On 1 June 2020, the South African Revenue Service (SARS) issued an external guide titled ‘Manage Declaration for Non-Registered VAT Vendors’ (SARS Guide). The SARS Guide provides guidance to non-vendor recipients of imported services and in instances where goods are sold in execution of a debt, on how to settle their VAT liabilities with SARS.
The VAT principles applicable to imported services and goods sold in execution of a debt are first briefly described below.
Subject to certain exceptions, VAT is payable at the standard rate of 15% by a South African recipient of imported services. This is irrespective of whether the recipient is a registered VAT vendor or a non-vendor. There are four requirements for a service to fall within the ambit of the definition of ‘imported services’ in the VAT Act, namely:
- The services must be rendered by a supplier who is resident outside South Africa or who carries on business outside South Africa;
- The recipient of the services must be a resident of South Africa;
- The services must be utilized or consumed in South Africa; and
- The purpose for acquiring the services must be otherwise than for the making of taxable supplies.
Where imported services are acquired for a value exceeding R100, the recipient is required to pay VAT on such importation where the services are acquired wholly or partly for a non-taxable purpose.
South Africa introduced legislation with effect from 1 June 2014 requiring foreign suppliers of ‘electronic services’ (e-services) to register as VAT vendors in South Africa to the extent that they make taxable supplies of e-services to South African recipients. The regulations defining what constitutes e-services were amended and the scope of what constitutes e-services was significantly broadened from 1 April 2019. The effect of the amendment is that virtually all services that are supplied by way of electronic means such as cloud computing, computer software, music, games and any online services are now included as ‘electronic services’. As a result, most foreign suppliers of e-services will be registered vendors in South Africa. This removed the obligation to pay VAT on such services from the South African recipient to the foreign supplier. Consequently, a South African recipient who acquires e-services from a non-resident supplier will only be required to pay VAT on imported services if the supplier is not registered as a vendor under the e-services provisions.
Goods sold in execution
Where a person purchased goods under a credit arrangement and then defaults, another person, normally the Sheriff of the court, may take possession of the goods purchased, and the Sheriff may then sell the goods in execution of the debt owed by that person.
Where goods are sold in execution of a debt, the sale is, in certain circumstances, deemed to be made in the course of an enterprise and the sale will therefore be subject to VAT. In this instance, the seller, and not the owner of the goods is required to account for VAT thereon to SARS.
The Declaration process
Where imported services are acquired by a recipient who is a registered vendor, the VAT liability in respect thereof may be included in the vendor’s VAT201 declaration. However, where the recipient is a non-vendor, such non-vendor was previously required to complete a form VAT215 and to make payment of the VAT
to a SARS branch office.
Where goods are sold in execution of a debt and the sale is subject to VAT, the VAT on such sale must be accounted for and paid separately to SARS and may not be accounted for under the VAT number of the seller or that of the owner of the goods. The seller was previously required to complete a form VAT216 and to make payment of the VAT at a SARS branch office.
Where the recipient of imported services is not registered for VAT, there is no VAT number under which payment can be made to SARS. The making of payments without a VAT number at a SARS branch office became a challenge and SARS branch offices often refused to accept these payments as they did not seem to know how to process payments without a VAT number and where to allocate such payment. The process for making these payments has now been amended and the SARS Guide has been issued to clarify the payment process. The VAT215 and VAT216 forms have been updated accordingly.
In terms of the SARS Guide, the VAT liability must be determined by completing a form VAT215 (imported services) or a form VAT216 (sale in execution), which are available on the SARS website. The VAT liability must then be paid via the liable person’s SARS e-filing profile following the process as described in the SARS Guide.
Once the payment has been successfully made via SARS e-filing, the e-filing system will generate a payment confirmation receipt number. The recipient of the imported services, or the seller of the goods sold in execution, as the case may be, is then required to insert the payment confirmation receipt number in the ‘Receipt Number’ field on the VAT215 or VAT216 form. The recipient or the seller, as the case may be, is not required to submit the completed VAT215 or VAT216 forms to SARS; they are simply required to retain the completed form for a period of five years and must be able to produce this to SARS if requested to do so. Consequently, the recipient or the seller will no longer be required to visit a SARS branch office for purpose of making payment.
It is important to note that to make the VAT payments to SARS in respect of imported services or goods sold in execution via SARS e-filing, the income tax reference number of the recipient of the imported services or seller of goods sold in execution is a pre-requisite. It is therefore only recipients or sellers who are registered for income tax and who are also registered on the SARS e-filing system will be able to adhere to the new mandated declaration and payment process. It seems, however, that the requirement to be registered for income tax represents a shortcoming in the process because there could be instances where a non-vendor recipient of imported services may not be registered for income tax, even though such instances are exceptional.
The amended process of making payments of VAT electronically in these circumstances is welcomed. However, SARS may need to reconsider introducing an alternate declaration process for persons who are also not registered for income tax.