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VAT FAQ - 16 April 2014

16 April 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Techincal

1. Must VAT be levied at on construction work performed abroad?

Q: My client is a builder performing construction work in Namibia for a South African company. The treatment of VAT in this case is our problem. Should he levy VAT on the invoices rendered to the South African company, or can the job be regarded as export? If he must levy VAT, how will he claim back the 15% VAT paid on materials bought in Namibia?

A: Must VAT be charged on the invoice provided to the South African company?

Sec 11(2)(f) of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’) provides the following:

‘Where, but for this section, a supply of services would be charged with tax at the rate referred to in section 7 (1), such supply of services shall, subject to compliance with subsection (3) of this section, be charged with tax at the rate of zero per cent where—

the services are supplied directly in connection with land, or any improvement thereto, situated in any export country ...’ (own emphasis added).

Sec 11(2)(f) of the VAT Act therefore provides that services rendered directly in connection with ‘land, or any improvement thereto’ situated in an ‘export country’ would be zero-rated. It should be noted that sec 11(2)(f) does not distinguish between whether the services should be rendered to a non-resident or to a resident and it is consequently available even though the services are rendered on behalf of a South African resident – as long as the services are rendered in an ‘export country’ in connection with land situated therein. An ‘export country’ is defined as follow in sec 1 of the VAT Act:

‘means any country other than the Republic and includes any place which is not situated in the Republic ...’ (own emphasis added)

It would therefore seem as if the services rendered in Namibia may be subject to VAT at the zero rate in terms of sec 11(2)(f), subject to the documentary requirements in terms of sec 11(3) which reads as follows:

‘Where a rate of zero per cent has been applied by any vendor under the provisions of this section, the vendor shall obtain and retain such documentary proof substantiating the vendor’s entitlement to apply the said rate under those provisions as is acceptable to the Commissioner.’

The documentary requirements for the zero-rating are set out in Interpretation Note No. 31 (Issue 3).

If VAT must be levied, will he be able to claim back the 15% on the materials bought in Namibia?

In principle, irrespective of whether a person levies VAT at the standard rate or zero-rate on a supply made by it, it may be entitled to claim back input tax if the respective requirements of the VAT Act have been met and if VAT was charged at 14 per cent on the goods or services supplied to it. This is as a result of the definition of ‘input tax’ which requires the goods or services to be acquired to supply ‘taxable supplies’, which definition includes both standard-rated and zero-rated goods.

‘Input tax’ is defined in sec 1 of the VAT Act as follow:

‘... tax charged under section 7 and payable in terms of that section by—

(i)                  a supplier on the supply of goods or services made by that supplier to the vendor;

 

where the goods or services concerned are acquired by the vendor wholly for the purpose of consumption, use or supply in the course of making taxable supplies or, where the goods or services are acquired by the vendor partly for such purpose, to the extent (as determined in accordance with the provisions of section 17) that the goods or services concerned are acquired by the vendor for such purpose.’

The definition of ‘input tax’ therefore states that input tax may be claimed on a ‘tax charged under section 7 and payable in terms of that section’. In this case, the relevant portion of sec 7 of the VAT Act states the following:

‘...there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the value-added tax ...’ (own emphasis added)

Therefore, in order to be able to claim an input tax on a certain expense, the output tax included in the said expense must be levied and ‘paid for the benefit of the National Revenue Fund’. For example, if A buys goods from B to construct a building, then B must have levied output tax at 14 per cent on that supply for the benefit of the National Revenue Fund in order for A to be entitled to claim an input tax credit. Should this not be the case, then no input tax may be claimed on an expense in terms of the definition of ‘input tax’ in sec 1 of the VAT Act, read with sec 7 of the VAT Act. Therefore it would not seem as if VAT at 15 per cent paid to Namibia will qualify for an ‘input tax’ credit from SARS as it was not paid for the benefit of the National Revenue Fund – it was paid for the benefit of Namibia’s Revenue Fund.

It may however be possible for your client to obtain a refund/claim input tax from Namibia in terms of the Namibian VAT legislation for the Namibian VAT included in the prices of the goods and services that it uses in its building venture in Namibia, but guidance in that regard falls beyond the scope of this platform. It is therefore advised that you or your client also make use of the services of a Namibian tax practitioner to ensure the correct VAT treatment from a Namibian perspective.

Conclusion

From the facts provided, it would seem as if the service may be exempt in terms of sec 11(2)(f) of the VAT Act. In order to claim an input tax credit on a supply in terms of the definition of ‘input tax’ in sec 1 of the VAT Act read with sec 7 of the VAT Act, output tax must have been paid by the person making the supply to the National Revenue Fund (in other words to South Africa’s fiscus) which requirement will not be met on the 15 per cent VAT paid to Namibia. In such an instance you would have to consider Namibia’s VAT Act to determine if your client may have a Namibian VAT refund from Namibia.

2. Liability for VAT before registration as a vendor

Q: I registered my company with CIPC on the 16th of April 2014 and for VAT on the 1st of April 2014. However, my VAT Registration Certificate (VAT103) says "you have been registered for VAT as from 16/04/2012 (which is the date for company registration with CIPC - not SARS). My question is whether the company is liable for VAT on transactions that occurred before it became a vendor. I am asking this because, according to Treasury, it is not legal to charge VAT on an invoice if you are not a vendor.

A: In your query you have stated that the company was registered for VAT as from the 16th of April 2012. It is assumed that this was a typing error and that the date refers to 16 April 2014. Sec 7(1)(a) of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’) determines that VAT must be levied in the following circumstances:

‘Subject to the exemptions, exceptions, deductions and adjustments provided for in this Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the value-added tax—

(a)   on the supply by any vendor of goods or services supplied by him on or after the commencement date in the course or furtherance of any enterprise carried on by him...’ (own emphasis added).

It is therefore made clear from sec 7(1)(a) that output tax must be levied by a ‘vendor’ on supplies made in the course or furtherance of an enterprise carried on by him. A ‘vendor’ is defined in sec 1 of the VAT Act as follow:

‘means any person who is or is required to be registered under this Act: Provided that where the Commissioner has under section 23 or 50A determined the date from which a person is a vendor that person shall be deemed to be a vendor from that date’. (own emphasis added).

It should be noted that it is the ‘person’ that must be registered for VAT. A person is defined in sec 1 of the VAT Act and includes a ‘company’. In order to determine if the person is required to register, one has to refer to sec 23 of the VAT Act. Sec 23(1) of the VAT Act sets out the compulsory registration requirements whilst sec 23(3) sets out the voluntary registration requirements. The crux of the matter comes in at sec 23(4) which determines the following:

‘Where any person has—

(a) applied for registration in accordance with Chapter 3 of the Tax Administration Act or subsection (2) or (3) and the Commissioner is satisfied that that person is eligible to be registered in terms of this Act, that person shall be a vendor for the purposes of this Act with effect from such date as the Commissioner may determine ...’ (own emphasis added)

Therefore, the company will be a vendor from the date that the Commissioner may determine in terms of sec 23(4)(a) of the VAT Act i.e. 16 April 2014. In your particular case, the vendor (the company) cannot be held liable for VAT before 16 April 2014, given the fact that SARS cannot invoke the provisions of sec 23(4)(b) because the company registered as a vendor from the moment it became liable (if the registration was made with prospective effect i.e. at the beginning of the month based on the value of taxable supplies during the following 12 months).

Conclusion

The company would only be liable to charge VAT on supplies that were effected on or after the date it is registered as a vendor in terms of the VAT 103. Supplies made before the date of registration, as reflected on the VAT 103, were not made by a ‘vendor’ as defined in sec 1 of the VAT Act and those supplies would consequently not fall within sec 7 of the VAT Act.


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