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Zero-rating of VAT where a local (RSA) vendor performs service for RSA client in a foreign country

28 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q:  Just wanted to make sure that we can zero-rate VAT on exported services if the service is performed in outside the country by a RSA resident company, to the non-RSA office of a SA company. 

The contract is in rands and we invoice the SA company (situated in RSA) but we perform the service to one of its' branches/subsidiaries situated in an African country. 

A: The fact the contract is in rands is irrelevant to the issue.  Section 11(2) of the Value-Added Tax Act provides for two instances where the supply of services can be zero rated.  The first is section 11(2)(k) which applies where the services are physically rendered elsewhere than in the RSA.  You state that you supply ‘(perform) the service to one of its' branches / subsid(i)aries in Mozambique’ and we accept that the provision may apply.  Remember that where the rate of zero per cent apply, the documents to support that, as listed in Interpretation Note 31, must be obtained.  

Services physically rendered in the RSA to a person who is not a resident of the RSA can only be zero-rated if section 11(2)(l) applies and the required documents to prove this were obtained.  In this instance the company in Mozambique must NOT be present in the RSA at the time the service is 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)).  

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.


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