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South Africa: Proposal to amend VAT treatment of cross-border leases of ships, aircraft, rolling stock

South Africa: VAT treatment of cross-border leases

A pending legislative proposal would revise the value added tax (VAT) treatment of cross-border leases of foreign-owned ships, aircraft, and rolling stock imported for use in South Africa.


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Lessors of foreign-owned ships, aircraft, and rolling stock that agree to lease these goods for use in South Africa are deemed to "conduct an enterprise" in South Africa for VAT purposes.

Historically, the South African Revenue Service (SARS) Commissioner issued various tax rulings with regard to the terms of section 72 of the VAT law. In those rulings, the SARS Commissioner ruled that such foreign lessors were not required to register as vendors in South Africa for VAT purposes, and that the lessees were obliged to declare and pay the VAT on importation of these goods.

Section 72 of the VAT law was amended (effective 21 July 2019) and the revised section 72 introduced a number of new requirements to be satisfied before the SARS Commissioner can issue tax rulings. The result has been that all rulings issued prior to 21 July 2019 and relating to the VAT treatment of cross-border rentals of foreign-owned ships, aircraft, and rolling stock for use in South Africa will cease to be valid after 31 December 2021.

Furthermore, SARS rulings for which the ruling applications were made after 21 July 2019 must comply with certain new requirements under section 72 (as amended). These tax rulings will also cease to be valid after 31 December 2021. Moreover, it further seems that SARS has been anticipating the repeal of section 72 after 31 December 2021.

Proposed change in pending bill

To address and alleviate the necessity for multiple tax ruling applications in these circumstances, a provision of pending legislation (Taxation Laws Amendment Bill [B27 – 2020]) proposes to change the definition of “enterprise” as used in the VAT law. For these purposes, the term "enterprise" under the VAT law would be amended to provide that when a lessor is neither a resident of South Africa nor a registered vendor, and that lessor supplies the goods (ships, aircraft, and rolling stock) under a cross-border leasing agreement, then the lessor is not required to register for VAT in South Africa, provided that:

  • The supply is made to a recipient (i.e., a lessee) that is a resident of South Africa;
  • The goods being supplied are for use by the lessee wholly or partly in South Africa; and
  • The lessee and lessor have greed in writing that the lessee will enter the goods for domestic consumption and pay the VAT on importation; and the lessee will not be reimbursed by the lessor for any of the VAT paid.

As proposed, the amendment would have an effective date of 1 April 2021. 

Read a November 2020 report [PDF 114 KB] prepared by the KPMG member firm in South Africa

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