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South Africa: VAT apportionment calculations for “mixed supplies” and dividends

South Africa: VAT apportionment calculations

Section 17(1) of South Africa’s value added tax (VAT) law provides that when a vendor acquires or imports goods or services partly for consumption, use or supply in the course of making taxable supplies and partly for another intended use, that vendor may claim input tax only to the extent that such goods or services are acquired for the purposes of making taxable supplies.

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Therefore, vendors that make “mixed supplies” (taxable and non-taxable or exempt supplies) need to apportion their input tax claims in respect of the VAT incurred on mixed-use acquisitions of goods or services. To determine the extent to which input tax may be claimed on such mixed-use expenses, the South African Revenue Service (SARS) issued Binding General Ruling 16 (Issue 2) (BGR16) to prescribe the standard turnover-based method of apportionment that must be used by a vendor. BGR16 also states that when the prescribed method is inequitable, a vendor may apply to SARS to use an alternative method of apportionment.

Vendors that apply to use a varied turnover-based method of apportionment need to be aware of SARS’ most recent view regarding investment income such as dividends. According to SARS, certain investment activity by vendors related to earning dividends must be included in a varied turnover-based calculation. This investment activity, according to SARS, must be included in the varied turnover-based calculation by applying a yield to fees/dividends earned by the vendor. This yield is determined by calculating the difference between the prime interest rate and the Johannesburg Interbank Average Rate (JIBAR)—that is, 7% minus 3.68% = 3.32%—and applying this percentage as follows:

  • If a management fee is earned, then the yield must be applied to the management fee to determine what amount is to be included in the calculation as a deemed dividend (e.g., if the yield is 3.32%, then the calculation is 3.32% x the management fee); or
  • If no management fee is earned, but a dividend is received, then the yield must be applied to the dividend received (e.g. 3.32% x dividend received); or
  • Lastly, when no management fee nor dividend is received, but another fee is charged, then SARS will apply the yield to such other fee.

The calculated amount must then be included in the apportionment calculation as a non-taxable item.

Read a November 2020 report [PDF 459 KB] prepared by the KPMG member firm in South Africa 

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