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South Africa

Partial exemption

Where goods or services are acquired both for making taxable supplies and exempt (without credit) supplies, an apportionment of VAT incurred must be made. The standard method for calculating the apportionment is the turnover-based method. If the turnover-based method does not give a fair result, or if the vendor wants to apply another method, SARS’ written approval must be obtained.

If the intended use of goods or services acquired is more than 95% taxable supplies, the VAT incurred may be deducted in full.

Adjustments

When the application or use of goods or services is changed subsequent to the acquisition thereof, the amount of VAT that was originally deducted as input tax may no longer be equitable and appropriate in view of the subsequent application of the goods or services.

Adjustments must be made to the vendor’s output tax where:

  • goods or services acquired for making taxable supplies are subsequently applied wholly for exempt, private or other non- taxable purposes – output tax is calculated on the open market value of the goods or services and must be accounted for in the tax period in which the non-taxable application occurs; and

  • the extent of taxable use or application of capital goods and services (costing more than ZAR40,000) has decreased by more than 10% – output tax is calculated as [14/114 x lesser of cost or open market value x percentage of decreased taxable use] and must be accounted for in the tax period in which the last day of the vendor’s income tax year of assessment falls.

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Adjustments must be made to the vendor’s input tax where:

  • goods or services acquired for exempt, private or other non- taxable purposes are subsequently applied for making taxable supplies

    • the deduction is calculated as [14/114 x lesser of cost or open market value x percentage of taxable use] and may be made in the tax period in which the taxable application occurs; and

  • the extent of taxable use or application of capital goods or services (costing more than ZAR40,000) has increased by more than 10% – the deduction is calculated as [14/114 x lesser of cost or open market value x percentage of increased taxable use] and may be made in the tax period in which the last day of the vendor’s income tax year of assessment falls.

Preregistration and post- deregistration VAT

Under certain circumstances, a company can claim input tax on goods and services acquired by a person on behalf of the company before incorporation.

A person who has incurred VAT on the acquisition of goods or services prior to his VAT registration date, and who will use the goods or services subsequent to his registration as a VAT vendor, may make a deduction, calculated as [14/114 x lesser of cost or open market value x percentage of taxable use], in the tax period in which the taxable application occurs.

When a vendor is deregistered, VAT is payable on all assets of the business on the date of cancellation of registration. VAT incurred after deregistration cannot be recovered as input tax.

Imports

Goods

VAT is payable on the importation of goods, except where a specific exemption applies.

Where goods are imported from a South African Customs Union (SACU) country, namely Botswana, Lesotho, Namibia or Swaziland, the VAT payable on importation is calculated as 14% of the customs value of the goods.

Where goods are imported from outside the SACU region, the VAT payable on importation is calculated as follows:

(Customs value of goods + 10% thereof + customs & excise duties) x 14%

Regular importers may apply to SARS for access to a VAT Deferment Account, allowing a credit facility for the customs duty and VAT payable on the importation of goods.

Services

A reverse charge rule applies when a nonresident (being a non-vendor) provides services (which would be neither exempt nor zero-rated if made by a VAT vendor), to recipients in South Africa, to the extent that the services are acquired for purposes other than to make taxable supplies. The South African recipient must pay the VAT to SARS by way of declaration.

Exports

Goods

Where the supplying vendor sells and consigns or delivers movable goods to a customer at an address outside South Africa, the export is regarded as a ‘direct export’. The vendor may zero-rate the sale, if all documentary requirements are met.

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