Value Added Tax (VAT) Guidelines: South Africa

VAT is levied on the value of the supply of goods or services by a vendor in the course or furtherance of his enter­prise which is carried out continuously by any person (partly) in the Republic, the importation of goods into South Africa by any person and the supply of imported services by a non-resident to a resident acquiring the services otherwise than for taxable purposes. There are special rules for foreign suppliers of electronic services.

 

Specifically excluded from the scope of VAT are the activities of a permanent and independent branch located outside South Africa, employment services rendered by an employee if the remuneration for the services is sub­­ject to employees’ tax (unless the employee is an independent trader), and activities involving the making of exempt supplies.

 

For international transactions, South Africa follows the destination based principle.

 

No specific place of supply rules in South Africa exist, however, services which are directly in connection with land or any improvement thereto situated in South Africa are taxable in South Africa (hence this would also include assembly or installation services for machines connected with land or supervisory activities for a con­struction site in South Africa). Also, there is no reverse charge system in place with regard to supplies connec­ted to land/improvement to land.

 

The standard VAT rate is 15 percent, the reduced VAT rate is 0 percent. 

 

The following supplies of goods or services are exempt from VAT (the list is not exhaustive):

 

Currently there are no specific “place of supply” rules in the VAT Act.

 

Services acquired by a vendor from foreign service suppliers comprise imported services on which VAT might be payable. For a supply to comprise a taxable imported service, the service must be:

 

In line with the destination based principles of the VAT Act, services which are rendered to non-residents may qualify for VAT at the rate of 0 percent. The rate of zero per cent may, however, not be applied if the non-resi­dent or any other person to whom the services are supplied is present in South Africa when the services are rendered. 

 

VAT is payable on the importation of tangible goods into South Africa by the importer. The importer may claim the import VAT as a deduction if he is registered for VAT and acquires the goods for making taxable supplies, but the local tax authority (SARS) requires that the importer must be the owner of the imported goods. 

 

Where the importer is a non-resident and not VAT registered, the importer cannot claim the import VAT and the purchaser may suffer the additional cost. 

 

Where tangible goods are supplied, there is an assumption that the goods will be consumed where they are physically located when they are supplied. The VAT Act therefore allows for the application of the zero rate for goods exported from South Africa. The supplying vendor must, however, be able to substantiate that he has exported the goods from South Africa. 

Every company carrying on business or having an office in the Republic must at all times be represented by an individual residing in the Republic (public officer). This person will be responsible for performing the duties imposed by the VAT Act. 

 

A foreign company is deemed not to have applied for registration until it has appointed a representative vendor in the Republic and furnished the Commissioner with the particulars of such representative vendor.

 

If a person carries on an enterprise in the Republic (or partly in the Republic), it is obliged to register as a vendor:

 

The supply of certain electronic services by foreign e-commerce suppliers constitutes an enterprise if at least any two of the following three circumstances apply:

The VAT calculation period is either a calendar month (if the turnover exceeds ZAR 30 Million p.a.) or otherwise a two-month period. The difference between total amount of output and input VAT calculated in the tax period represents the amount of VAT liability for payment or the amount of the VAT refund (VAT refunds will only be paid out to local bank accounts).

 

In general, VAT vendors are required to submit the following relevant material with their VAT201 returns: copy of tax invoices, the output and input tax schedules, all documents relating to capital expenditure claimed (if applicable) and other transactional documents that would for example substantiate any increase/decrease in sales, inventory, change in use adjustment or bad debts.

 

If any person who is liable for the payment of tax and is required to make such payment fails to pay any amount of such tax within the period for the payment of such tax specified in the VAT Act, the authorities will impose a penalty of 10 percent of the said amount of tax. 

 

Furthermore the person shall pay interest on the said amount at the prescribed rate (currently 7 percent) for the period the VAT remains unpaid.

 

If a business is registered for VAT in South Africa, it can deduct South African input VAT paid to local suppliers within the normal VAT return period (subject to certain input VAT prohibitions). 

 

There are certain expenditure items where VAT may not be claimed as input tax by a vendor:

 

Where goods are supplied to a foreign purchaser in South Africa who acquires the goods to export them from South Africa, the supplier is required to charge VAT at the standard rate. However, in line with the destination principle of the VAT Act, the foreigner can claim the VAT paid as a refund via the VAT Refund Administrator when the goods are exported. The goods must be exported within 90 days from the date that the tax invoice is issued by the South African supplier and a request for a refund should be received by the VRA no later than three months of the date of export. This is, however, an onerous process for businesses and significant delays are often experienced with the refund payments which also exposes the foreign business to currency exchange risks.

A supplier, being a registered vendor, making a taxable supply to a recipient, must within 21 days of the date of that supply issue a tax invoice containing such particulars as are specified in this section. If it shall not be law­ful to issue more than one tax invoice for each taxable supply and if a vendor claims to have lost the original tax invoice, the supplier or the recipient, as the case may be, may provide a copy clearly marked “copy”. 

 

A tax invoice must be in South African currency, except for a zero-rated supply (for example, goods exported) or in the case of certain supplies of electronic services by non-resident suppliers.

 

The electronic submission of invoices (e.g. vtia PDF, email, computer fax) is possible.

 

Credit or debit notes are acceptable to account for changes in the purchase price and VAT (e.g. return of goods, discounts, etc.).