Non-residents could be liable for VAT registration
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.