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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 8/31/2014

South Africa: VAT essentials 

Essential information regarding VAT as it applies in South Africa.


Significant indirect tax developments at a glance

Have any significant changes occurred in your country over the past few months?


  1. VAT registration of electronic service suppliers

    With effect from 1 June 2014, non-resident suppliers of certain electronic services to South African residents or where payment originates from a South African bank account will be required to register and account for VAT in South Africa if the total value of taxable supplies has exceeded R50 000. The effect is that non-resident suppliers that fall within the new rules will be required to levy VAT on supplies from 1 June 2014 and the supplies concerned will no longer be regarded as imported services.


  2. Streamlining VAT registration

    Compulsory registration – From 1 April 2014, only businesses that have exceeded the R1 million threshold value of taxable supplies over a continuous period of 12 months or have a contractual obligation to do so in the next 12-month period will be obliged to register for VAT.


    Voluntary registration – The scope has expanded with effect from 1 April 2014 to allow a person who has not yet made any taxable supplies or who has made less than the R50 000 threshold and is reasonably expected to meet the requirement after a period of 12 months to apply for voluntary registration. These cases will only be allowed in situations where certain conditions are met which are to be set out in Regulations.


  3. Cancellation of registration

    A person, who has been previously registered as a vendor by the Commissioner or who has been allowed to register voluntarily and the conditions have not been met, may be deregistered from a date determined by the Commissioner. They may also be deregistered if they fail to submit a return.


  4. Supply of services for contingent consideration

    A special time of supply rule exists where goods are supplied under an agreement where the consideration for the goods is determined by future events. In these circumstances, the supply is deemed to take place at the earlier of the date that the payment in terms of the agreement is due or received or an invoice relating to the supply is issued.


  5. On-board entertainment supplied as part of a taxable transport service

    Vendors that supply such entertainment as part of their taxable transportation service will, from 1 April 2014, be allowed to deduct the VAT incurred to provide on-board entertainment provided the supply of entertainment is part of or in conjunction with the taxable transportation service.


  6. Imported goods abandoned, destroyed or damaged

    From 1 April 2014, VAT will be payable on a lower value should imported goods be abandoned, destroyed or damaged, and not on the original importation value as was the case previously.


  7. Conversion of a share-block scheme into a sectional title

    From 1 April 2014 the conversion of a share-block scheme to sectional title is now regarded as being conducted in the course or furtherance of an enterprise.


  8. Homeowners associations

    Levies charged by homeowners associations will, from 1 April 2014, be exempt from VAT.


  9. Surrendering goods in terms of a credit agreement

    The deemed supply arising with regard to the repossession of goods previously supplied under an instalment credit agreement is now expanded to include a situation in which the debtor surrenders the goods to the financier (creditor).



Are any significant changes expected over the coming months?


No.

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Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made by a VAT vendor, in the course or furtherance of an enterprise carried on by the said person. Supply includes all forms of supply, whether voluntary compulsory or by operation of law, irrespective of where the supply is effected.


What is the standard rate of VAT?


The standard rate of VAT is 14 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is an extensive list of zero-rate supplies, including:


  • the export of goods.
  • The supply of an enterprise as a going concern.
  • Certain foodstuffs and fuel.
  • Certain services supplied to non-residents, provided the services are not rendered directly to any person in the Republic of South Africa (“RSA”) or are rendered directly in connection with moveable or immovable property located in the RSA.
  • Services physically rendered outside of the RSA.
  • International transport of goods and passengers.
  • Municipal rates.

The list of exemptions includes:


  • The supply of certain financial services
  • The rental of residential accommodation
  • The supply of certain educational services
  • The supply of fare paying passenger transport services.

Note: it is not possible to recover VAT incurred for purposes of making exempt supplies.


What are the other local indirect taxes beside VAT?


Securities Transfer Tax and Transfer Duty, excise duties, fuel levy, carbon emissions levy

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Registration

Who is required to register for South African VAT?


South African Entities


Any person, which includes a non-resident person, who carries on an enterprise and whose value of taxable supplies exceeds, or is likely to exceed ZAR 1 million in a 12-month period. An “enterprise” means, among other things, any activity continuously or regularly carried on in, or partly in South Africa, whereby goods and services are supplied to another person for a consideration and specifically includes:


  • welfare organisations;
  • branches or main businesses of a non-resident business if the non-resident business is separately identifiable and maintains a separate accounting system;
  • the supply by a non-resident, from a place outside South Africa, of specified electronic services to a resident of South Africa, if payment for the services originates from a bank registered or authorised in terms of the Bank’s Act; and
  • foreign donor funded projects

Non-South African Entities


See above.


Are there penalties for not registering or late registration?


Not registering on time for VAT is an offense and the offender may be liable to a fine or imprisonment. Furthermore, where a person registers late, penalties interest and understatement penalties may be due in respect of VAT not paid or paid late


Is voluntary VAT registration possible for an overseas company?


Yes, provided that the overseas company conducts an enterprise and its value of taxable supplies exceeds ZAR 50,000 in any 12-month period.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


No. However, in very specific instances SARS may be approached to grant a ruling to the effect that a non-resident company need not register for VAT, such as where a non-resident company will conduct an enterprise for a limited period only or where it conducts a passive activity in South Africa.


Does an overseas company need to appoint a fiscal representative?


Where a non-resident company is liable to register for VAT purposes (except non-residents who are required to register for the supply of electronic services), a VAT representative must be appointed.


The VAT representative, who is a natural person, has to be a resident of South Africa and will be responsible for the duties and obligations, as imposed by the VAT Act, on the company.

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VAT grouping

Is VAT grouping possible?


No


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Generally, returns are submitted for a 2 monthly period. However, where the value of taxable supplies for a 12-month period exceeds, or is likely to exceed ZAR 30 million, a vendor must account for VAT on a monthly basis.


Are there any other returns that need to be submitted?


Yes, in the case of imported services a non-vendor needs to submit a VAT215 form - Declaration in respect of imported services. Imported services relate to services provided by a non-resident to a South African resident, to the extent that the services are used for non-taxable purposes.


Vendors must declare the VAT in respect of imported services on the VAT 201 returns.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


A tax invoice must be issued in South African currency to allow a vendor to claim input tax.


The rate of exchange to be used is the spot rate on the date of the tax invoice. It has been prescribed that spot rates to be used are those available on the South African Reserve Bank website.

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VAT recovery

Can a business recover VAT if it is not registered?


Local/established businesses which incur VAT


No, in South Africa a person is required to be registered and be making taxable supplies to recover VAT paid.


Overseas businesses with no local presence and no local VAT/GST registration


VAT incurred on any goods purchased in South Africa which are exported by a so-called qualifying purchaser (eg. A non-resident company carrying on business outside South Africa) can be claimed back upon exiting South Africa through so-called designated commercial ports.


This scheme is mainly aimed at tourists, but is not restricted to them and VAT paid should be recovered through the VAT Refund Administrator (the VRA).


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No, VAT can, in certain instances, be recovered through the VRA, irrespective of foreign reciprocity.


What are the general conditions for claiming a deduction of input VAT/GST?


In order for VAT to be recoverable, (i) the person is required to be registered as a VAT vendor, (ii) the VAT incurred by the vendor must be in respect of goods or services which are acquired or imported wholly for the purpose of consumption, use or supply in the course of making taxable supplies, (iii) the taxpayer must have a proper tax invoice or bill of entry to support the claim, (iv) the VAT must be claimed within five years of the date on which a tax invoice was required to be issued . VAT on imports can be claimed only once the VAT has been paid to the customs authorities.


Are there any items that businesses cannot recover VAT on?


In the case of the export of goods referred to above, there are limitations where the goods consist of second-hand goods.


In general, vendors cannot recover VAT (input tax) in respect of the acquisition of goods and services for the purpose of entertainment, fees or subscriptions paid by the vendor in respect of memberships of any club, association or society of a sporting, social or recreational nature and the acquisition or rental of motor cars.

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International Supplies of Goods and Services

Exports - Goods


How are exports of goods treated for VAT/GST purposes?


Where goods are exported to a customer (business or private) outside of South Africa, VAT is chargeable at the zero rate, provided the supplier pays for the freight and retains the prescribed documentary proof of export (i.e. direct exports).


There is also scope for the vendor to apply the zero rate VAT when the purchaser arranges the transport subject to certain provisions (i.e. indirect exports).


Exports - Services


How are exports of services treated for VAT/GST purposes?


If you supply services to a customer (business or private) who is not a resident of South Africa, then you can zero rate your supply, provided the service is not directly in connection with land (or any improvement thereto) or movable goods situated in South Africa, or supplied directly to a person who is in South Africa at the time the services are rendered.


Furthermore, where a service is physically rendered outside of South Africa, the supply is subject to VAT at the zero rate.


Imports - Goods


How are goods dealt with on importation from a VAT/GST perspective?


When goods are imported into South Africa, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from Customs' control. VAT paid on importation by a vendor can be claimed as an input tax deduction in its VAT returns. It should be noted that special valuation and timing rules apply for VAT purposes.


How and by whom is VAT/GST paid on imports of goods?


VAT is paid on the importation of the goods into South Africa by the importer of record. However, it is possible that the importer of record is in fact importing the goods as agent on behalf of the owner, in which case the import agent will pay the VAT on behalf of the owner and will recover the amount from the importer.


Where an agent imports good on behalf of a non-resident principal, in circumstances where such non-resident has sold such goods to a person who is a vendor in South Africa, the agent may be permitted to claim the VAT incurred on importation as input tax, provided the agent is not reimbursed for such VAT by the non-resident principal and provided the agent accounts for output tax, equal to the VAT paid on importation, on a deemed supply by the agent to the vendor purchaser in South Africa.


Imports - Services


How are services which are bought in from a non resident supplier treated for VAT/GST purposes?


If a business acquires certain services from outside South Africa, the services will be deemed to be imported services to the extent that the services are utilized or consumed for the purposes of making non-taxable supplies.


Vendors are required to account for 14% VAT on imported services on their VAT returns. However, non-vendors are required to account for 14% VAT on a special VAT return (VAT215) covering the period in which the payment was made. Vendors must declare the VAT in respect of imported services on the VAT 201 returns. This VAT cannot be recovered as input tax.
From 1 April 2014, where electronic services (as defined by regulation) are imported into South Africa, the person supplying the electronic service may be required to register as a VAT vendor (e.g. educational services, e-books and other digital content) with the result that where the supplier is liable to be registered for VAT, the recipient is not liable to account for VAT on imported services.


Who is responsible for paying any VAT/GST due on imported services to the Tax Authorities?


The recipient of the services is required to pay VAT on imported services.

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Amount subject to VAT/GST

On what amount is VAT/GST charged for domestic supplies


VAT is charged on the value of the supply, which is the amount excluding VAT. The “consideration” is the amount including VAT with the result that VAT is calculated and payable on the tax fraction (14/114) of the consideration, since South Africa’s VAT system operates on an inclusive basis. If a vendor has for some reason not charged VAT, the amount charged will still be deemed to constitute “consideration” i.e. a VAT inclusive amount.


The general rule is that, to the extent to which the consideration is in money, VAT is accounted for on the amount of money and to the extent to which the consideration is in the form of goods or services, VAT is accounted for on the open market value of such goods or services. Note that the open market value includes the VAT element.


Despite the general value rule, there are a number of specific rules, including rules in respect of connected persons.


On what amount is VAT/GST charged on imported goods


VAT is calculated on the value for Customs purposes plus any Customs duty (and Excise duty) if applicable (non-rebated duties) + 10% of the customs value (applicable where goods do not originate from Botswana, Namibia, Lesotho, Swaziland).

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Tax points

When is VAT/GST due on a supply of goods or services?


VAT is due at the earlier of the time an invoice is issued by the supplier (or the recipient) in respect of that supply, or the time any payment of consideration is received. However, specific time of supply rules apply to certain transactions.

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Invoices

In what circumstances is a business required to issue tax invoices?


Generally if it is a registered vendor making taxable supplies it is required to issue a tax invoice.


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • the words “tax invoice” in a prominent place
  • the name, address, and VAT registration number of the supplier
  • the name, address, and VAT registration number of the recipient
  • an individual serialized number and the date
  • full and proper description of the goods or services supplied
  • the quantity or volume of the goods or services supplied
  • the value of the supply, the tax charged and the consideration for the supply. If only the consideration is shown, either the amount of tax charged, or a statement that it includes VAT and the rate.

Can simplified invoices be issued in your county?


Yes. Abridged tax invoices may be issued where the consideration is less than R5000,


Can businesses issue invoices electronically?


Yes, but SARS requires specific requirements to be met.


Is it possible to operate self-billing?


Yes, in limited circumstances.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, for standard rated supplies the invoice must also include the South African currency and the prescribed rate of exchange. For zero rated supplies, the Rand denomination is not required on the invoice.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Provided that all the necessary documentary evidence is retained, the supply of an enterprise, or part thereof which is capable of separate operation, may be subject to VAT at the zero rate.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


If the entity has one VAT registration number, these transactions are ignored.


If the head office and branch have separate VAT registration numbers, the supplies could be subject to VAT.


In a situation where the head office is outside of South Africa, supplies are deemed to be made from the branch in South Africa to its head office. Such supplies, could, however be subject to VAT at the zero rate or standard rate.

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Bad Debt

Are businesses able to claim relief for bad debts?


Businesses are able to claim VAT previously paid back on the unpaid element through their VAT return. If a business subsequently receives payment for the supply then it will have to pay back the VAT element to the tax authorities in the same way.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


Yes. Where SARS determines that a person has entered into a scheme for obtaining undue tax benefits, they may determine the liability for VAT as if the scheme had not been entered into.

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Penalty Regime

What is the penalty and interest regime like?


In respect of the late payment or non-payment of VAT, a 10 percent penalty and interest at a prescribed rate is levied. Further, the Tax Administration Act imposes understatement penalties over and above the 10 percent penalty and interest. These vary from 10 percent to a maximum of 200 percent, based on a categorized penalty percentage table.

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Tax Authorities

Tax audits


How often do tax audits take place?


Frequency varies considerably according to the nature and value of supplies etc.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Notices and requests are sent electronically but the audits are conducted by staff members of SARS.


Advance rulings and decisions from the tax authority



Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, the South African Revenue Service may issue formal (written) advance rulings, i.e. binding general, class or private rulings.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Yes, they are published on the tax authorities’ website.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No

 

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