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Local VAT vendor constructing in RSA for foreign company: VAT output and input

Thursday, 06 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: My client, a VAT vendor, is building a specialised structure for a foreign entity with no RSA presence. Based on the fact that the service will be supplied for building a fixed structure in South Africa, my client has to charge VAT. The foreign entity, however, is refusing to pay the VAT because they will not be able to claim it back as input VAT. Is there any way that the foreign entity can claim some sort of VAT (maybe customs?) back, thus enabling me to convince them to pay the VAT-inclusive amount?

Furthermore, the building project will take 18 months. On what basis, therefore, do I split the output VAT payment? Because if I pay all the VAT output in one month it will not be relative to the expenditure incurred therefore I will be receiving huge VAT refunds for the rest of the 18 month period.

A: Building of the fixed structure 

The only possible instance where the supply can be subject to the rate of zero per cent is where section 11(2)(l) applies.  That subsection requires that 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 non-resident 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.  

The next issue 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)).  

The rate of zero per cent (mentioned above) will however not apply if the services are supplied directly in connection with land or any improvement thereto situated inside the RSA (section 11(2)(l)(i)). As the structure will be built in South Africa we agree with you that the rate of zero per cent does not apply – it is a standard rated supply.  

The recipient can only make a deduction of the input tax if they are registered as a vendor in the RSA. Based on our assumption this is not the case, but we don’t know who will be using the fixed structure.  

The output tax

The Value-Added Tax Act requires (section 16(4)) that output tax in relation to a supply made by a vendor must be attributable to a tax period where a supply is made or is deemed to be made by him during that tax period.  The accounting for the output tax is therefore not influenced by when the input tax is deducted.  If the supply took place in the period the output tax must be accounted for in the same period.  

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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