VAT RATE INCREASE TRANSITIONAL ISSUES

Transcription

1 CLICK TO EDIT MASTER TITLE STYLE VAT RATE INCREASE TRANSITIONAL ISSUES NICO THERON

2 CLICK TO EDIT MASTER TITLE STYLE OVERVIEW General Output VAT Time of supply (s9) Exceptions to time of supply ( rate specific rules ) (s67a) Input tax Recipient obligation and risks re new rate Debit/credit notes and irrecoverable debts Other important considerations Quoted prices and contract prices Incorrect VAT charged the risks VAT201 returns Questions

3 CLICK GENERAL TO EDIT MASTER TITLE STYLE Rate last increased in 1993 from 10% to 14%. New tax fraction 15/115 (section 66 still says calculation must be based on they need to update). Should be fairly neutral re B2B sales (unless if apportionment of inputs required apportionment rulings). For B2C sales most goods and services cost 1% more

4 CLICK TO EDIT MASTER TITLE STYLE

5 CLICK TO EDIT MASTER TITLE STYLE TABLE OF VAT RATES IN A COUPLE OF OTHER COUNTRIES Country Rate Country Rate Country Rate Argentina 21% Honduras 15% Norway 25% Australia 10% Hungary 27% Poland 23% Bahamas 7.5% Iceland 24% Portugal 23% Belgium 21% Ireland 23% Seychelles 15% Botswana 12% Italy 22% Spain 21% China 17% Madagascar 20% Sweden 25% Costa Rica 13% Malaysia 6% Tanzania 18% Croatia 25% Mauritius 15% Uganda 18% Denmark 25% Mexico 16% United Kingdom 20% France 20% Namibia 15% United States 0% 7.5% Germany 19% Netherlands 21% Zambia 16% Greece 24% New Zealand 15% Zimbabwe 15%

6 CLICK OUTPUT TO TAX: EDIT TIME MASTER OF SUPPLY TITLE STYLE Time of supply regulates the period within which VAT must be declared to SARS (irrespective of rate specific rules). Time of supply also regulates the rate to be used. General rule Time of supply before 1 April 2018 = 14% Time of supply after 1 April 2018 = 15% Exceptions to above (aka rate specific rules later)

7 CLICK OUTPUT TO TAX: EDIT TIME MASTER OF SUPPLY TITLE STYLE Time of supply rules include: General rule Connected persons Progressive, successive and periodic supplies Instalment credit agreements Fixed property Fringe benefits Lay-by agreements Machines, meters and other devices (example: vending machines such as those that dispense snacks, cool drinks and cigarettes; arcade video games; pool tables; parking meters; and public telephones). Betting transactions Supplies made by a branch (supplies between local branch and foreign HQ and vise versa)

8 CLICK GENERAL TO EDIT RULEMASTER TITLE STYLE The time of supply is the earlier of the time an invoice is issued by the supplier, or the time any payment of consideration is received in respect of that supply. Example: if someone pays a portion of an invoice full output tax required (unless it is a deposit) Proforma invoices: earlier of the date an invoice is issued invoice is defined - any document notifying an obligation to make payment.

9 CLICK CONNECTED TO EDIT PERSONS MASTER TITLE STYLE Def of connected persons: connected persons means (d) (e) any company (other than a close corporation) and (i) (ii) (iii) any person (other than a company) where that person, his spouse or minor child or any trust fund in respect of which that person, his spouse or minor child is or may be a beneficiary, is separately interested or two or more of them are in the aggregate interested in 10 per cent or more of the company s paid-up capital or 10 per cent or more of the company s equity shares (as defined in section 1 of the Income Tax Act) or 10 per cent or more of the voting rights of the shareholders of the company, whether directly or indirectly; or any other company the shareholders in which are substantially the same persons as the shareholders in the firstmentioned company, or which is controlled by the same persons who control the first-mentioned company; or any person where that person and the person referred to in subparagraph (i) or his spouse or minor child or the trust fund referred to in that subparagraph or the other company referred to in subparagraph (ii) are connected persons in terms of this definition; or any separate enterprise, branch or division of a vendor which is separately registered as a vendor under the provisions of section 50 and any other such enterprise, branch or division of the vendor; or

10 CLICK TO EDIT MASTER TITLE STYLE CONNECTED PERSONS Time of supply: If the goods supplied are to be removed the time of supply occurs at the time the goods are removed. If the goods supplied are not removed the time of supply occurs at the time the goods are made available to the recipient. If services are supplied the time of supply occurs at the time the services are performed.

11 CLICK CONNECTED TO EDIT PERSONS MASTER TITLE STYLE The general time of supply rules will nevertheless apply when an invoice is issued or payment is received on or before the date that a return was submitted (covering the tax period in which the goods or services are deemed to be supplied as stated above), or the last day for submitting a return for that tax period; and the consideration cannot be determined at the time the supply is deemed to be made to a connected person who is entitled to deduct input tax in full.

12 CLICK CONNECTED TO EDIT PERSONS MASTER TITLE STYLE Example Time of supply for connected persons Facts: Company A is a vendor registered under Category B (bi-monthly, equal months). Company A rents a machine to connected company B. Company B collects the machine from company A on 10 January Company A submits its return for February on 25 March Result If no payment was received, and no invoice was issued by 25 March 2016, the time of supply will be at the time that the goods were removed on 10 January Company A will, therefore, have to account for the supply in his February 2016 return. If company A issues an invoice for the rental on or before 25 March 2016, the normal time of supply rules apply, in which case, Company A will declare the VAT on the supply in the return ending April 2016.

13 CLICK PROGRESSIVE, TO EDIT MASTER SUCCESSIVE TITLE AND STYLE PERIODIC SUPPLIES (TYPE 1) Goods Services Applies to goods supplied under rental agreement (i.e. operating lease) Services supplied under agreement or law that provides for periodic payments (and underlying services are rendered on an ongoing basis IT1709) Exam ample: renting a car Example: retainer fee agreement Time of supply: When payment is made or becomes due, whichever is earlier

14 CLICK TO EDIT MASTER TITLE STYLE PROGRESSIVE, SUCCESSIVE AND PERIODIC SUPPLIES (TYPE 2) Goods Services Goods supplied progressively or periodically under an agreement or law that provides for periodic payment based on progressive nature Goods supplied directly in construction, repair, improvement, erection, manufacture or alteration of other goods under agreement that provides for payments in installments or periodic based on progress Service supplied directly in construction, repair, improvement, erection, manufacture or alteration of other goods under agreement that provides for payments in installments or periodic based on progress Example: regular monthly deliveries by the same supplier in terms of an overriding agreement Example: For example, where a building contractor is paid as and when an architect s certificate is issued as each stage of the contract is completed. Time of supply: When payment is made or becomes due or an invoice is issued, whichever is earlier. (otherwise supplier may be required to account for full output tax on date of signature of agreement or when first payment is made)

15 CLICK INSTALLMENT TO EDIT CREDIT MASTER AGREEMENTS TITLE STYLE The supply of goods under an ICA is deemed to take place at the earlier of the time the goods are delivered, or any payment of the consideration is received by the supplier in respect of the supply. (i.e. not successive/progressive supplies)

16 CLICK FIXED TO PROPERTY EDIT MASTER TITLE STYLE Upon registration of transfer of the property in a deeds registry, or the date upon which any payment is made in respect of the consideration (whichever occurs first).

17 CLICK FRINGE TO BENEFITS EDIT MASTER TITLE STYLE The end of the month in which such benefit is required to be included in the remuneration of the employee

18 CLICK OUTPUT TO TAX EDIT EXCEPTIONS MASTER TITLE (RATE STYLE SPECIFIC RULES) Exception 1 Time of supply is after 1 April 2018 but still use 14%.

19 CLICK OUTPUT TO TAX EDIT EXCEPTIONS MASTER TITLE (RATE STYLE SPECIFIC RULES) Exception 2 Time of supply is after 1 April 2018 and apportionment of supply value required.

20 CLICK OUTPUT TO TAX EDIT EXCEPTIONS MASTER TITLE (RATE STYLE SPECIFIC RULES) Exception 3 Time of supply is before 1 April 2014 but rate is 15%.

21 CLICK OUTPUT TO TAX EDIT EXCEPTIONS MASTER TITLE (RATE STYLE SPECIFIC RULES) Exception 3 Exception to exception 3 N/A if general business practice for payments or invoices to be issued before supplies are made. Example: advance payments required before building work commences.

22 CLICK DELIVERY TO EDIT (RATE MASTER SPECIFIC TITLE RULES) STYLE Meaning of delivery Not defined in the VAT Act In relation to goods supplied under rental agreement: deemed delivered when recipient takes possession or occupation In the case of fixed property: delivery means when registered in the deeds office

23 CLICK OUTPUT TO TAX EDIT EXCEPTIONS MASTER TITLE (RATE STYLE SPECIFIC RULES) Exception 4 Fixed property: time of supply after 1 April 2018 but rate still 14%

24 CLICK INPUT TO TAX EDIT RECIPIENT MASTER TITLE OBLIGATIONS STYLE AND RISKS Are you required to make sure that the supplier charges the correct VAT rate? No. If they charge 14% - you claim 14%. If they charge 15% - you claim 15% If there was a mistake from the supplier side, they must issue an debit/credit note you will have corresponding output tax adjustment/input tax adjustment (provided the issue is not resolved between you and customer before the return is due. Risks Claiming 15% when only charged 14% Understatement of liability through overstated input tax claim penalties 10%.

25 CLICK INPUT TO TAX EDIT DEBIT/CREDIT MASTER TITLE NOTES STYLE AND IRRECOVERABLE DEBTS The debit and credit note must be for the VAT charged/paid, irrespective of when the debit/credit note is issued. The same applies for irrecoverable debts. Example : sale made for R100 excluding VAT prior to rate increase. Turns out, it price should have been R80. Result: Supplier is entitled to input tax credit equal to the amount of output VAT overpaid- this is on the 14% of R20. The recipient must make an output tax adjustment equal to the input over claimed this is on the 14% rate also. Same applies for increase in the price.

26 CLICK OTHER: TO QUOTED EDIT MASTER PRICES TITLE AND STYLE CONTRACT PRICES Quoted prices: General rule: quoted and advertised prices are deemed to include VAT unless VAT, VAT exclusive and VAT inclusive amounts are quoted or advertised; That means you need to change all advertised and quoted priced However, SARS issued a notice stating that: In the current situation, permission is hereby given under proviso (iii) in section 65 of the VAT Act for a vendor to display a notice to inform customers that the price does not include VAT at the new rate of 15% and prices will be adjusted at the point of payment at which the vendor accepts the client s offer to purchase. The notice should be removed by no later than the end of May It is also advisable to include in the notice, showing with equal prominence, an example of the old and new prices of one of your products and how the adjustments will be made at the point of sale. The notice should be prominently displayed at all entrances to the premises where the goods or services are displayed for sale; at all points of sale where payments are effected; at all other places at the business premises where contracts for the supply of goods or services may be concluded; in all forms of print and electronic advertising media and on all websites.

27 CLICK OTHER: TO CONTRACT EDIT MASTER PRICES TITLE STYLE Prices agreed before 1 April 2018 contract terms important If the contract states Rx plus VAT at 14% Section 67: may recover the additional 1% from customer(even if any other law says otherwise) If contract states Rx plus VAT and VAT is defined as the VAT chargeable under the VAT Act (no issue really) If contract specifically states that the price may not be changed for increases in the VAT rate - increase will be a cost to supplier.

28 CLICK OTHER: TO INCORRECT EDIT MASTER VAT TITLE CHARGED STYLEAND SOLUTIONS If you charged 14% but should have charged 15%? Engage the customer and rectify through debit note before the VAT return becomes due If you cant fix by the time the return is due you still need to account for output tax at 15%. I.e. a business cost to you (income tax deduction??) If you only disclose 14%, this is an error and must be rectified - penalties and interest (consider VDP to mitigate penalty risk) If you fix afterwards recovery of business cost (income tax gross income??). IF you charged 15% but should have charged 14%? Engage customer to fix before return due If you can fix before return due additional 1% - revenue not VAT (gross income?) If you fix after return is due and pay the 1% back (expense?)

29 CLICK VAT201 TO RETURNS EDIT MASTER TITLE STYLE Returns to be updated according to SARS (should have both a 14% and 15% fields in the return) make sure to complete correctly

30 CLICK TO EDIT MASTER TITLE STYLE QUESTIONS ; WEB: ; CELL: ; OFFICE: (012)