VAT On Imported Services
07 October 2013
Posted by: Author: BDO
As from 1 February 2011 persons that are registered VAT vendors are no longer required to declare VAT payable for imported services on the VAT 215 form but should do so on the standard VAT 201 form. Persons that are not registered VAT vendors must however still declare the imported services on the VAT 215 as before.
This change has simplified the administrative processes surrounding the declaration of VAT on imported services by registered VAT vendors and is welcomed.
This is an area which has the potential to lead to large disputes with SARS. This is evident from recent cases such as Metropolitan v CSARS ((A 232/2007)  ZAWCHC 105) and CSARS v De Beers Consolidated Mines ((503/11)  ZASCA 103). A contentious issue underlying the declaration of VAT on imported services is the method applied by the vendors to establish how much of VAT should be accounted for.
The VAT Act currently states that a vendor has to account for VAT on services acquired from a supplier who is not a resident of South Africa, or who carries on a business outside South Africa to the extent that the services are not used in the course of making taxable supplies.
At first glance this may seem to resemble the provisions of the VAT Act surrounding the claiming of partial input tax credits in circumstances where goods and services are acquired partly for the purposes of making taxable supplies (section 17(1) of the VAT Act).
However, vendors should be mindful of the fact that VAT on imported services is not governed by the provisions relating to the claiming of input tax credits but rather by the charging provisions of the VAT Act.
The phrase "to the extent" is not defined in the VAT Act and this Act does not prescribe a method for determining the "to the extent" element of VAT on imported services.
It would appear that vendors making mixed supplies (i.e. both taxable and non-taxable supplies) have in practice adopted and applied the principles and methods surrounding the apportionment of input tax credits in determining the "to the extent" element of VAT payable on imported services.
According to SARS, the only apportionment method a vendor may apply, unless a vendor is in possession of a binding ruling stating otherwise, is the turnover based method when dealing with the apportionment of input tax credits.
We understand that vendors are using inter alia the input based method, floor space method and transaction based method to determine the "to the extent" element of VAT payable on imported services without prior approval from SARS.
Especially in light of the fact that VAT is a self-assessment tax, in our view vendors are placing themselves in a precarious situation by using the various apportionment methods specifically relating to the claiming of input tax when determining the liability to account for VAT on imported services without the prior approval of SARS. The safer approach is to obtain a ruling.
This article was first published on BDO.co.za