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Must a VAT vendor levy VAT on construction work done outside SA?

23 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: My client is a builder, performing construction work in Ghana for a South African company. The treatment of VAT in this case is our problem:

a) Should he levy VAT on the invoices rendered to the South African company, or can the job be regarded as export?

b) If he must levy VAT, how will he claim back the 15% on materials bought in Ghana?

I was advised that he should levy VAT on his invoice. Also that he should complete a document at the border listing all the invoices in respect of materials bought, and that SARS will then allow the deduction of the VAT thereon, as they get refunded the amount by Namibia.

A: Must VAT be charged on the invoice provided to the South African company?

 Sec 11(2)(f) of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’) provides the following:

‘Where, but for this section, a supply of services would be charged with tax at the rate referred to in section 7 (1), such supply of services shall, subject to compliance with subsection (3) of this section, be charged with tax at the rate of zero per cent where—

the services are supplied directly in connection with land, or any improvement thereto, situated in any export country ...’ (own emphasis added).

Sec 11(2)(f) of the VAT Act therefore provides that services rendered directly in connection with ‘land, or any improvement thereto’ situated in an ‘export country’ would be zero-rated. It should be noted that sec 11(2)(f) does not distinguish between whether the services should be rendered to a non-resident or to a resident and it is consequently available even though the services are rendered on behalf of a South African resident – as long as the services are rendered in an ‘export country’ in connection with land situated therein. An ‘export country’ is defined as follow in sec 1 of the VAT Act:

‘means any country other than the Republic and includes any place which is not situated in the Republic ...’ (own emphasis added)

It would therefore seem as if the services rendered in Namibia may be subject to VAT at the zero rate in terms of sec 11(2)(f), subject to the documentary requirements in terms of sec 11(3) which reads as follows:

‘Where a rate of zero per cent has been applied by any vendor under the provisions of this section, the vendor shall obtain and retain such documentary proof substantiating the vendor’s entitlement to apply the said rate under those provisions as is acceptable to the Commissioner.’

The documentary requirements for the zero-rating are set out in Interpretation Note No. 31 (Issue 3). Please find the Interpretation Note as attached.

If VAT must be levied, will he be able to claim back the 15% on the materials bought in Namibia?

In principle, irrespective of whether a person levies VAT at the standard rate or zero-rate on a supply made by it, it may be entitled to claim back input tax if the respective requirements of the VAT Act have been met and if VAT was charged at 14 per cent on the goods or services supplied to it. This is as a result of the definition of ‘input tax’ which requires the goods or services to be acquired to supply ‘taxable supplies’, which definition includes both standard-rated and zero-rated goods.

‘Input tax’ is defined in sec 1 of the VAT Act as follow:

‘... tax charged under section 7 and payable in terms of that section by—

(i)            a supplier on the supply of goods or services made by that supplier to the vendor;

 where the goods or services concerned are acquired by the vendor wholly for the purpose of consumption, use or supply in the course of making taxable supplies or, where the goods or services are acquired by the vendor partly for such purpose, to the extent (as determined in accordance with the provisions of section 17) that the goods or services concerned are acquired by the vendor for such purpose.’

The definition of ‘input tax’ therefore states that input tax may be claimed on a ‘tax charged under section 7 and payable in terms of that section’. In this case, the relevant portion of sec 7 of the VAT Act states the following:

‘...there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the value-added tax ...’ (own emphasis added)

Therefore, in order to be able to claim an input tax on a certain expense, the output tax included in the said expense must be levied and ‘paid for the benefit of the National Revenue Fund’. For example, if A buys goods from B to construct a building, then B must have levied output tax at 14 per cent on that supply for the benefit of the National Revenue Fund in order for A to be entitled to claim an input tax credit. Should this not be the case, then no input tax may be claimed on an expense in terms of the definition of ‘input tax’ in sec 1 of the VAT Act, read with sec 7 of the VAT Act. Therefore it would not seem as if VAT at 15 per cent paid to Namibia will qualify for an ‘input tax’ credit from SARS as it was not paid for the benefit of the National Revenue Fund – it was paid for the benefit of Namibia’s Revenue Fund.

It may however be possible for your to obtain a refund/claim input tax from Namibia in terms of the Namibian VAT legislation for the Namibian VAT included in the prices of the goods and services that it uses in its building venture in Namibia, but guidance in that regard falls beyond the scope of this platform. It is therefore advised that you or your client also make use of the services of a Namibian tax practitioner to ensure the correct VAT treatment from a Namibian perspective.


From the facts provided, it would seem as if the service may be exempt in terms of sec 11(2)(f) of the VAT Act. In order to claim an input tax credit on a supply in terms of the definition of ‘input tax’ in sec 1 of the VAT Act read with sec 7 of the VAT Act, output tax must have been paid by the person making the supply to the National Revenue Fund (in other words to South Africa’s fiscus) which requirement will not be met on the 15 per cent VAT paid to Namibia. In such an instance you would have to consider Namibia’s VAT Act to determine if you may have a Namibian VAT refund from Namibia.

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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