Zero-rated Supplies: These are taxable supplies with a VAT rate of 0%. Section 11 of the VAT Act identifies specific supplies that qualify for zero-rating. Importantly, input tax related to zero-rated supplies can generally be reclaimed.
Exempt Supplies: These supplies are not subject to VAT at all. Section 12 of the VAT Act outlines the types of supplies that fall under this category, such as certain financial services and residential rentals.
Application and Interpretation
Section 11(2)(l) of the VAT Act is particularly relevant in the context of services provided to non-residents. Services can be zero-rated if they are supplied directly to a non-resident and both the service recipient and consumption occur outside South Africa at the time of service. This provision ensures that VAT is not levied on services consumed outside the country.
VAT Treatment of Specific Supplies
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International Transport: Generally subject to zero-rating, covering all modes of international passenger transport.
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Domestic Air Travel: Subject to VAT at the standard rate, unless part of an international journey that includes South Africa.
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Domestic Road or Rail Travel: Exempt under Section 12(g), except for specific cases such as game-viewing drives.
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Accommodation: Subject to standard VAT rate if the stay is less than 28 days; longer stays may qualify for reduced VAT on a portion of the charge.
Conclusion
VAT in South Africa is destination-based, focusing on where services are consumed rather than where they are supplied from. Services provided to non-residents can be zero-rated only if the consumption occurs outside South Africa. If any part of the service is consumed within South Africa, the standard VAT rate of 15% applies, unless specific exemptions or reduced rates are applicable. While this interpretation aligns with current understanding and application of the law, it is essential to note that SARS may interpret specific cases differently based on individual circumstances. Businesses are advised to ensure compliance with VAT regulations and seek professional guidance to navigate the complexities of VAT classifications effectively. Contact Tax A Sured Pty Ltd for assistance with your VAT submissions.
