FAQ - 18 October 2016
18 October 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Does a local distributor have to charge VAT when invoicing a foreign supplier?
Q: A foreign supplier requires has employed a local distributor as an account manager and will pay a salary to the local distributor. Will the local distributor charge VAT when invoicing the foreign supplier?
A: The local supplier, we accept the supplier is a vendor, will certainly be making a taxable supply (the rendering of a service). The supply is therefore a taxable one and the issue is then whether the rate of zero per cent can be applied.
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 was obtained (section 11(3)). Please refer to Interpretation Note 31 (Issue 3) regarding the documents that are required in order to substantiate the entitlement to apply the zero rate.
If we accept that services are not supplied directly in connection with land or any improvement thereto situated inside the RSA, there are two issues which must be considered.
The recipient must be “a person who is not a resident of the Republic” (RSA). This is a defined concept and basically requires that the ‘non-resident company’ 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. The definition of “a person who is not a resident of the Republic” includes a company.
The second issue then is that the said person (the non-resident company) or any other person must not be in the RSA at the time the services are rendered. If the non-resident is present in the RSA at the time, the service will be standard rated (section 7(1)(a)). You refer to staff and directors – we don’t know if they are in the RSA and what the nature of the service rendered to them is.
2. Can a recoupment be rolled-over where there is no capital gain in terms of para 65 or 66?
Q: A client's machine was destroyed in a fire. The amount paid out by the insurance company is less than the original cost (i.e. base cost) therefore the taxpayer cannot elect for para 65 or 66 to apply. As result the provisions of section 8(4) (eA) to (eE) cannot be applied.
A: As the asset involved qualified for a capital deduction or allowance (see paragraph 66(1)(c) of the Income Tax Act) we submit that the election is to be made under paragraph 66.
The relevant requirement, which is the same as the one in paragraph 65, is then that “the proceeds received or accrued from that disposal are equal to or exceed the base cost of that asset”. It is not that the proceeds exceed the base cost and it is more likely than not (in your instance) that the proceeds would be equal to the base cost and that the election is available.
3. Is turnover tax in lieu of personal income tax for an individual?
Q: If a taxpayer is registered for turnover tax and was a freelancer then went to work for a company and paid PAYE received an IRP5 at the end, then went back to freelancing- can you submit an Income tax return and a turnover tax or how would one incorporate the IRP5 into the turnover tax form?
A: In terms of the Income Tax Act, the individual concerned will have to submit both a return of income (an ITR12) in respect of the remuneration and other income derived and a turnover tax form (in respect of his taxable turnover). We accept that the individual didn’t elect to be deregistered as a micro business – see paragraph 9 of the Sixth Schedule to the Income Tax Act.
It is not correct to say that the turnover tax is in lieu of the other taxes. It merely provides an exemption (see section 10(1)(zJ)) in terms of which, any amount received by or accrued to or in favour of a registered micro business, from the carrying on of a business in the RSA, other than an amount received by or accrued to a natural person registered as a micro business that constitutes—
(i) investment income as defined in paragraph 1 of the Sixth Schedule; or
(ii) remuneration as defined in the Fourth Schedule;
will be exempt from normal tax.
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.