Warranty payment from an offshore supplier
03 March 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
The answer to this query
is based on legislation as at 2014/03/03.
Q: A South African vendor
imports flooring and decking from a supplier in China. After the
shipment arrived in SA and some of the product was sold
and installed at a customer's premises it was discovered that it was
defective. The product was removed and discarded, and the vendor
refunded the customer's payments. After lengthy correspondence the
Chinese supplier refunded +/- R100 000 to the South African vendor.
please let me know whether this +/- R100 000 "warranty" payment
from the offshore supplier is considered to be a taxable supply for the South
African vendor ie does the SA Vat vendor have to declare and pay Vat on this receipt? The only information which I have been able to find in this regard is an article which is more than ten years
8 of the VAT Act also provides for certain "deemed supplies”. These are
events or transactions which are regarded as being included in the meaning of
"supply”, for example – the
receipt of an indemnity payment under a contract of insurance; the supply of
the use, or right to use any goods; and the supply of goods or services under
a warranty agreement. The South African Revenue Service (SARS) is of the view
that where a RSA vendor supplies warranty repair services (including goods)
in the RSA and the vendor receives a warranty payment from a foreign
manufacturer/warrantor in terms of a warranty given by such foreign
manufacturer, the warranty payment will be subject to standard-rate VAT.
not 100% certain that a service was supplied but rather that it is a
repayment of the cost price of goods. I am of the view that one would have to
be familiar with the agreement between the two parties before one can properly
determine the nature of the transaction for VAT purposes.