by Liezel Hodgson
Section 11 of the Value-Added Tax Act No. 89 of 1991 deals with several instances where a rate of 0% VAT can be charged.
Subsection 2 of this section applies specifically to the rendering of services. Section 11(2)(l) specifically refers to services rendered to a person who is not a resident of the Republic. However, each instance of service delivery should first be measured against the three exclusions. As illustrated in Interpretation Note 85, the exclusions in subparagraphs (i) to (iii) of section 11(2)(l) are self-standing and therefore to be evaluated independently.
If any ONE of these exclusions is applicable, the transaction is disqualified from zero-rating.
The exclusions are as follows:
1. Services directly related to land or improvements on land in South Africa.
2. Services directly related to movable property inside South Africa, unless the item is to be exported directly after the service has been concluded.
3. Where the non-resident receiver is present in South Africa at the time of the service delivery.
It is also important to note that the vendor selecting to zero-rate VAT supplies, based on Section 11, must obtain sufficient documentary evidence to demonstrate that the section is applicable as stipulated in Section 11(3). For example: written confirmation from the client that they are non-residents of South Africa and were not present in South Africa at the time of the service delivery.
Vendors making zero-rated supplies in terms of Section 11 are still allowed to claim input VAT on expenses related to the service delivery. This is because it is still regarded as a Vatable supply compared to supplies in Section 12 that are exempt from VAT and where no input VAT can be claimed.
The exclusion provisions of services being “directly related to” has been contested on numerous occasions. Each situation must be evaluated on its own merits, there is no one size fits all answer.
When in doubt, you are more than welcome to contact our knowledgeable team for assistance.
www.auroprofessional.com
Paarl | Stellenbosch | Franschhoek | Wellington | Somerset West | Durbanville | Cape Town | Western Cape