Zero-rating of the supply of services to a non-resident – section 11(2)(l)
14 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: We have a
client that is a foreign entity and is not in the business of making VAT-able
supplies and are saying they are not obligated to become a VAT vendor. They are
stating we must issue them a zero-rated invoice. We asked if the client has an exemption
certificate and they stated that they do not need an exemption certificate
because they are usually only issued to non-profit entities, government
entities and the like. The services we
are providing are in South Africa and include content creation, media
relations, project management, consultancy, event conceptualization,
coordination and support and reporting.
They quoted the following to us as well:
In terms of the SA VAT act, services rendered in South
Africa that are rendered to a person/entity who is not a resident in the
Republic and who is not a VAT vendor in the Republic are deemed to be zero
rated (Section 11 (q)(ii)).
Further to that, section 11 (2)(l) goes on to further sum up
the scenario clearly, saying that any services, rendered in SA, to an entity
that is foreign, are zero rated as long as the services are not in connection
with land, immovable property or moveable property.
Do you agree with their stance?
A: The service
offered by SAIT is limited to guidance only.
The facts provided are not sufficient for us to provide the guidance
required. We don’t for instance know
what you mean by ‘foreign entity’, but submit that the only possible instance
where the rate of zero per cent may apply is section 11(2)(l) of the
Value-Added Tax Act. There is no
‘exemption certificate’ and we accept that the foreign entity is not registered
as a vendor in the RSA.
If we accept that services are not supplied directly in
connection with land or any improvement thereto situated inside the RSA, then
there are two issues which must be considered.
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 ‘foreign entity’ 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. Remember the relevant treaty as well.
The second issue then 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)). Please note that if these services are for
example rendered to a branch of a non-resident company, the non-resident has a
presence in South Africa while the services are rendered.
These services will qualify for the zero rate only if the
documentary requirements are adhered to (as required by section 11(3) of the
VAT Act). Table B of Interpretation Note No 31 (Issue 3) stipulates the
documentary requirements for exported services.
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