Taxes that are levied by the national government of South Africa under the Income Tax Act 58 of 1962 (the Act) include the following:
• Normal tax also known as income tax;
• Provisional tax which forms part of income tax;
• Capital gains tax which forms part of income tax;
• Withholding tax on royalties; and
• Dividends tax.
1.1 Income Tax
South Africa has a residencebased income tax system which in practice means that:
• A resident’s worldwide taxable income is subject to income tax in South Africa; and
• A foreigner’s (a person that is not a resident) taxable income from sources within South Africa is subject to tax in South Africa as well. The South African government has entered into agreements for the avoidance of double taxation with various countries in order to prevent the same income from being taxed in both countries. Should the same income be taxed in more than on country, a credit will normally be allowed in the country of residence for the tax paid in the other country.
2.2 Resident
2.2.1 Companies & Other Entities
Based on the definition of the term “resident”, a person, other than a natural person, for example a company or a trust, will be a resident if it is incorporated, established or formed in South Africa or has its place of effective management in South Africa.
The place of effective management test for residency has been eliminated in the case of South African-owned foreign subsidiaries subject to the requirements, as set out in the definition of “resident” in the previous section, have been met.
2.2.2 Avoidance Of Double Taxation
A double taxation agreement (DTA) is an international agreement aimed at eliminating or providing relief from international double taxation. However, such agreements also enable exchange of information between tax administrations, provide for a mutual agreement procedure to assist in resolving any conflict arising out of the interpretation or application of the DTA and may allow for tax collection on the other tax administration’s behalf. The increasing interdependence and cooperation between economies in the modern world and cross-border trading make it necessary for nations to enter into such agreements, thereby providing not only security for a country’s residents in cross-border interactions but also encouraging outside investment.
It must be emphasised, however, that a DTA does not impose tax. Tax is imposed by a country’s domestic laws. A DTA’s purpose is to allocate taxing rights. Generally, such an agreement will provide for income to be taxed solely in one country or, if it remains taxable in both countries, for a taxpayer’s country of residence to be obliged to grant relief in terms of an article on elimination of double taxation.
In South Africa, should an amount qualify for relief in terms of said article, relief will be granted in the form of a credit. Reduced levels of withholding taxes, in situations where double taxation is permitted, are also provided for. A list of the DTAs in force in South Africa is available on the South African Revenue Services’ (SARS) website under Legal & Policy > International Treaties & Agreements > Double Taxation Agreements & Protocols.
As each DTA is unique, the relevant agreement must be consulted and the provisions therein adhered to. The SARS website also provides details of progress made with regard to DTAs currently being negotiated but not yet entered into force.
2.2.3 Unilateral Relief For Foreign Taxes Paid
The domestic tax legislation of each country will apply independently of each other where there is no DTA between the relevant countries. A resident who is both taxable in South Africa on income received from a foreign country and who is liable for tax in the foreign country on that income will be allowed a credit for the foreign tax paid against the South African tax liability. In order to qualify for this credit the taxes must have been payable to the government of a country other than South Africa, without any right of recovery of the tax payable.
It is necessary for a resident to submit proof of foreign taxes paid or payable. An assessment of the equivalent thereof, such as tax receipts or an official document, will generally be accepted as proof of foreign tax paid or payable. This rebate may be granted in substitution for, not in addition, to the relief to which a resident would be entitled under a DTA.
2.3 Investment Income & Dividends
Dividends received by or accrued to person, whether a resident or a non-resident, from South African resident companies are generally exempt from income tax. Foreign dividends received by or accrued to residents are generally subject to income tax. Residents may claim a credit for foreign tax paid by them on the foreign dividends against their South African income tax liability. The following are some of the specific exemptions relating to foreign dividends:
• Foreign dividends declared by a listed company, which complies with the definition of “listed company”, as defined in section 1(1);
• Foreign dividends received and the resident holds at least 20% of the total equity share capital and voting rights in the company declaring the dividend; and
• Foreign dividends received by or accrued to residents where a South African connection is present or a controlled foreign company (CFC) is involved.
2.4 Business Income
Business income received by or accrued to a non-resident from carrying on a trade or business within South Africa is taxable in South Africa. The taxability of the income may be affected by a DTA. Normally, profits will be taxed in the country of residence, unless the business is carried on in the other country through a permanent establishment. The term “permanent establishment” is defined in the DTA and generally means a fixed place of business through which the business of the enterprise is wholly or partly carried on.
2.5 Companies & Businesses
2.5.1 Tax Consequences For Companies
The shareholder of a company and the company are separate taxable entities. In addition, ownership of the company (ownership of the shares), and management of the day-to-day activities of the company are usually separate. Companies – other than gold-mining companies, small business corporations or micro businesses – pay tax on their taxable incomes at a flat rate. A company that is not a resident, as defined in the Act, and is carrying out trade within South Africa is taxed at a rate of 28% on income derived from a source within South Africa.
2.5.2 CFCs
A CFC is any foreign enterprise for which more than 50% of total participation rights in that exercisable, by one or more persons that are African residents, other than a company’s headquarters.
3. Provisional Tax
Provisional tax is not a separate tax, but refers to payments made or to be made by a provisional taxpayer to the commissioner in a manner provided for by the Act. A provisional taxpayer may include a company.
Provisional tax payments are based on a taxpayer’s estimated taxable income for a specific tax year. The final income tax liability for that tax year will be determined upon assessment. Payments are normally made by way of two payments, the first of which is usually within the period ending six months after the commencement of the year of assessment and the second payment on or before the last day of the year of assessment.
These payments alleviate the burden of one large amount being payable on assessment as it spreads the income tax burden over the tax year. Failure to make such payments may result in interest being levied and a penalty being imposed upon assessment. In the case of an overpayment of provisional tax, interest is payable to the taxpayer upon assessment.
4. Capital Gains Tax (CGT)
4.1 Introduction:
CGT was introduced in South Africa and went into effect on October 1, 2001 (referred to as the “valuation date”). CGT applies to the disposal by the taxpayer of an asset on or after that date. All capital gains and capital losses made on the disposal of assets are subject to CGT, unless excluded by specific provisions.
The eighth schedule contains the CGT provisions that determine what is a taxable capital gain or assessed capital loss. Section 26A of the Act provides that a taxable capital gain must be included in taxable income. Since CGT forms part of the income tax system, capital gains and capital losses must be declared on an annual income tax return.
4.2 Registration
A person who is already registered as a taxpayer for income tax purposes does not have to register separately for the purpose of CGT. A person who is not a resident and whose sole source of taxable income is composed of a taxable capital gain needs to register as a taxpayer at a SARS branch office. For example, this may occur when a person who is both not a resident of South Africa and has no South African-source income disposes of immovable property within the country.
4.3 Rates
For companies, 66.6% of the net capital gain is included in the firm’s taxable income and subject to income tax at the company rate of 28%.
5. Withholding Tax On Royalties
Financial sums received for the imparting of any scientific, technical, industrial or commercial knowledge or information, commonly known as “know-how” payments, are specifically included in the definition of the term “gross income” and are taxable.
A final withholding tax of 12% (or a lower rate that may be determined in a relevant agreement for the avoidance of double taxation) is payable on royalties or similar payments made to a person who is not a resident for the right of use or the grant of permission to use in South Africa:
• Patents, designs, trademarks, copyright, models, patterns, plans, formulas or processes or any property or right of a similar nature; or
• Any motion picture film, or any film or video tape or disc for use in connection with television, or any sound recording or advertising matter used or intended to be used in connection with such motion picture film, film or video tape or disc. The withholding tax must be paid to SARS within 14 days after the end of the month during which the liability to pay the royalty was incurred or the said payment was made. The above applies to royalties paid prior to July 1, 2013.
As of July 1, 2013 the following applies:
• The withholding tax increased to 15%;
• The liability for payment remains with the person making the payment of the royalty;
• The withholding of tax is triggered by the date that the royalty is paid or becomes due and payable;
• The amount of the royalty must be converted into rand at the spot rate on the day the royalty is paid or becomes payable;
• Overpayment may be refunded if the person paying the royalty lodges a claim for a refund within three years after the royalty is paid; and
• A royalty payment made to a non-resident who is physically present in South Africa during the tax year for more than 183 days, or has a permanent establishment in South Africa at any time during the tax year, is subject to normal tax and no withholding tax is to be deducted.
6. Dividends Tax
6.1 Introduction
Dividends tax applies to any dividend declared and/or paid by any company other than a headquarter company. Although dividends tax is part of the Act, it is a separate tax from income tax. In 2007 the Ministry of Finance announced that the Secondary Tax on Companies would be replaced with the dividends tax. Since the announcement, legislation has been enacted to provide a legal foundation for implementation of the tax. The dividends tax legislation went into effect on April 1, 2012.
6.2 Tax Liability
The liability for dividends tax is triggered by payment of the dividend, falls on the recipient (i.e., beneficial owner) of the dividend and is to be withheld from the dividend payment by either the company distributing the dividend or, where relevant, certain other withholding agents.
Dividends in specie is an exception to this general principle as the liability for the dividends tax remains with the company paying the dividend, and is not transferred to the recipient. There are also certain transactions that are deemed to be dividends for purposes of the dividends tax, such as where low or no interest is charged in respect to a debt that arose by virtue of a share held in a company.
6.3 Withholding Tax
The regulated intermediary or the company declaring the dividend withholds 15% of the value of the dividend. The dividends tax is a withholding tax and should be withheld from dividend distributions and paid to SARS by the company paying the dividend or, where the company makes use of a regulated intermediary, by the latter. The person liable for the dividends tax retains the ultimate responsibility to pay the tax should any of the withholding agents fail to withhold.
6.4 Exemptions To Dividends Tax
The dividend payments could be exempt from dividends tax depending on the nature or status of the recipient. The exemptions are elective in the sense that they will only apply where the company distributing the dividend or the regulated intermediary receives the required notifications (“declarations” and “undertakings” in the form prescribed by SARS) from the recipient prior to payment of the dividend.
The recipient needs to submit both of the following in order to qualify for an exemption:
• Declaration of beneficiary by SARS; and
• Undertaking by beneficiary owner to inform SARS of future changes. Where the notifications as indicated are not submitted in time, the withholding agent is required to withhold tax at the full rate. However, under these circumstances the beneficial owner has three years to submit the required notifications and claim a refund from the person who withheld the dividends tax from the dividend payment.
6.5 Reduced Rates For Foreign Dividends
Payments to foreign residents may be subject to a reduced rate where the relevant DTA between South Africa and their country of residence provides for such. This normally requires the foreign beneficial owner to be a company and to hold between 10% and 25% of the share capital of the South African company paying the dividend. In order to qualify, the foreign resident needs to declare his or her status (by way of a similar “declaration” and “undertaking” referred to above) to the company declaring the dividend or the regulated intermediary involve. If he or she does, then the withholding agent is required to withhold tax at the full rate, with similar refund rules as explained above in section 6.4 being applicable.
7. External Companies In South Africa
7.1 Requirements To Register As An External Company
The following details registration requirements and administration obligations for external companies. Under South Africa’s corporate legislation, the Companies Act 71 of 2008 (the “Companies Act”), companies that are incorporated in jurisdictions outside of South Africa must register as an external company with South Africa’s Companies and Intellectual Property Commission (the “Commission”) within 20 business days after they first begin to conduct business within South Africa. The Commission is the regulatory body that is largely responsible for regulating the Companies Act.
The Companies Act prescribes that a foreign company must be regarded as conducting business within South Africa if that foreign company is, inter alia, “a party to one or more employment contracts within South Africa”. Accordingly, by entering into an employment arrangement with Anamika Budree, the UK’s Western Digital Limited will be required to register as an external company in South Africa.
7.2 Registration Process
An external company must register by filing a CoR20.1 form with the Commission and the application must be accompanied by the following forms or documents:
• A certified copy of the company’s constitutional documents filed in the jurisdiction in which the external company is incorporated;
• A certified copy of the company’s certificate of incorporation or comparable document issued by the jurisdiction in which the external company is incorporated;
• If the constitutional documents or certificate of incorporation of the external company (or comparable documents filed in the jurisdiction in which the external company is incorporated) are not in an official language of South Africa, translations of these documents, including the translation certificate, must also be filed; and
• Certified copies of passports or identity documents of all directors of the external company. The COR20.1 form must set out the following:
• Address of its principal office outside of South
• The names of its directors at the time that it files that notice;
• The address of its registered office in South Africa
• The name and address of the person within South Africa who has consented to accept service of documents on behalf of the external company. Additionally, a filing fee of R400 ($37.88) is required to be paid for filing all the documentation necessary for registration with the Commission. It is likely that it will take between four and six weeks, depending on the Commission’s backlog, to receive a certificate back from the Commission confirming registration as an external company along with a registration number for the transaction.
A failure to register as an external company on the terms of the Companies Act within three months of commencing business in South Africa could result in the Commission issuing a compliance notice to the foreign company requiring it to register within 20 business days of receipt of the notice. If the enterprise fails to register within this time, the foreign company will then be required to cease carrying out its business or activities in South Africa.
Registration as an external company merely confirms that the foreign company in question is presented and conducts business in South Africa, as well as in its country of origin
7.3 Legal Nature Of An External Company
An external company is not a different legal entity from the foreign-based corporation. Accordingly, unlike in the case of a wholly owned South Africa incorporated subsidiary, the liability incurred or assets acquired by the external company will be the liability and assets of the foreign company. This means that the liabilities of an external company are not ring-fenced for the purpose of the foreign-based corporation. Similarly, the directors of such a corporation will be the directors of the external company.
7.4 Companies Act & External Companies
undefined An external company must continuously maintain at least one office in South Africa and register the address (and any changes thereto) of its office or principal office, if it has more than one office, initially by providing the required information upon registration and subsequently by filing a notice of change of registered office.
An external company must also ensure that it files an annual return in the prescribed form (COR30.3) and the prescribed fee (dependent upon the annual turnover of the external company) with the Commission within 30 business days after the renewal date of its registration as an external company. Failure to file annual returns for two successive years may result in the external company being deregistered. Additionally, the company must file a notice with a COR39 form within 10 business days after a person ceases to be a director of the external company, or after the company becomes aware that any information in regards to its directors has changed.
Should the details of the person within South Africa who has consented to accept service of documents on behalf of the external company change, a COR21.2 form will have to be filed advising the Commission of this change.
An external company is not legally required to prepare or maintain financial statements. In addition, an external company is not required to appoint an auditor or to lodge audited annual accounts with the Commissioner. Nevertheless, from a practical perspective, accounts will need to be drawn up by the external company for the purpose of submitting its South African tax return. SARS has in the past insisted that the accounts of South African branches be audited. The Companies Act also requires an external company to provide its full registered name or registration number to any person on demand, and it cannot misstate its name or registration number in a manner that is likely to mislead or deceive. A contravention of this section is an offence.
The Companies Act also requires that an external company approve, by special resolution agreed on by the shareholders of the external company, a fundamental transaction (i.e., a disposal of the majority of a company’s assets, a merger or a scheme of arrangement) in certain circumstances if the external company is a holding company of a South African subsidiary. An external company also falls within the ambit of the provision dealing with the protection of whistle-blowers who disclose contraventions of the Companies Act by an external company. 7.5.1 Public Officer: An external company is required to appoint a “public officer”, who must reside in South Africa. Although this may be open to dispute, SARS is currently interpreting this to mean that the public officer must be a tax resident in South Africa. Essentially, the public officer is the tax representative and will also be responsible for accepting services of all processes on the behalf of the external company in respect of tax matters.
A public officer is generally responsible for the company’s compliance with all of its tax obligations. These obligations include ensuring that the company’s tax returns are submitted to SARS in a timely manner and in the prescribed form, responding to any queries that SARS may have and ensuring that the taxes payable by the company are actually paid over by the company to SARS.
8. Employees Tax
Employees’ tax, which is also referred to as “Pay As You Earn”, is the tax that employers are required to withhold from the remuneration of employees and pay over to SARS on a monthly basis. Employees’ tax is a withholding tax on employment income and will be offset against the employee’s final income tax liability for the applicable year of assessment.
8.2 Registration
An individual who becomes liable for any income tax or who must submit an income tax return is required to apply to SARS for registration within 21 business days of becoming liable. A taxpayer must complete an IT 77 registration form. An individual who receives taxable income in excess of a specific amount – known as the “tax threshold” amount – in the year of assessment is liable for income tax.
8.3 Year Of Assessment
A year of assessment for an individual consists of 12 months beginning on the first day of March of a specific year and ending on the last day of February of the following year. Income tax returns must be submitted to SARS on an annual basis during the period announced by the Commissioner in the government gazette. Failure to submit income tax returns in a timely manner may lead to certain penalties which may be levied in terms of Chapter 15 of the Tax Administration Act. Returns may be filed electronically or manually.
8.4 Provisional Tax
Employees’ tax and provisional tax are not separate taxes, but they serve the purpose of helping to relieve the tax burden that would exist on assessment, by spreading the payments over multiple periods instead of one lump sum payable at the end of the year.
An individual who derives income that does not constitute remuneration (for example, taxable interest, rental or business income) must pay provisional tax. A provisional taxpayer is:
• Any individual who earns business income or farmthat he or she is a provisional taxpayer. A provisional tax return, known as form IRP6, must be completed by estimating the individual’s total taxable income for the year of assessment and determining the income tax payable on the estimated taxable income. The estimate may not be lower than the individual’s taxable income (as assessed by SARS) for the previous year of assessment, known as the basic amount, unless permission is obtained from SARS. An individual who has no assessed taxable income for a previous year of assessment must estimate his or her taxable income for the current year of assessment as accurately as possible.
Provisional tax is paid twice a year (or on a six-monthly basis). The first payment is due on the last business day in August and the second is due on the last business day of February the following year. A third, or “top-up”, payment can be made to avoid interest; this payment is due seven months after the end of the year of assessment.
8.5 Penalties
Individuals who do not comply with their financial and tax obligations may be liable to certain penalties. The two broad categories of penalties introduced under the Tax Administration Act (TA Act) on October 1, 2012 include:
• Administrative non-compliance penalties in terms of Chapter 15 of the TA Act, which is intended mainly to promote compliance with the administrative provisions of the TA Act; and
• Understatement penalties in terms of Chapter 16 of the TA Act, which is intended to punish and deter conduct that contravenes the law.
8.5.1 Administrative Non-Compliance Penalties
The fixed amount penalty may be levied when a taxpayer fails to comply with an obligation imposed by or under any tax-related legislation. Currently the only non-compliance that could be subject to this penalty is failure by a natural person to submit an income tax return by the due date.
These penalties are applicable for years of assessment commencing on or after March 1, 2006 where a person has two or more outstanding income tax returns for such years of assessment. Fixed amount penalties are payable at a fixed rate per month. The amount of the penalty is dependent on the amount of taxable income received by a taxpayer in the preceding year of assessment; or on whether that individual is in an assessed loss position.
8.5.2 Understatement Penalties:
Understatement penalties are levied in cases where more serious contraventions of a tax act take place. The penalty is levied in terms of a prescribed table if one of the understatements listed below takes place that either prejudices SARS or the fiscus:
• A default in rendering a return;
• An omission from a return;
• An incorrect statement in a return; and
• If no return is required, the failure to pay the correct amount of tax.
8.6 Interest
Interest at the prescribed rate may be charged under the following circumstances:
• If a taxpayer is late in paying his or her income tax that is due on assessment; or
• If the provisional tax is not paid in full within the applicable prescribed period.
8.7 Criminal Offences
Criminal offences relating to non-compliance could be committed if an individual does not comply with an obligation imposed under a tax act. These offences are committed if the person performs or fails to perform an act wilfully and without just cause. If convicted, the person is subject to a fine or to imprisonment for a period not exceeding two years. Offenses could be:
• Failure to register with or notify SARS of a change of particulars when required by law;
• Failure to retain records;
• Failure or neglect to submit a return or document to SARS or issue a document to a person a required by law;
• Failure to provide information, documents or material facts to SARS as and when required under a tax act; and
• Obstructing or hindering a SARS official in carrying out his or her duties.
Criminal offences related to tax evasion could be committed if a person intentionally evades tax or obtains an undue refund, or assists another person in such an endeavour. If convicted, that person may be subject to a fine or imprisonment for a period not exceeding five years. This category of criminal activity includes making false entries in books of account or returns without reasonable grounds for believing that entry to be true, providing false answers to information requests and fraud.
Criminal offences relating to filing a return without authority occur where a person:
• Submits a return or other document to SARS under a forged signature;
• Uses another person’s electronic or digital signature without that person’s consent; or
• Submits to SARS a communication on behalf of another person without that person’s consent. A person convicted could be subject to a fine or imprisonment for a period not exceeding two years.
9. Value Added Tax
9.1 Introduction
Value-added tax (VAT) is a transactional tax that is levied on various taxable supplies of goods and services. This is the tax that is borne by the end-users of those goods and services. This is simple because the registered VAT vendors are able to pay and/or claim back the tax portion that has been charged on a price of those goods and services supplied. The current tax rate charged is 14%.
9.2 Registration For VAT:
Any person (including a public authority, municipality, company or any body, corporate or incorporate, the estate of any deceased or insolvent person, any trust fund and any foreign donors) who carries on an enterprise as defined is mandated to register for VAT when the taxable supplies received for a period of 12 months exceeds the threshold of R1m ($94,700). Furthermore, any person who has an enterprise and taxable supplies that are worth more than R50,000 ($4735) for a period of 12 months may voluntarily register for VAT.
Only persons who make wholly or partially taxable supplies are required to register for VAT. All persons that are in the course or furtherance of the exempt supplies are not supposed to be registered for VAT. This is because exempt supplies are specifically excluded in the definition of an enterprise.
9.3 Registering For VAT After Threshold
Effective as of April 1, 2015, any person who is liable to register for VAT but is not registered and who is carrying on an enterprise as defined may not be able to recover the VAT portion that is payable to SARS on the supply made by him subsequently to the registration. Here we are referring to a person(s) who has concluded a contract agreement for more than R1m ($94,700), but has failed to register for VAT before the contract was concluded. Section 67(1) of the VAT Act requires that VAT should be imposed at the time of concluding the agreement and not after.
9.4 VAT Returns & Submission
Registered VAT vendors are required to submit their VAT 201 returns and account for VAT to SARS at a regular interval, or tax period. Depending on the total value of the taxable supplies made in the period of 12 months and the type of the industry the vendor is at, the tax periods varies from one month to 12 months. The VAT 201 returns should be submitted to SARS before the 25th of the following month of the tax period.
9.5 Claiming Input VAT
Input VAT is deductible against output VAT only when goods and/or services are acquired wholly or partly for the purpose of consumption, use or supply in the course of making taxable supplies. The vendor must be in possession of a valid tax invoice from the supplier to be able to claim input VAT. Vendors are not permitted to claim input VAT against personal expenditures.
9.6 Apportionment Of Input VAT
When the goods and/or services are acquired wholly for making taxable supplies, input VAT is deducted in full. When the goods and/or services are acquired wholly for making exempt supplies, input VAT is denied. When the goods and/or services are acquired to make both taxable and exempt supplies, section 17(1) provides that the input VAT must be apportioned. Before the input VAT is apportioned, the VAT vendor needs to determine the costs incurred that are directly attributable in making taxable supplies.
Once those costs are determined, apportionment needs to be made on the costs that are of mixed supplies. Direct attribution means that the expenditure was incurred either wholly for making taxable supplies, in which the case input VAT can be deducted in full, or wholly for making exempt or other nontaxable supplies, in which the case no input VAT is deductible. When the expenditure incurred cannot be directly attributed because it relates to both taxable and exempt and/or other non-taxable supplies, that expenditure must be apportioned. That means expenditures that need to be apportioned are general business overheads.
The process of applying direct attribution can be facilitated by the way in which an enterprise organises its different activities, one making taxable and the other making exempt supply. The apportionment ratio must be determined using a method that is approved by SARS. Since the November 2000 tax period, the only approved method which may be used to apportion input tax without specific written approval from the Commission is the turnover based method (TBM). This method is used as a default because there is usually a fairly good correlation between the turnover of a business and its resources.
However, there are circumstances where the TBM is not appropriate, proves impossible to use or does not yield a fair approximation. The vendor must approach SARS to obtain consensus on an alternative method that yields a more accurate result. In choosing the method, it must achieve a “fair and reasonable” result that is a proper reflection of the manner in which the vendor’s resources are applied.
TBM of apportionment constitutes binding general ruling No. 16 issued on March 25, 2013 in accordance with Section 89 of the Income Tax Act, 1962, also known as Act No. 58 of 1962. This binding general ruling went into effect on April 1, 2013 and will remain in force until withdrawn or replaced. TBM is expressed as follows: Y= A/(A+B+C) X 100 where Y= apportionment ratio; A= value of all taxable supplies (including deemed taxable supplies); B= value of all exempt supplies; and C= sum of any other amounts not included in A or B, which was received or accrued during the tax period in question.
9.7 Importation Of Goods & Services
The VAT Act defines what goods are and what services are. There is a difference in treating these components when imported for VAT purposes. Because goods are tangible, the Customs Act requires that they should be imported in 1/43 designated commercial ports in South Africa. Imported goods should be for consumption, use or supply in the course of making taxable supplies for input VAT to be claimable.
The vendor would need to hold valid documentations as prescribed by both the VAT Act and Customs Act. Furthermore, the vendor or his agent would have had to make payments for VAT and Customs to the Custom’s office in order to clear the goods through these designated commercial ports. Therefore, regular importers or their clearing agents can apply to obtain access to a deferment facility.
A deferment facility allows importers a credit facility with SARS for a specified amount for Customs duties and VAT payable. They will then need a valid contract agreement between SARS and the vendor and/or his clearing agent. SARS may require a bank guarantee in certain instances before issuing the deferment facility. Currently, vendors who are on an invoice basis and payment basis are required to furnish SARS with certain documentation. These documents support the claim of input VAT. Effective from April 1, 2015, the Customs office has modernised the Customs system, making it an automated workflow driven system. This will allow Customs and taxpayers to complete all clearance processes end-to-end without having to perform manual functions. Accordingly, paper-based documents are no longer generated and issued to vendors.
Imported services are defined as services offered by a supplier who is not a resident of South Africa or who conducts business outside of the country. These services are supplied to a recipient who is a resident in the country to the extent that those services are not used in the course of making taxable supplies. The recipient is therefore required to declare and make payment to SARS at the standard rate (14%). There are instances where VAT is not payable for services imported, e.g., services of a non-resident employee under employment contract or supply of educational services by an educational institution that is established in an export country that is regulated by an educational authority in that country.
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