incurred for business purposes is allowed as input tax;
telephone and internet services;
all non-business purchases, including expenses incurred for the benefit of the employee; and
where a nonresident business does not register for VAT, the recipient of any services supplied by such business will need to apply the reverse charge (i.e. charge themselves the VAT that would have been due on the supply). However, the VAT charged is not recoverable as input tax.
A business that makes both taxable and exempt supplies is allowed to claim input VAT that relates only to taxable supplies.
Currently there are four methods available for reclaiming input VAT on mixed supplies. These are briefly described below.
Method 1: General apportionment method
Under this method, the proportion of taxable supplies determines the claim for input VAT for any month over the total supplies. Accordingly, the total amount of input VAT incurred on all purchases by the company will be apportioned using the ratio of taxable supplies over total supplies to determine the amount of input VAT that will be claimed in any VAT period (i.e. each month).
Method 2: Direct attribution method
Under this method, taxpayers are required to identify and segregate those inputs that are directly attributable to taxable supplies from those inputs that are directly attributable to exempt supplies. Input
VAT that is directly attributable to taxable supplies will automatically qualify for the claim. Where purchases or expenses are attributable to both taxable and exempt supplies, the amount of input VAT that may be claimed will be determined using the proportion of taxable supplies to total supplies.
Therefore, the total input claim for VAT in any tax period (a month) will comprise of input VAT that is directly attributable to taxable supplies plus a proportion of the input VAT attributable to both taxable and exempt supplies that is determined using the ratio of taxable supplies over total supplies for the month.
Method 3: Cumulative apportionment
In this instance the amount of input VAT that may be reclaimed is arrived at by working out the cumulative input claim for the period to date using the ratio of cumulative taxable sales for all of the periods to date to total cumulative sales for all the periods to date, multiplied by the total input VAT incurred on all purchases to date in the accounting year. The cumulative input VAT claimed in the previous periods is then deducted from the cumulative input VAT incurred to date.
Method 4: Year to date attribution method
In this instance, the input claim is determined using Method 2 on a cumulative basis. Possible input VAT is segregated, using the direct attribution method, between taxable and exempt supplies on a cumulative basis for the period to date. VAT on purchases that are attributable to both taxable and exempt supplies is then apportioned using the ratio of taxable sales to date over total sales to date. The total claim for input VAT will be the sum of the input VAT claimable using the direct attribution method for the year
to date, plus input VAT on purchases attributable to both exempt and taxable supplies using the cumulative apportionment method, less the total VAT claimed up to the previous period.
A partially exempt supplier may elect any of the four methods. However, once the election is made, the method will have to be applied consistently for a period of not less than 12 months.
A VAT-registered supplier is required to notify the ZRA in writing of any business change, including change of business premises and postal address. This notification should be made within a month of when the changes occur.
A business registered for VAT may claim input VAT on goods or services relating to the start-up of the business within three months prior to registration. However, the business should have the goods on hand and must have a tax invoice from the supplier to be allowed the claim.
A supplier who becomes registered in anticipation of commencing trading activities as ‘an intending trader’, may claim input tax credit or deduction in respect of goods and services that are received:
within a period of seven years after becoming registered as an intending trader, in the case of exploration;
within a period of four years after becoming registered as an intending trader, in the case of farming and mining; and
within a period of two years after becoming registered, in the case of any other intending trader.