The Taxation Laws Amendment Act, No 31 of 2013 introduced amendments to the VAT registration provisions contained in the Value-Added Tax Act 89 of 1991 ("the VAT Act”), aimed primarily at streamlining the VAT registration process. These amendments came into force on 1 April 2014.
Prior to the amendments, the VAT Act required any person who carried on an enterprise in South Africa to register as a VAT vendor, where the total value of taxable supplies made from the carrying on of such enterprise exceeded or was reasonably expected to exceed the R1 million threshold in a 12 month period.
Persons who did not meet the compulsory registration threshold were entitled to voluntarily register for VAT where the total value of taxable supplies made in a 12 month period had already exceeded R50 000. Where a person, as a result of regular or continuous activities reasonably expected that taxable supplies with a value in excess of R50 000 per annum will be made in the future, the person was also entitled to register for VAT.
In practice, SARS rarely registered anyone for VAT without detailed enquiry and explanation unless it could be proven that the VAT thresholds of R1 million or R50 000 respectively had already been exceeded, or there was a signed agreement in place in terms of which the applicant was obliged to make taxable supplies exceeding R1 million per annum.
Registering for VAT has proven to be quite a frustrating process for vendors and tax practitioners alike. The frustration stemmed in part from the inconsistent documentary requirements applied by the SARS consultants at the different SARS branch offices, and applications were often submitted numerous times before they were accepted. The onerous SARS VAT registration process and procedures also resulted in significant time delays for VAT numbers issued. The VAT registration was generally made effective from a retrospective date, and the vendor was then assessed for VAT, penalties and interest on all supplies made from the effective date to the actual of date of registration.
In an effort to mitigate the problems associated with the VAT registration process and to address the perceived risk of SARS regarding the registration of illegitimate businesses, the following amendments to the VAT registration provisions contained in the VAT Act have been introduced with effect from 1 April 2014.
The predictive element associated with compulsory VAT registration has now been removed in that only persons who have already made taxable supplies exceeding the R1 million threshold, or persons who have a written contractual obligation to make taxable supplies exceeding the R1 million threshold in a period of 12 months, will be liable to register for VAT.
A new category of compulsory registration relating to foreign suppliers of electronic services has also been introduced. Foreign suppliers of electronic services will be required to register as VAT vendors if they make taxable supplies in excess of R50 000 in a 12 month period. The regulations specifying what constitutes ‘electronic services’ for purposes of the VAT Act will, however, only come into force on 1 June 2014. This has the effect that whilst the legislation is effective from 1 April 2014, foreign suppliers of electronic services have until 1 June 2014 to comply with their registration obligations. SARS has centralised and simplified the VAT registration process for foreign suppliers of electronic services who are obliged to register for VAT. As an example, they can apply for VAT registration via e-mail and are not required to open a South African bank account (the VAT Registration Guide for Foreign Suppliers of Electronic Services refers - available on the SARS website).
A person may still voluntarily register for VAT where the person has already made taxable supplies exceeding R50 000 in a 12 month period. A person may also now register voluntarily where the person carries on an enterprise and has not yet exceeded the R50 000 threshold, but reasonably expects that the R50 000 threshold will be exceeded within 12 months from the date of registration. Such persons will be registered to account for VAT on the payments basis. Once the value of taxable supplies has exceeded R50 000, that person must account for VAT on the invoice basis unless the person qualifies to continue to account for VAT on the payments basis.
A new category of persons entitled to register for VAT on a voluntary basis are those persons that carry on an enterprise of a nature as set out by the Minister in any regulation. The nature of the enterprise must be such that it is only likely to result in the making of taxable supplies after a period of time. The Minister has not yet published any regulations specifying the types of enterprises that will qualify for registration under this category even though this VAT amendment is applicable from 1 April 2014. The regulations are expected to include those types of activities that require a considerable capital outlay at commencement, but that are only expected to generate income from a future date, for example construction, plantation farming, mining exploration and research and development enterprises.
A business wishing to register for VAT must compile certain supporting documents and complete a VAT 101 application form which must be submitted in person at the SARS branch office nearest to the place that the business is situated or carried on, within 21 days from the date of liability to register.
The VAT registration amendments sound simple enough to comply with, but only time will tell whether the SARS VAT registration procedures will be adopted in line with the object of the legislation amendments to have the desired effect of streamlining the VAT registration process, and alleviating some of the frustrations experienced in the past.
Author: Varusha Moodaley (ENS)
This article first appeared on the May/June edition of Tax Talk.