above are regarded as large entities.
Specialised EMEs are given an automatic level 4 but if it has 51% of black beneficiaries it will be level 2, and 75% black beneficiaries it will obtain a level 1. EMEs only have to obtain a sworn affidavit. See attached template for guidance.
Specialised QSEs have to be verified by an accredited verification agency (http://www.sanas.co.za) to obtain a B-BBEE certificate. But if it has 51% of black beneficiaries it will automatically be level 2 and 75% black beneficiaries it is a level. Also has to complete a sworn affidavit for QSEs.
Large specialised entities have to be verified by either a verification agency
An EME that intends to enhance its B-BBEE status must be verified against the QSE scorecard.
A start-up enterprise is regarded as an EME, and must obtain a sworn affidavit. However, start-up enterprise must submit a QSE scorecard when tendering for any contract, or seeking any other economic activity covered by Section 10 of the Act, with a value higher than R10 million but less than R50 million. For contracts of R50 million or more they should submit the Generic scorecard.
Specialised enterprises are classified according to their annual turnover or allocated budget or gross receipts or discretionary spend. This means that a specialised entity with R0 and less R10 million annual turnover/allocated budget/gross receipts are regarded an as Exempted Micro Enterprise (EMEs), if annual turnover/allocated budget/gross receipts is R10 million but less R50 million it is called a Qualifying Small Enterprise (QSE), and those with annual turnover/allocated budget/gross receipts of R50 million above are regarded as large entities.
This is how a B-BBEE Certificate is obtained:
Specialised EMEs are given an automatic level 4 but if it has 51% of black beneficiaries it will be level 2, and 75% black beneficiaries it will obtain a level 1. EMEs only have to obtain a sworn affidavit. See attached template for guidance.
QSEs have to be verified by an accredited verification agency (http://www.sanas.co.za) . But if it has 51% of black beneficiaries it will aromatically be level 2 and 75% black beneficiaries it is a level 1. Also has to complete a sworn affidavit.
Large companies have to be verified by either a verification agency.
The continued consequences is allowed for the same number of years the black shareholder held his/her/ provided the shares were held for a minimum period of 3 years, and the ownership transaction was legitimate, value was created in the hands of black people, and the entity improved its B-BBEE status level from date of entity to exist of the black shareholder.
Multinational corporations that have a global policy that prevents them from selling equity in any host state.
In terms of Para 3.4.1 Code Series 100, an entity benefiting from the modified flow-through cannot benefit from the exclusion principle.
Conduct due diligence by interviewing black shareholders or beneficiaries if it’s a trust, as well as assessment of relevant documents such as shareholder agreement, trust deeds etc, to ensure alignment with the B-BBEE Act.
Points can be recognized where assets are sold to a company in which the seller has no relationship with the purchaser, which means it has to be a separately identifiable business.
The enhanced recognition status for black owned and controlled EMEs and QSEs can only be achieved through the application of the flow through principle, in line with the B-BBEE objectives outlined in section 2 of the B-BBEE Act.
A party that enters into a transaction that has a value of R 25 million or more and such transaction results in ownership recognition.
The B-BBEE Commission does not approve transaction. The B-BBEE Commission will register the transaction as well as assess it to determine compliance with the B-BBEE Act.
Management Control (4)
Executive Management’ is defined in paragraph 3.4.1 Code Series 200 “Executive Management positions include the following: Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other Executive Managers that serve on the Board of Directors”.
The EAP targets used are those released by the Department of Labour from time to time.
If an entity operates only at a provincial level, the provincial EAP will apply. However, if it operates nationally, the national EAP are applicable.
According to Para 3.3 Code Series 200, the entity will measure both categories as a single indicator with a weighing of 6 points.
EAP apply to all categories except board participation and disabled persons.
Skills Development (5)
Unemployed learner as per the Codes ‘means a learner that was not in the employment of the employer and party to the learnership agreement concerned when the agreement was concluded. The employer and learner must therefore enter into a contract of employment. Refer to the Skills Development Act’.
The objectives of Code Series 300 are to increase investments for human resource and skills development for black people, as part of the broader government objective. In keeping with this objective the Codes have provided for the training of both black employed and black unemployed.
Therefore, black unemployed people trained under Para 184.108.40.206 of the scorecard cannot be recounted again under 220.127.116.11. This will amount to misrepresentation of B-BBEE status and may constitute an offence in terms of section 13O (1) (a) and (b) of the B-BBEE Act.
In terms of Para 5.3 and 5.4 of Code Series 300 the 15% cap is applicable to the total value of the skills development expenditure. This means that if the measured entity has spent R100 000.00 for informal training and R50 000.00 for accommodation towards black people, the 15% will apply to the total value of each amount.
Where a QSE in terms of the Skills Development Act qualifies to contribute the 1% levy, it will need to have SETA approved WSP before implementing the skills development element. But if exempted from the 1% levy, the QSE will only have to develop a skills development plan for implementing the skills development element and produce the required proof during measurement for recognition of points.
Expenses on scholarships and bursaries for employees do not constitute Skills Development Expenditure if the Measured Entity can recover any portion of those expenses from the employee or if the grant of the scholarship or bursary is conditional. Despite the afore going, if the right of recovery or the condition involves either of the following obligations of the employee, the expenses are recognisable:
- the obligation of successful completion in their studies within the time period allocated; or
- the obligation of continued employment by the Measured Entity for a period following successful completion of their studies is not more than the period of their studies
Enterprise and Supplier Development (12)
According to Para 5.12 Code Series 400 intra-group procurement is included in calculating the TMPS.
51% black owned EMEs and QSEs or 51% black women owned EMEs and QSEs.
Enterprise Development (ED) is targeting entities outside the supply chain od the measured entity whereas Supplier Development (SD) focuses on entities within supply chain irrespective of whether they are active or not. Therefore, an ED beneficiary cannot be an SD beneficiary.
The Codes were amended and the recognition of early payment was capped. This means that if payment is at least made within the first fifteen (15) days from the date of invoice by the qualifying supplier, then the amount that can be claimed is a percentage of the invoice amount which is equal to 15 minus the number of days from invoice to payment date.
For example: If invoice is R100 and paid in 5 days it means:
R100 x (15-5) % = R100 x 10% = R10
Therefore, the contribution claimed will be limited to 15% of the 10 points allocated.
There are four (4) types of loans recognised under the matrix, which are recognisable at a certain percentage. However, what is important to note, is that during a verification process, the full loan amount cannot be recognised for B-BBEE points where the recipient still owes a portion of the loan. What it means is that, where there is an outstanding loan amount, the measured entity will only claim B-BBEE points for the average period during which the loan amount has been outstanding and not the full outstanding loan amount.
A measured entity’s financial year-end is 31 December 2017 and they also measure their B-BBEE scorecard as at that date. If the measured entity provided an interest free loan of R10,000 to a supplier or enterprise development beneficiary on 30 June 2017, the formula to be used in determining the supplier or enterprise development points for the measured entity is as follow:
Supplier/Enterprise Development points = R10,000 (loan amount outstanding) x 70% or 50% (the benefit factor percentage set in the matrix depending on the type of loan) x 6/12 (the average period during which the loan amount has been outstanding) = RX
The measured entity will therefore only claim RX amount of the R10,000 outstanding loan, irrespective of whether an interest rate is attached or not. But if the loan was provided at the beginning of the year, being 1 January 2017, the measured entity would be able to claim the full R10,000 at the end of the financial year because the average duration the loan was outstanding was twelve (12) months.
It must further be noted that a measured entity will be able to claim supplier or enterprise development points for the duration of the period that those amounts remain outstanding. For instance, in the above example, if the same loan amount of R10,000 is still outstanding on 31 December 2018, then the measured entity would be able to claim the full R10,000 (R10,000 x 12/12) as supplier or enterprise development.
Important to note that, the term of the loan agreement does not mean that the measured entity will be able to claim the full outstanding loan amount, because B-BBEE compliance is measured over a particular period and only the amount that was outstanding during that measurement period will be claimed. This means that if a loan was only outstanding for two (2) months during a measurement period, only the average duration the loan was outstanding, which is 2/12 will be claimable.
However, if the loan amount is fully repaid by 31 December 2017, the measured entity will not recognise the particular spend by applying the outstanding loan amount formula, but through application of the standard formula provided in Annexure 400 (B), provided the contribution is aligned to the principles of Code Series 400
In terms of Code Series 100, an entity may apply the modified-flow principle to determine the black ownership, where in the chain of ownership structure black people have a flow-through level of participation of at least 51%, then only once in that entire ownership structure of the entity such black participation may be treated as though it were 100%.
The Codes have defined a 51% black owned entity as an entity where a) black people hold at least 51% of the exercisable voting rights as determined under Code Series 100; b) black people hold at least 51% of the economic interest as determined under Code Series 100; and c) has earned all the points for Net Value under Code Series 100.
The Department of Trade and Industry as the custodian of the B-BBEE Policy in its efforts to reduce the cost of compliance on micro and qualifying small businesses in South Africa has relieved black owned and controlled EME and QSE from B-BBEE verification. Such entities are only required to obtain a sworn affidavit on an annual basis or a CIPC certificate in the case of an EME proving their B-BBEE Status.
Thus the introduction of this intervention brought about an exception to the extent to which entities can rely on the modified flow through principle. The intention of the drafter was to limit the calculation of 51% and 100% black ownership for EMEs and QSEs only through the application of the flow through principle, and a different interpretation would be contrary to the spirit and purpose of this intervention, and would require that such entities be subjected to verification to determine compliance with the 40% sub-minimum on Net Value.
Bonus points do not form part of compliance with the 40% sub-minimum on priority elements.
The following imported goods or components for value- added production in South Africa provided that:
(a) there is no existing local production of such capital goods or components and,
(b) importing those capital goods or components promotes further value-added production within South Africa
50% jobs created: means new jobs created and not maintaining or filling existing vacancies. For example, if an entity operates with 100 jobs, for purpose of satisfying this requirement, the measured entity must first maintain the same staff complement, and 50% of newly created jobs must be for black. Simple maintenance of the 100 jobs would not qualify
The measured entity may facilitate the skills transfer directly or indirectly through professional services irrespective of how many beneficiary entities are trained per day
The Codes are silent on a definition of a service industry, and we recommend that you engage the Services Sectoral Training Authority which is amongst others responsible for the management of a list of entities within the services sector.
This means procuring from entities that are 51% owned by the following “Black Designated Group” as defined in the Codes:
(a) unemployed black people not attending and not required by law to attend an educational institution and not awaiting admission to an educational institution;
(b) Black people who are youth as defined in the National Youth Commission Act of 1996;
(c) Black people who are persons with disabilities as defined in the Code of Good Practice on employment of people with disabilities issued under the Employment Equity Act;
(d) Black people living in rural and underdeveloped areas;
(e) Black military veterans who qualify to be called a military veteran in terms of the Military Veteran Act 18 of 2011
Questions from the B-BBEE Act (6)
In terms of Section 13G, read with regulation 12 of the B-BBEE Regulations:
(a) All sphere of government, public entities and organs of state must report on their compliance with Broad-Based Black Economic Empowerment in their audited annual financial statements and annual reports report required under the Public Finance Management Act, 1999 (Act No. 1 of 1999) within thirty (30) days post approval of such annual report and financial statements in a prescribed B-BBEE 1 Form.
(b) All public companies listed on the Johannesburg Stock Exchange (JSE) must in a prescribed B-BBEE 1 Form provide to the B-BBEE Commission, in such manner as may be prescribed, a report on their compliance with Broad-Based Black Economic Empowerment 30 days’ post approval of annual reports and financial statement or ninety (90) days of the financial year of the listed entity, irrespective of whether it is primary or secondary listing.
(c) All Sectoral Education and Training Authorities contemplated in the Skills Development Act, 1998 (Act no. 97 of 1998), must report on skills development spending and programmes to the B-BBEE Commission 30 days’ post approval of annual reports and financial statements or 90 days after end of the financial year of the Sectoral Educating Training Authorities in a prescribed B-BBEE 2 Form.
The measured entity submitting a Broad-based Black Economic Empowerment compliance report to the B-BBEE Commission must complete and submit the prescribed form obtainable from the gazette B-BBEE Regulations on the B-BBEE Commission’s website, (www.bbeecommission.gov.za)
The B-BBEE Commission therefore requires the following information to be submitted with the prescribed form as outlined in the matrix (attached)
The letter of authority or any similar proof that the person submitting the B-BBEE compliance report is authorised by the measured entity to submit the report if not submitted by the Chief Executive Officer or similar accounting authority or officer.
Ownership and Management Control Element
- Percentage of black shareholder, number of director/managers for each category, race classification, gender, age, location and disability indication.
- indicate dividends declared
Skills Development Element
- number of black persons trained per race classification, gender, age, location, disability indication, disability and value thereof.
Enterprise and Supplier Development Element.
- number of all black owned EMEs/QSEs enterprise and supplier development entities assisted and value thereof.
Socio Economic Development Element.
- number of black participants, race classification, gender, geographic location and value thereof.
All the referred information, including any documents that the reporting party/entity deem relevant to the compliance report must be submitted to enable the B-BBEE Commission.
Where any of the information required is not applicable the reporting party/entity must indicate so in the submission
The B-BBEE Act does not make a distinction on reporting requirements based on the nature of the listing.
Thus, all entities listed on the JSE, irrespective of whether or not it is primary or secondary listing must report in terms of section 13G (2) of the B-BBEE Act read with Regulations 12 of the B-BBEE Act.
The B-BBEE Act has defined a fronting practices to mean transactions, arrangements or other acts or conduct that directly or indirectly undermines or frustrates the achievement of the objective(s) of the B-BBEE Act or the implementation of any of the provisions of the B-BBEE Act.
A natural or juristic person convicted of fronting practice(s) in terms of the B-BBEE Act may be liable to a fine of up to 10% annual turnover or a maximum prison of ten (10) years. Further, any natural or juristic person convicted of an offence in terms of the B-BBEE Act may not for a period of 10 years from date of conviction, conducting business with any organ of the state or public entity and will be registered in a register of the tender defaulters with the National Treasury.
Any person can lodge a complaint with us by submitting a complete FORM B-BBEE 7 and state the nature of the complaint.
Specifically, a person is required to provide the following information on the Form:
- a description of the conduct or practice alleged to be in contravention of the Act;
- particulars of a person, sphere of government, entity or organ of state alleged to be in contravention with the Act;
- name and contact details of any person that may provide information that is relevant to the complaint to the commission;
- information on measure taken by the complainant to attempt to resolve the complaint, including alternatives dispute resolution measures, prior to lodging the complaint and
- the way in which the alleged contravention may in the opinion of the complaint be addressed.
In submitting the form, the complainant is requested to attach any relevant information such as shareholder contract, B-BBEE Certificate and company registration certificate to assist us to better understand your complaint.
On receipt of the complaint, we will acknowledge and issue a case number to the complainant within five (5) days, we may request further information by issuing FORM B-BBEE 8, in terms of section 13L, a person may claim that all or part of that information is confidential and the claim must be supported by a written statement explaining why the information is confidential
Socio-Economic Development (3)
No, such would not qualify because it is not aligned to the objectives of Socio-Economic Development (SED). SED consist of monetary or non-monetary contributions, with the specific objective of promoting access to the economy for black people. SED is not the same as Corporate Social Investment or fringe benefits to the employee by the employer. The Benefit Factor matrix provides guidance as to what qualifies as an SED initiative. This is measured on an annual basis, meaning that the measured entity will contribute 1% NPAT annually towards SED initiative.
For a measured entity to claim points for SED, 1% NPAT must be contributed towards income generating activities to assist black people in rural and underdeveloped communities to access means to the economy. Further, beneficiaries of SED must be 75% black people.
SED is more than just donations, if excepted, then it means we will accept a donation for feeding schemes, SPCA, shoes etc. SED needs to lead to an incoming generating activity and assist black people to gains access to economic means.
In a case where a measured entity did not generate profit for that particular year, the Codes have provided for the use of industry norms applying the Indicative Profit Margin formula to determine the actual contribution.
The Net Profit After Tax (NPAT) or average target applies unless the company does not make a profit last year or on average over the last five years must be used.
The net profit margin is less than a quarter of the norm in the industry.
If the Turnover is to be used, the target will be set at 1% x Indicative Profit Margin (NPAT/Turnover) x Turnover. Indicative profit margin is the profit margin in the last year where the company’s profit margin is at least one quarter of the industry norm.