Local VAT vendor constructing in RSA for foreign company: VAT output and input
06 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: My client, a VAT
vendor, is building a specialised structure for a foreign entity with no RSA
presence. Based on the fact that the service will be supplied for building a
fixed structure in South Africa, my client has to charge VAT. The foreign
entity, however, is refusing to pay the VAT because they will not be able to
claim it back as input VAT. Is there any way that the foreign entity can claim
some sort of VAT (maybe customs?) back, thus enabling me to convince them to
pay the VAT-inclusive amount?
Furthermore, the building project will take 18 months. On
what basis, therefore, do I split the output VAT payment? Because if I pay all
the VAT output in one month it will not be relative to the expenditure incurred
therefore I will be receiving huge VAT refunds for the rest of the 18 month
A: Building of the fixed
The only possible instance where the supply can be subject
to the rate of zero per cent is where section 11(2)(l) applies. That subsection requires that the recipient
must be "a person who is not a resident of the Republic” (RSA) as defined in
section 1(1) of the Value-Added Tax Act - this is a defined concept and
basically requires that the non-resident must not carry on in the RSA any
enterprise or other activity and from a fixed or permanent place in the RSA
relating to such enterprise or other activity.
Our guidance assumes that the non-resident is not a resident of and does
not carry on an activity in the RSA. If
this assumption is not correct the guidance may not be appropriate.
The next issue is that the said person (the non-resident) or
any other person must not be in the RSA at the time the services are
rendered. In this instance the
non-resident must NOT be present in the RSA at the time the services are
rendered (section 11(2)(l)(iii)) for the rate of zero per cent to apply. If the non-resident is present in the RSA at
the time, the service will be standard rated (section 7(1)(a)).
The rate of zero per cent (mentioned above) will however not
apply if the services are supplied directly in connection with land or any
improvement thereto situated inside the RSA (section 11(2)(l)(i)). As the
structure will be built in South Africa we agree with you that the rate of zero
per cent does not apply – it is a standard rated supply.
The recipient can only make a deduction of the input tax if
they are registered as a vendor in the RSA. Based on our assumption this is not
the case, but we don’t know who will be using the fixed structure.
The output tax
The Value-Added Tax Act requires (section 16(4)) that output
tax in relation to a supply made by a vendor must be attributable to a tax
period where a supply is made or is deemed to be made by him during that tax
period. The accounting for the output
tax is therefore not influenced by when the input tax is deducted. If the supply took place in the period the
output tax must be accounted for in the same period.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.