Prior to the amendments, the VAT Act required any person who
carried on an enterprise in South Africa to register as a VAT vendor, where the
total value of taxable supplies made from the carrying on of such enterprise
exceeded or was reasonably expected to
exceed the R1 million threshold in a 12 month period.
Persons who did not meet the compulsory registration threshold were
entitled to voluntarily register for VAT where the total value of taxable
supplies made in a 12 month period had already exceeded R50 000. Where a person, as a result of regular or
continuous activities reasonably expected that taxable supplies with a value in
excess of R50 000 per annum will be made in the future, the person was also
entitled to register for VAT.
In practice, SARS rarely registered anyone for VAT without
detailed enquiry and explanation unless it could be proven that the VAT
thresholds of R1 million or R50 000 respectively had already been exceeded, or
there was a signed agreement in place in terms of which the applicant was
obliged to make taxable supplies exceeding R1 million per annum.
Registering for VAT has proven to be quite a frustrating process for
vendors and tax practitioners alike. The frustration stemmed in part from the
inconsistent documentary requirements applied by the SARS consultants at the different SARS branch offices,
and applications were often submitted numerous times before they were accepted. The onerous SARS
VAT registration process and procedures also resulted in significant time
delays for VAT numbers issued. The VAT registration
was generally made effective from a retrospective date, and the vendor was then
assessed for VAT, penalties and interest on all supplies made from the
effective date to the actual of date of registration.
In an effort to mitigate the problems associated with the VAT
registration process and to address the perceived risk of SARS regarding the
registration of illegitimate businesses, the following amendments to the VAT
registration provisions contained in the VAT Act have been introduced with
effect from 1 April 2014.
The predictive element associated with compulsory VAT registration
has now been removed in that only persons who have already made taxable
supplies exceeding the R1 million threshold, or persons who have a written
contractual obligation to make taxable supplies exceeding the R1 million threshold
in a period of 12 months, will be liable to register for VAT.
A new category
of compulsory registration relating to foreign suppliers of electronic services
has also been introduced. Foreign suppliers of electronic services will be required to register as VAT vendors if they make
taxable supplies in excess of R50 000 in a 12 month period. The regulations specifying what constitutes
‘electronic services’ for purposes of the VAT Act will, however, only come into
force on 1 June 2014. This has the effect that whilst the legislation is
effective from 1 April 2014, foreign suppliers of electronic services have
until 1 June 2014 to comply with their registration obligations. SARS has
centralised and simplified the VAT registration process for foreign suppliers of
electronic services who are obliged to register for VAT. As an example, they can apply for VAT
registration via e-mail and are not required to open a South African bank account
(the VAT Registration Guide for Foreign
Suppliers of Electronic Services refers - available on the SARS website).
A person may still voluntarily register for VAT where the person
has already made taxable supplies exceeding R50 000 in a 12 month period. A person may also now register voluntarily where
the person carries on an enterprise and has not yet exceeded the R50 000
threshold, but reasonably expects that the R50 000 threshold will be exceeded
within 12 months from the date of registration.
Such persons will be registered to account for VAT on the payments basis.
Once the value of taxable supplies has exceeded R50 000, that person must
account for VAT on the invoice basis unless the person qualifies to continue to
account for VAT on the payments basis.
A new category of persons entitled to register for VAT on a
voluntary basis are those persons that carry on an enterprise of a nature as
set out by the Minister in any regulation. The nature of the enterprise must be
such that it is only likely to result in the making of taxable supplies after a
period of time. The Minister has not yet published any regulations specifying
the types of enterprises that will qualify for registration under this category
even though this VAT amendment is applicable from 1 April 2014. The regulations are expected to include those
types of activities that require a considerable capital outlay at commencement,
but that are only expected to generate income from a future date, for example construction,
plantation farming, mining exploration and research and development enterprises.
A business wishing to register for VAT must
compile certain supporting documents and complete a VAT 101 application form
which must be submitted in person at the SARS
branch office nearest to
the place that the business is situated or carried on, within 21 days from the date of liability to
The VAT registration amendments sound simple
enough to comply with, but only time will tell whether the SARS VAT
registration procedures will be adopted in line with the object of the
legislation amendments to have the
desired effect of streamlining the VAT registration process, and alleviating
some of the frustrations experienced in the past.
This article first appeared on the May/June edition of Tax Talk.