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South Africa - Indirect tax guide

South Africa - Indirect Tax Guide

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General

Types of indirect taxes (VAT/GST)

VAT.

What is standard VAT/GST rate?

15 percent.

Are there any reduced rates, zero rates or exemptions?

Zero-rated supplies include:

  • exports of goods
  • sale of a business as a going concern
  • certain foodstuffs
  • supply of goods to a non-resident for onwards-supply to a South African (SA) vendor
  • international transport services
  • services rendered to non-residents under certain circumstances.

Exempt supplies include:

  • certain financial services
  • supply of residential accommodation
  • education and training
  • supply of land situated outside SA
  • transport services to fare paying passengers
  • certain supplies made by not for profit associations.

What are the general and specific place of supply rules, if applicable?

SA does not have general or specific place of supply rules. The aim is, however, to tax consumption in SA (destination-based principle), with exports being zero-rated.

VAT/GST registration

Who is required to register for VAT/GST?

Any person who continuously or regularly carries on an enterprise or activity in or partly in SA, where goods or services are supplied for a consideration and where the value of taxable supplies exceeds or is expected to exceed 1 million South African rand (ZAR) in any period of 12 months.

Any person from an export country that supplies ‘electronic services’ and whose total value of taxable supplies exceeds ZAR50,000 (threshold to increase to ZAR1 million as of 1 April 2019) will be liable to register at the end of the month in which the threshold was reached.

Is voluntary VAT/GST registration possible for an overseas company?

Yes, a person can apply for voluntary registration where the value of taxable supplies already made exceeded, or where it will in certain circumstances exceed, ZAR50,000 in a 12-month period.

Does an overseas company need to appoint a fiscal representative?

Yes.

Is VAT/GST grouping* possible?

No.

VAT/GST compliance

How frequently are VAT/GST and other indirect tax returns submitted?

  • 2-month tax period.
  • 1-month tax period: turnover exceeds, or is likely to exceed, ZAR30 million in any consecutive period of 12 months.
  • 6-month tax period: solely for farming activities with a turnover of less than ZAR1.5 million per consecutive period of 12 months.

Can returns be filed and payments be made electronically?

Yes.

What are the exchange rate rules?

If an invoice is issued in a foreign currency and the supply is standard rated, the ZAR equivalent must be determined using the appropriate exchange rate on the date on which the invoice is issued and be reflected on the invoice.

VAT/GST recovery

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

VAT may be recovered only in respect of goods that are subsequently exported from SA. A refund may be claimed from the VAT refund administrator.

Is it a prerequisite that output tax be charged before input tax can be claimed?

No.

Are there any exemptions with the right to recover or deduct input VAT?

Input VAT cannot be deducted on the following:

  • purchase or hire of a motor car (subject to certain exceptions)
  • entertainment (subject to certain exceptions)
  • membership subscriptions to clubs of sporting, social or recreational nature
  • medical or dental goods or services provided by a benefit fund.

Where VAT incurred relates to the making of both exempt and taxable supplies, input VAT deductions should be apportioned.

For what period of time may input VAT not previously claimed be claimed (i.e. prescription)?

5 years.

Where a VAT return reflects a refund due to the taxpayer, is the refund paid to the taxpayer or is the taxpayer required to utilize the refund as a credit against future payments?

Refunds are usually paid out. The South African Revenue Service (SARS) does, however, allow a vendor to utilize a refund as a credit against future payments if requested in writing.

Invoices

Is a business required to issue tax invoices?

Yes.

Is it possible/mandatory to issue invoices electronically?

Possible, not mandatory.

Is it possible to issue recipient-created tax invoices?

Yes.

Audits

Do tax audits take place on a regular basis?

Yes.

Audits are conducted on a random or risk assessment basis. VAT refunds are audited regularly. Tax invoices and other supporting documents are verified for compliance and correct technical application in terms of output and input taxes. Authorized persons from the tax authority conduct the audits.

Are audits done electronically in your country/jurisdiction (e-audit)? If so, what system is in use?

Yes, via the SARS e-filing system and other software.

What penalties can arise from non-compliance?

Penalties:

  • percentage-based penalty for late payment of 10 percent
  • understatement penalties (0–200 percent).

A range of other offenses related to VAT can result in fines or imprisonment for a period of up to 24 months.

Interest is charged per month or part thereof on late payments.

Special indirect tax rules

Are there unique country/jurisdiction-specific indirect tax rules that differ from 'standard' indirect tax rules in other jurisdictions?

Yes. Some financial services are subject to VAT, including fee-based services and short-term insurance, which is not often found in other VAT systems.

Does a reverse charge mechanism apply?

Yes. VAT is levied on imported services to the extent that such services are used for purposes other than making taxable supplies. The recipient must account for the VAT payable.

Can VAT on reverse charges be claimed as input tax, to the extent that the expense on which the reverse charge VAT is accounted for, is used for taxable purposes?

Not applicable. Reverse VAT charges are only levied to the extent of making non-taxable supplies and, thus, no input tax can be claimed.

Can non-residents appoint local agents in order to avoid reverse charge VAT by virtue of charging standard rate VAT and accounting for such VAT through the agent?

No.

Are there indirect tax incentives available (e.g. reduced tax, tax holidays)?

No.

Rulings

Is it possible to apply for formal or informal advance rulings from the tax authority?

Yes.

Are rulings and decisions issued by the tax authorities publically available?

Only certain rulings are publicly available.

Other indirect taxes

Are there other indirect taxes not commented on above?

Yes, other indirect taxes include:

  • customs and excise duties
  • fuel and road accident fund levies
  • environmental tax
  • estate duty (20 percent)
  • donations tax (20 percent)
  • securities transfer tax (0.25 percent)
  • stamp duties
  • skills development and unemployment insurance levies
  • transfer duty.

For further information please contact

André Meyburgh
Partner
KPMG in South Africa
T: +27 82 851 6587
E: andre.meyburgh@kpmg.co.za

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