VAT Connect Issue 5 (September 2015)

Various amendments affecting the VAT Act and the administration thereof were made in terms of the Taxation Laws Amendment Act No. 43 of 2014 and the Tax Administration Laws Amendment Act No. 44 of 2014 which were published on 20 January 2015 in GG 38405 and GG 38406 respectively. The amendments came into effect on 20 January 2015 unless otherwise stated:

The most important amendments are listed briefly below:

Electronic services – The VAT Act was amended with effect from 1 June 2014 to provide that certain non-resident suppliers of electronic services must register and account for VAT in South Africa. The different types of electronic services are set out in the Electronic Services Regulations which came into effect on 1 June 2014. This year the law was amended to clarify under which circumstances a supplier of electronic services is required to register and that they supply of such goods cannot be charged with VAT at the zero rate under any circumstances. Refer to the article “Electronic services” for more details.

Relief periods for temporary letting of dwelling by developers – Section 18B was introduced in January 2012 to provide a relief period until 31 December 2014 during which there was a suspension of the liability to declare output tax under section 18(1) for developers that temporarily let dwellings whilst continuing to hold the dwellings as trading stock for sale. The relief period has now been extended until 31 December 2017. Refer to the article “Temporary letting of dwellings” for more details.

Second-hand goods – Two legislative changes were made regarding second-hand goods. Firstly, the definition of “second-hand goods” was amended with effect from 1 April 2015 to exclude gold and goods containing gold. Secondly, section 16(2)(c) was amended to make it clear that a completed form VAT 264  is an integral part of the records referred to in section 20(8) which must be held by a vendor when deducting notional input tax on second-hand goods acquired. Refer to the article “Second-hand goods” for more details.

Imports and exports – The administration of certain rules regarding the import and export of goods from South Africa required some alignment between the VAT Act and the Customs and Excise Act. During 2014 the customs and excise legislative framework was fundamentally restructured by the introduction of the new Customs Control Act, 2014 and the Customs Duty Act, 2014 which are to replace the existing Customs and Excise Act. These new Acts will, however, only come into effect from a future date. Certain new definitions which were introduced and textual amendments which had to be made to the VAT Act, in this regard, will also come into effect on the said future date.

Timing of input tax deduction on importation of goods – Various provisions in the VAT Act were amended with effect from 1 April 2015 to allow a vendor to deduct input tax on imported goods as long as those goods have been released by Customs and provided the relevant documentary proof is held. Refer to the article “Input tax on imported goods” for more details.

Duties and responsibilities of agents – Section 54 was amended with effect from 1 April 2015 to provide that an agent must issue a tax invoice within 21 days of making a supply on behalf of a principal if the agent is required to do so. Furthermore, an agent importing goods on behalf of a principal is, where the agent holds the bill of entry, required to issue a statement to the principal containing certain particulars in regard to importations for a particular period. Refer to the article “Input tax on imported goods” for more details.

Farming inputs – The zero rating under section 11(1)(g) which applies in respect of the purchase of agricultural, pastoral or other goods described in Part A to Schedule 2 for farming purposes will be repealed with effect from a future date. The date will be determined by the Minister of Finance and published by way of a notice in the Government Gazette, but this will not be before 20 January 2016. The exemption in respect of the importation of such goods in Paragraph 7 to Schedule 1 will also be repealed from the same date. In the meantime, and until the Minister determines the applicable date of repeal, the zero rating for certain farming inputs and the associated exemption on importation of those goods will continue to apply.

Elimination of Category F tax period – With effect from 1 July 2015, the four-monthly tax period known as “Category F” for small business is no longer available. Vendors registered under this category were absorbed into the Category B tax period. (bi-monthly).

Bargaining councils – Section 12(ℓ) provides that certain supplies made by bargaining councils to their members are exempt from VAT. The exemption was previously limited to situations where the supplies were covered by membership contributions.

In addition to the changes to the VAT Act mentioned in “Law Amendments” , proposed amendments contained in the 2015 Draft Taxation Laws Amendment Bill (TLAB) and the draft Tax Administration Laws Amendment Bill (TALAB) were published for public comment on 22 July 2015.

The 2015 Draft TLAB and TALAB as well as the Explanatory Memoranda can be found under “Preparation of Legislation” on the “Legal & Policy” page on the SARS website. The due date for comments was 24 August 2015.

The Regulations as contemplated in sections 23(3)(d) dealing with voluntary registration were published on 29 May 2015 as Government Notices GN R.447 and GN R.446 in Government Gazette No. 38836.

GN R.447 deals with section 23(3)(b)(ii) in terms of which an applicant may apply to the Commissioner for registration where the total value of taxable supplies made or to be made by the applicant can reasonably be expected to exceed R50 000 within a period of 12 months. In these cases, the Regulation sets out various circumstances which may be taken into account in order to determine whether or not the requirements for voluntary registration have been met.

Some of the factors which the Commissioner will consider in this regard include:

• Historical information about the value of taxable supplies made in the recent past
• Financing agreements for the expenditure incurred or to be incurred for purposes of the enterprise
• Expenses actually paid or incurred for the purposes of commencing the business
• Any written contract which shows that the person has an obligation to make taxable supplies in excess of the minimum threshold of R50 000.

GN R.446 deals with section 23(3)(d) where, due to the nature of the business activities, it is likely that taxable supplies will only be made after a period of time. In these cases it will not be necessary to demonstrate when the R50 000 registration threshold will be met, since taxable supplies are only likely to be made after a period of 12 months. The Regulation lists the qualifying categories of businesses and describes the activities which need to be continuously or regularly carried on in order to qualify for registration under this section.

Below is a brief description of the applicable categories of business activities:

• Agriculture, farming, forestry and fisheries
• Mining activities involving the exploration or extraction of natural resources such as minerals, oil, gas or metals
• Ship and aircraft building activities
• The manufacture or assembly of plant, machinery, locomotives and motor vehicles
• Property development involving the construction of buildings for sale or to be leased (provided the supplies concerned are not exempt under section 12)
• Infrastructure development exceeding R1 million in value which is required for the purposes of conducting the applicant’s enterprise, for example, in the form of buildings or installations which will take more than 12 months to complete from the date of commencement of the development
• Beneficiation of natural resources extracted as a result of a mining process which enhances the properties of the extracted product.

In these cases, the applicant must satisfy the Commissioner that the enterprise activities contemplated fall within the categories of business described in the Regulation and that any other requirements mentioned therein, have or will be met. This includes confirmation that the necessary license or authorisation to carry on the activity is held by the applicant (if required), or that application in that regard has been made to the relevant authorities.

For further details refer to “Secondary Legislation” on the Legal & Policy page of the SARS website

​As mentioned in “Law Amendments”, two changes were made with effect from 1 April 2015 in regard to the application of the law concerning the supply of electronic services by non-residents.

The requirements for compulsory registration were modified to clarify that a non-resident supplier of electronic services that makes supplies in excess of the R50 000 threshold is liable to register and account for VAT in South Africa if any two of the following three circumstances are present:

1. Electronic services are supplied to South African residents
2. Payment for such electronic services originates from a South African bank account
3. The recipient has an address (e.g. residential, business or postal) in South Africa.

(Before this amendment, a non-resident supplier of electronic services had to register for VAT if either of the first two requirements were met.)

Section 11 was also amended to make it clear that the supply of such electronic services cannot be charged with VAT at the zero rate under any circumstances.

In addition to the above amendments, BGR 28 – Electronic Services was issued on 26 March 2015 and deals with a number of issues concerning prices and invoicing for electronic services. It provides-

• That a tax invoice, debit note or credit note issued by a non-resident supplier of electronic services must contain certain minimum information for the purposes of meeting the documentary requirements for the deduction of input tax on the supply;
• The acceptable sources of exchange rate information which may be used in converting the tax charged as at the time of supply into Rand; and
• Permission for a non-resident electronic services supplier to advertise or quote VAT – exclusive prices as long as the vendor’s website indicates that VAT will be charged at the standard rate to South African recipients.

Refer to BGR 28 for further details.

The definition of second-hand goods specifically excludes gold coins that are subject to VAT at the zero rate. With effect from 1 April 2015 the definition was further limited to exclude gold and goods containing gold. The effect is that dealers in second-hand gold, gold jewellery or other products containing gold will no longer be entitled to deduct notional input tax when purchasing these goods from non-vendors. The amendment is part of a package of measures introduced to prevent the invalid deduction of input tax. It is also aimed at addressing certain compliance issues which are prevalent in this industry, such as the issuing of fraudulent tax invoices and the misrepresentation of transactions involving illegally mined gold as being purchases of second-hand jewellery.

On a separate issue concerning input tax on second-hand goods, section 16(2)(c) was amended to make it clear that a vendor is required to be in possession of the declaration by the seller on a prescribed form (VAT 264)  when making a deduction of input tax on second-hand goods purchased under a non-taxable supply. A completed form VAT 264 is therefore an integral part of the records referred to in section 20(8). Dealers in second-hand goods must ensure that the form is completed and signed by the relevant parties for each transaction and that it is maintained as part of the business records.
 
Form VAT 264 is available on the SARS website under “Find a form”.

​Last year the VAT Act was amended to clarify that a vendor may only be allowed an input tax deduction in the tax period in which the VAT on the importation of goods acquired for taxable purposes has actually been paid to SARS. The deduction is subject to the vendor (or that vendor’s agent) being in possession of the relevant bill of entry or other document prescribed under the Customs and Excise Act as well as the receipt for the payment of the VAT. This year two further amendments were made with effect from 1 April 2015.

The first change is that the VAT payable on the importation of goods can now be deducted during the tax period when the goods are released by Customs. The second change deals with a situation where goods are imported by a vendor (the principal) by making use of an agent in circumstances where the agent holds the records.

The documentary proof required in order to deduct input tax in this regard, will be set out in a Binding General Ruling.

In “Law Amendments”, we mentioned that the relief period for the temporary letting of dwellings for a maximum period of 36 months by developers under section 18B had been extended from 31 December 2014 until 31 December 2017. In those cases where the temporary leasing period of 36 months spans the previous cut-off date of 31 December 2014, no output tax adjustment is required. However, this is on condition that the dwellings concerned are still only temporarily let and  that the developer continues to treat the dwelling concerned as trading stock which is available for sale.

Section 18B was introduced from 10 January 2012 as a temporary measure to provide temporary relief to developers that were having difficulty in selling some of their newly developed dwellings due to the slump in the property market at the time. The relief measure had the effect of delaying the liability to make the output tax adjustment under section 18(1) on the full open market value of the rented dwellings, provided the dwellings concerned were only temporarily let. In order for the developer to make use of the relief, the developer must be able to show that the initial intention was to develop the dwellings for sale, and that there is a continuation of that intention during the relief period.

The relief may continue to apply in respect of dwellings that have been temporarily let until one of the following events occurs:

• The temporary letting period for the dwelling concerned has exceeded 36 months
• The relief period expires (the extended date being 31 December 2017)
• The developer permanently changes the intention for which the dwellings are held from taxable purposes to non-taxable purposes
• The developer permanently applies the dwellings concerned for non-taxable purposes.

The relief mechanism enables qualifying developers to continue deducting input tax on the ongoing costs associated with holding newly developed dwellings for taxable purposes whilst they are actually applied (albeit temporarily) for exempt supplies. This will include, for example, marketing costs associated with the sale of the dwelling, but will not include costs such as agent’s fees for concluding a lease agreement or collecting rent which are directly attributed to the exempt leasing activity.

Keeping these factors in mind, it should be clear that the relief does not apply (or will cease to apply) if, during the relief period in which a newly developed dwelling was temporarily let, the developer permanently changes the intention from taxable to non-taxable purposes, or permanently applies the dwelling for non-taxable purposes. For example, if a newly developed dwelling was temporarily let and subsequently used by the developer as a private residence, the relief will immediately cease.

For further commentary on this topic, refer to paragraph 8.6 in Chapter 8 of the VAT 409 – Guide for Fixed Property and Construction which is available under “Find a guide” on the “Legal & Policy” page on the SARS website.

Registration as a Foreign Electronic Supplier Enterprise:

• Download a copy of the VAT registration form which is available on the SARS website www.sars.gov.za
• Complete the form and together with the supporting documents listed below, submit to SARS by emailing these to [email protected].

• A copy of the certificate of incorporation
• Proof of registration with Foreign Tax Authority
• Copy of identity document or passport of the appointed foreign representative or specified contact person with regard to the registration application
• Copy of recent bank statement from the South African registered bank where South African banking details are provided.

Registering for eFiling

•  To register for eFiling:

  • Navigate to www.sarsefiling.co.za and click on Register
  • Select the applicable option, Individual or Organisation
  • Read and accept the terms and conditions and complete all relevant fields to register.

Submitting your VAT return

• A foreign electronic supplier enterprise   is required to submit VAT201s and make payment of any VAT to SARS in accordance with the tax period allocated by SARS to the foreign electronic supplier enterprise. Generally, this would be the ‘Monthly tax period’, where the foreign electronic supplier enterprise   is required to submit VAT201s for each month of the calendar year and make VAT payments accordingly.
  
   
• The VAT201 must be submitted and the payment must be made by the last business day of the month after the end of the foreign electronic supplier enterprise’s tax period. For example, if the tax period ends on 30 June 2014, the foreign electronic supplier enterprise   has until 31 July 2014 to submit their VAT201 and make the SA VAT payment. Please note that, if the due date for payment is on a Saturday, Sunday or a public holiday, the VAT201 and the payment must be submitted in enough time so that it is received by SARS by no later than the last working day before the due date. Failure to pay the VAT within the prescribed period will result in penalties and interest being imposed by SARS. For ease of reference, the date by which the VAT201 must be submitted and SA VAT paid to SARS is reflected on the VAT201.

Making your VAT payment

•  The foreign electronic supplier enterprise is required to use the SWIFT MT103 payment method when paying the VAT to SARS. 
  
  
• VAT payments made electronically into the SARS bank account must be in accordance with the new beneficiary ID process, using the following beneficiary account ID/account number when paying SARS from outside South Africa: SARS-FOR-999 must be used as the bank account number when completing a SWIFT 103 message.
  
   
• As in the case of all electronic payments, it is imperative that the correct payment reference information is provided to ensure that payments can be easily identified and correctly allocated upon receipt by SARS. The standard payment rules for electronic payments apply.

Invalid and incomplete tax invoices

• Suppliers issue valid tax invoices as required by the law; and
• Input tax is only claimed where you are in possession of valid tax invoices for the supplies concerned.

Obligation for suppliers to issue tax invoices

VAT Returns and Payments

• Prepare their returns and calculate the VAT liability/refund for a tax period accurately
• File/submit their VAT returns on time even if the return concerned is a NIL return
• Make their VAT payments on time.

Since the last issue of VAT Connect the following VAT documents have been published on the SARS website:

Interpretation Notes (INs)

• IN 81 – Supply of goods and services by professional hunters and taxidermists to non-residents – issued on 12 March 2015. IN 81 (Issue 2) was published shortly thereafter to clarify that Practice Note 13 of 6 September 1994 dealing with the same topic as IN 81 had been withdrawn.
• IN 82 (issue 2) – Input Tax on Motor Cars was issued on 26 March 2015.
• IN 83 – Application of Sections 20(7) and 21(5) was issued on 26 March 2015. Issue 2 of the Note was issued shortly thereafter to clarify that VAT Practice Note 2 of 25 September 1991 was withdrawn.
• IN 84 – The Value-Added Tax Treatment of Bets was issued on 12 March 2015.
• IN 85 – The Master Currency case and Zero-Rating of Supplies Made by Non-Residents was issued on 27 March 2015.

Binding General Rulings (BGRs)

• An updated version (Issue 3) of BGR 4 – Apportionment Methodology to be applied by a Municipality was issued on 27 March 2015.
• An updated version (Issue 2) of BGR 16 – Standard Apportionment Method was issued on 30 March 2015.
• BGR 26 – VAT Treatment of Supply and Importation of Herbs was issued on 30 March 2015.
• BGR 27 – Application of Sections 20(7) And 21(5) was issued on 26 March 2015.
• BGR 28 – Electronic Services was issued on 26 March 2015.

Guides

• An updated version of the VAT 404 – Guide for Vendors was issued on 31 March 2015.
• VAT 413 – Guide for Estates which was circulated for comment last year was published as final on 27 March 2015.