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South Africa

Other VAT rules

Bad debts

A vendor may claim a deduction if a bad debt has been written off for accounting purposes. If the bad debt is subsequently recovered, output tax must be accounted for.

Bad debt relief cannot be claimed when a vendor transfers accounts receivable on a non-recourse basis. If transferred on a recourse basis, a deduction can be claimed only when the debt is transferred back to the vendor in respect of any part of the debt that is subsequently written off as irrecoverable.

If a vendor who is registered on the invoice claims an input tax deduction and fails to pay the invoice within 12 months, the vendor must account for output tax on the outstanding invoice amount (exceptions apply). When the vendor subsequently pays any amounts of the invoice value, an input tax deduction can be claimed.

Land and buildings

The sale of land and buildings by a vendor during the ordinary course of his business is subject to VAT, in which case no transfer duty is payable. The sale of fixed property by a non-vendor is subject to transfer duty only (unless an exemption applies).

A vendor may claim an input tax deduction on the acquisition of secondhand fixed property under a non-taxable supply, limited to the transfer duty paid on the acquisition.

Accommodation

The letting of a dwelling, to be used as a residence of a natural person, is exempt from VAT.

The supply of short-term

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accommodation, e.g. holiday accommodation in hotels, guest houses and similar establishments, is subject to VAT, if the supplier is registered as a VAT vendor in respect of this activity. A person who provides such accommodation qualifies for VAT registration only if he has made (or is expected to make) taxable supplies of such accommodation of more than ZAR60,000 per annum. Where such accommodation is provided for an uninterrupted period exceeding 28 days, VAT is charged only on 60% of the charge.

Leasing

If goods are supplied under an ‘instalment credit agreement’, the supplier must account for output tax on the total cash value, excluding any finance charges, when the goods are delivered or the first payment is made, whichever time is the earlier.

If goods are supplied under a ‘rental agreement’, output tax is payable on the full amount of each periodic payment. While VAT is thus also levied on any finance charges included in the rental, VAT is not payable upfront, but when the instalments are paid.

Promotional gifts

Where no consideration is received for promotional gifts distributed by a vendor, no output tax will be payable. A vendor who acquires promotional gifts for purposes of distribution in the course of making taxable supplies (e.g. diaries, pens, clothing or product samples) may claim input tax in respect thereof, unless the input tax is specifically denied, such as where the gift constitutes entertainment (e.g. wine or chocolates).

Secondhand goods

The supply of secondhand goods by a vendor is subject to VAT.

A vendor who has purchased secondhand goods under a non- taxable supply, subject to certain conditions, is entitled to deduct ‘notional input tax’, calculated as the tax fraction (14/114) of the lesser of the open market value or the consideration paid. Where the secondhand goods are fixed property, the notional input tax is limited to the amount of transfer duty paid (or which would have been paid, had an exemption not applied).

Small retailer scheme

SARS will grant a vendor permission to use the Small Retailers VAT Package (SRVP) if the vendor supplies both standard and zero-rated goods from the same premises, his VAT-exclusive taxable supplies do not exceed ZAR1 million per annum, he does not have adequate point of sale equipment and cannot account for VAT under the normal rules, and the application of the SRVP will not materially distort his actual VAT liability.

The output tax payable for the tax period is the sum of all daily standard rated sales for the tax period multiplied by the tax fraction (14/114). The daily standard rated sales are calculated as the daily gross takings less the daily zero-rated sales, where:

  • the amount of daily gross takings is the total amount of the cash in the till, monies banked, credit and debit card vouchers, cash taken for purchases, own use and wages, and credit sales (when the vendor is on the invoice basis) less the daily float, refunds paid and debtors receipts (when the vendor is on the invoice basis); and

  • the amount of daily zero-rated sales is calculated by adding the industry markup percentage to the

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