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FAQ - 20 May 2014

Tuesday, 20 May 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. VAT treatment for non-resident providing commercial accommodation in SA

Q: A UK citizen and resident would like to purchase a property in Cape Town and rent it out as a holiday home. She would like to register for VAT. I have contacted SARS to find out if the representative VAT vendor can be a foreign citizen and the call centre was unable to assist me. For VAT registration, the representative VAT vendor needs to be present for the VAT interview at a SARS branch. My client will fly to South Africa to come with me to SARS. Will SARS accept the UK utility account as proof of residential address or does she have to be a South African resident? If SARS accepts the holiday home as commercial rental, can she claim the VAT on the purchase price of the property (input tax) in the first VAT return and receive a refund? If she sells the house she will then declare the VAT on the selling price as output tax and pay SARS? It is very unlikely that she will sell the house in the foreseeable future.

A: As per our telephonic conversation, it was held that the non-resident will buy a new property directly from a developer. It is assumed that the non-resident is not registered as a vendor. It should however be noted that the non-resident may be seen as a ‘Resident of the Republic’ as defined in sec 1 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’) due to it carrying on an enterprise in the Republic and having a fixed place of business in the Republic relating to such enterprise.

May the non-resident register as a vendor?

In order to become eligible to register as a ‘vendor’ as defined in sec 1 of the VAT Act, read together with sec 23 of the VAT Act, a person needs to carry on an ‘enterprise’ as defined in sec 1 of the VAT Act. In terms of proviso (ix) to the enterprise definition, a person will not be carrying on an enterprise where he/she supplies commercial accommodation stipulated in par (a) of the commercial accommodation definition in sec 1 of the VAT Act (such as holiday accommodation) if the total value of the taxable supplies for the preceding 12 months did not exceed R60 000 or if it is not expected that the total value of the taxable supplies will exceed R 60 000 during the in a period of 12 months.

Should the person carry on an enterprise, then he/she may be eligible to register in terms of sec 23 of the VAT Act. Given the fact that it is highly unlikely that a single property would have a turnover of over R 1 million during a period of 12 months, the person may register voluntarily in terms of sec 23(3)(b)(ii) on the payments basis if the value of the taxable supplies during the following 12 months is likely to exceed R 60 000 given the fact that the person is supplying commercial accommodation. Please note that the person will, in terms of sec 15(2B) be required to account for VAT on the invoice basis from the commencement of the tax period immediately following the tax period when the total value of the taxable supplies of that enterprise has exceeded R 50 000, which may lead to an adjustment in terms of sec 15(4),(5) and (7), unless the vendor (in your instance being a natural person) applies to the Commissioner in writing in terms of sec 15(2)(b) to remain registered on the payments basis. This will be possible where the total value of the vendor’s taxable supplies for a period of 12 months, ending on the last day of any month has not exceeded R 2.5 million or if it is not likely at the beginning of any month that the vendor’s taxable supplies would exceed R 2.5 million during the following 12 months.

VAT implications on the acquisition and disposal of the property

Proviso (i) to the ‘enterprise’ definition in sec 1 of the VAT Act holds that an enterprise would include ‘anything done in connection with the commencement or termination of any such enterprise or activity...’. The client would therefore be able to claim input tax on the acquisition of the house in terms of par (a)(i) of the ‘input tax’ definition in sec 1, read with sec 7(1)(a) and calculated in terms of sec 16(3)(b)(i). Sec 16(3)(b)(i) would entitle the person to claim input tax ‘to the extent that payments of any consideration which has the effect of reducing or discharging any obligation ... relating to the purchase price...’ for the supply. Please refer to sec 9(3)(d) for the relevant time of supply rules.

The disposal of the property would fall within the ambit of sec 7(1)(a) of the VAT Act and output tax would consequently have to be levied thereon calculated in terms of sec 16(4)(b) if the vendor is at that time still registered on the payments basis or sec 16(4)(a) if the vendor is at that time registered on the invoice basis. 

Can a representative vendor be a foreign citizen?

Sec 46 of the VAT Act holds that a representative vendor should be any natural person who resides in South Africa. Although the non-resident may be seen as a ‘resident of the Republic’ as defined in sec 1 of the VAT Act, she would still be liable to appoint a person residing in the Republic. Sec 46 does not disqualify a foreign person from acting as representative vendor, but it requires that the person must ‘reside in the Republic’. 

Registration as a vendor 

Please refer to p. 6, 15 and 18 of the SARS Guide for Completion of VAT Registration Application Forms 2013 for more information on the registration requirements which can be found at the following link:

It is however advised that you contact SARS in this regard to ensure that you conform to their latest registration requirements.

2. UIF on commission payments

Q: Do commission earners contribute to UIF?

A: Sec 4 of the Unemployment Insurance Contributions Act (No. 4 of 2002) (hereinafter referred to as ‘the UIC Act’) requires that the UIC Act applies to all employers and employees. An ‘employee’ is defined in sec 1 of the UIC Act as ‘any natural person who receives any remuneration or to whom any remuneration accrues in respect of services rendered or to be rendered by that person, but excludes an independent contractor...’ (own emphasis added). ‘Remuneration’ is defined in sec 1 of the UIC Act as ‘remuneration’ as defined in par 1 of the Fourth Schedule to the Income Tax Act (No. 58 of 1962) but par (c) of the definition of remuneration in the UIC Act excludes commission payments.

Given the fact that commission payments are excluded from the definition of ‘remuneration’ in sec 1 of the UIC Act, they would not fall within the provisions of sec 4 of the UIC Act and consequently no UIC would have to be contributed by the employee and employer on such payments. It should be noted that should an employee earn both a basic salary and commission, then it is submitted that UIC would only have to be calculated on the basic salary.

3. Possible tax implications of B-BBEE cash contributions

Q: My client is in the process of doing its B-BBEE Certificate and will be rated on enterprise development as one of the elements. It has been informed it needs to make a contribution of R 5 000.00 to a qualifying enterprise and it has now identified an enterprise with a black shareholding of 51%.

What would the tax implications would be for my client and what would they need from the enterprise to meet SARS’ requirements to claim it as an expense?

A: This guidance is solely based on ‘cash donations’ as a percentage of turnover made by companies in order to comply with their BEE requirements and does not in any way extent to share transactions.

In order to determine if these ‘BEE payments’ would be subject to donations tax, one needs to consider the definition of a ‘donation’ in sec 55(1) of the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’) which definition reads as follows ‘means any gratuitous disposal of property including any gratuitous waiver or renunciation of a right’. The word ‘gratuitous’ is not defined in the Income Tax Act and on therefore needs to consider the word within its ordinary grammatical meaning by making use of a dictionary. According to the Oxford online dictionary the word means ‘Done without good reason, uncalled for’. Furthermore, in CSARS v Estate Welch’s 66 SATC 303, the SCA held that a donation would only come into existence if it were motivated by ‘pure liberality’ (i.e. the quality of giving or spending freely) or ‘disinterested benevolence’ (kindness). From the above, it would appear as if the voluntary payments made to other organisations (albeit PBO’s or otherwise) to score a higher BEE rating, would not be motivated by pure liberality or disinterested benevolence. It was also not done without good reason and uncalled for as it is explicitly done in order to obtain a better BEE rating (ie. to obtain a quad pro quo). It can therefore be argued that these payments are not ‘donations’ for purposes of Part V of the Act and that no donations tax liability would subsequently come into existence on such payments.

For income tax purposes, you would have to consider whether these payments would be deductible in terms of sec 11(a) of the Act read with the negative tests contained in sec 23 of the Act. The challenge with sec 11(a) would come in where you need to prove that these payments are not of a capital nature in terms of sec 102(1)(b) of the Tax Administration Act. In New State Areas Ltd v CIR (1946 AD) it was held that one should establish whether expenditure forms part of the cost of performing the income-earning operations (in which case it would be income in nature) or whether the expenditure forms part of the cost of establishing, improving or adding to the income-earning structure (in which case the expenditure will be capital in nature). It was further held in CIR v George Forest Timber Co Ltd (1924 AD) at 526 that

‘... There is a great difference between money spent in creating or acquiring a source of profit, and money spent in working for it. The one is capital expenditure, the other is not...     

The reason is plain; in the one case it is spent to enable the concern to yield profits in future, in the other it is spent in working the concern for the present production of profit.’ (own emphasis added)

In your client’s particular instance, making these donations to obtain a higher BEE rating would enable it to secure tenders/better tenders in future. SARS may therefore argue that these payments would add to the company’s ‘income-earning structure’ and that it would create a ‘source of profit’ to the company and that it consequently classifies as expenditure of a capital nature.

However, by making use of the principles of Warner Lambert SA (Pty) Ltd v CSARS [2003] (65 SATC 346), it can be argued that these expenses are bone fide incurred for the performance of the taxpayer’s income earning operations as they are akin to insurance premiums which are incurred to protect the taxpayer’s income earning structure. In this case it was also held that empowerment costs incurred in terms of the Sullivan Code (an American code very similar to our empowerment code) were not of a capital nature as no capital asset was created or improved in the hands of the taxpayer. Please also refer to Binding Private Ruling 113 where SARS has held, subject to the application of sec 23H for the prepaid portion of the expenditure, that a programme where the taxpayer invested 4 per cent of its annual turnover into selected qualifying small black owned independent vendors over a period of seven years would qualify for a deduction in terms of sec 11(a) of the Act.

Should the expenditure be seen as income in nature, then it would qualify for a deduction in terms of sec 11(a) of the Act being expenditure actually incurred in the production of income, not of a capital nature. Should it be capital in nature, then no sec 11(a) deduction would be allowed.

Sec 18A of the Act would allow a deduction for any ‘bone fide donation’ made to a qualifying PBO. As stated above, the payments are made with the intention to receive something in return (i.e. a government tender as a result of its BEE status) and it would therefore not qualify as a donation and consequently no deduction in terms of sec 18A would be allowed even though it is made to a qualifying PBO.




Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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