Non-res­i­dents could be li­able for VAT reg­is­tra­tion

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Ferdie Schneider

A per­son who be­comes li­able to reg­is­ter for VAT must ap­ply for reg­is­tra­tion as a ven­dor with SARS

NON-RES­I­DENTS mak­ing Value-Added Tax (VAT) sup­plies in SA may be re­quired to reg­is­ter for VAT pur­poses. Non­res­i­dents can make VAT sup­plies in SA with­out hav­ing a per­ma­nent es­tab­lish­ment or be­ing phys­i­cal present in the coun­try. Non-res­i­dents could have a VAT reg­is­tra­tion li­a­bil­ity in SA with­out run­ning the risk of es­tab­lish­ing a per­ma­nent es­tab­lish­ment for in­come tax pur­poses.

A per­son who be­comes li­able to reg­is­ter for VAT must ap­ply for reg­is­tra­tion as a ven­dor with the South African Rev­enue Ser­vice (SARS).

Once reg­is­tered or re­quired to be reg­is­tered for VAT pur­poses, the non­res­i­dent com­pany will be obliged to charge and col­lect VAT from its clients on be­half of SARS and sub­mit a VAT re­turn and pay­ment to the au­thor­i­ties in re­spect of each tax pe­riod.

A non-res­i­dent com­pany who con­ducts an “en­ter­prise” for VAT pur­poses may be re­quired to reg­is­ter as a ven­dor where it sup­plies goods or ser­vices in SA and the value of these sup­plies ex­ceed or is ex­pected to ex­ceed R1m an­nu­ally.

To con­duct an “en­ter­prise”, the per­son must have an en­ter­prise or ac­tiv­ity; car­ried on con­tin­u­ously or reg­u­larly; in or partly in SA; in the course or fur­ther­ance of which goods or ser­vices are supplied for a con­sid­er­a­tion to an­other per­son; whether for profit or not. The ef­fect of this def­i­ni­tion is that all sup­plies of a busi­ness made any­where in the world may ini­tially be drawn into the South African VAT net if the busi­ness has ac­tiv­i­ties in the coun­try.

The VAT sys­tem then (from this al­most “all-in­clu­sive” point of view) uses ex­emp­tions and ex­cep­tions to carve out and deal with cer­tain ac­tiv­i­ties or sup­plies. The ef­fect thereof is to fi­nally ad­here to the des­ti­na­tion prin­ci­ple of VAT which seeks to tax fi­nal do­mes­tic con­sump­tion.

The VAT sys­tem deems the ac­tiv­i­ties of the lo­cal branch or main busi­ness to be car­ried on by a per­son sep­a­rate from the for­eign branch or main busi­ness (even though it com­prises one le­gal en­tity) where the lo­cal branch or main busi­ness can be sep­a­rately iden­ti­fied and keeps a sep­a­rate sys­tem of ac­count­ing from the for­eign or main busi­ness. Ac­tiv­i­ties be­tween a lo­cal branch or main busi­ness and a for­eign branch or main busi­ness can con­sti­tute sup­plies for VAT pur­poses, which may in cer­tain in­stances be sub­ject to the zero rate.

A for­eign com­pany which is re­quired to be reg­is­tered for VAT must ap­point a VAT rep­re­sen­ta­tive, who is a res­i­dent of SA.

Where a non-res­i­dent com­pany has, for ex­am­ple, en­tered into a con­tract un­der which it sup­plies or leases goods sit­u­ated in SA to an­other com­pany, the for­eign com­pany will be li­able to reg­is­ter for VAT, if the re­quire­ments are met.

Var­i­ous other sit­u­a­tions could pull a for­eign com­pany into the South African VAT net. For ex­am­ple, where a for­eign com­pany pro­vides ser­vices through a South African agent or re­ceives li­cense or roy­alty fees from South African li­censes or fran­chisees.

As the im­pli­ca­tions of each ven­ture may dif­fer, it is very im­por­tant to de­ter­mine whether a trans­ac­tion could give rise to a VAT reg­is­tra­tion li­a­bil­ity.

Where a non-res­i­dent com­pany is re­quired to reg­is­ter for VAT pur­poses, it must ap­point a rep­re­sen­ta­tive who must be a nat­u­ral per­son and a res­i­dent of SA and must as­sume re­spon­si­bil­ity for the VAT du­ties and obli­ga­tions of the com­pany.

Ac­count­ing firms would usu­ally not act as a VAT rep­re­sen­ta­tive for VAT reg­is­tered com­pa­nies but ful­fil the func­tion of ac­count­ing of­fi­cer and, in terms of such ap­point­ment, pre­pare and sub­mit the com­pany’s re­turns to SARS.

Cer­tain in­di­vid­u­als and law firms act as a rep­re­sen­ta­tive for VAT reg­is­tered com­pa­nies.

Where a non-res­i­dent com­pany be­comes li­able to reg­is­ter for VAT, a form VAT 101 must be com­pleted and sub­mit­ted to SARS. Once reg­is­tered, cer­tain du­ties and re­spon­si­bil­i­ties are im­posed on the com­pany’s fail­ure which could re­sult in penal­ties be­ing payable and pos­si­bly pros­e­cu­tion, ad­di­tional fines and/or im­pris­on­ment. A form VAT 101 must also be com­pleted when ap­ply­ing for VAT reg­is­tra­tion to­gether with the reg­is­tered and trad­ing name(s) of the com­pany; the com­pany’s fi­nan­cial year end and other re­quired de­tails.

A non-res­i­dent com­pany is deemed not to have ap­plied for reg­is­tra­tion un­til it has ap­pointed a VAT rep­re­sen­ta­tive in SA, opened a bank ac­count and fur­nished SARS with these par­tic­u­lars.

Where a non-res­i­dent com­pany im­ports and ex­ports goods, the com­pany must also be reg­is­tered as an im­porter and ex­porter.

When a non-res­i­dent com­pany is reg­is­tered or re­quired to be reg­is­tered for VAT pur­poses, it is obliged to charge the tax on all tax­able sup­plies of goods or ser­vices. The VAT charged by the com­pany to cus­tomers is called out­put tax.

Ferdie Schneider is a part­ner at KPMG Ser­vices.

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