Vat Implications Of Services Provided To Non-Residents

The South African VAT system is destination-based. This means that VAT is levied on the consumption of goods and services within the borders of South Africa. It follows then that goods and services supplied by VAT vendors where consumption takes place outside of South Africa and where benefit is enjoyed outside South Africa, is subject to VAT at a rate of zero per cent.

A question that is often asked is whether the supply of services by VAT vendors to non-residents should be zero rated.

Section 11 (2) (l) of the VAT Act provides that services provided to non-residents should be zero-rated, except where the service relates to the following ( in which case zero rating will not apply):

• Land or improvements to land situated in South Africa.
• Services supplied in connection with movable property which is situated inside South Africa at the time the services are rendered. Except for movable property which :

1. Is exported to the non-resident after the supply of such services
2. Forms part and parcel of a supply by the said person to a registered vendor and such services are supplied to the said person for purposes of such supply to the registered vendor.

• Services rendered to the non-resident if the non-resident is in South Africa at the time the services are rendered.

The services rendered to the non-resident should be tested against all of the above criteria.

It is however important to note that not all three tests indicated above need to be satisfied in order for zero rating not to apply. If any one of the above-mentioned tests is satisfied, then the service to the non-resident will be standard rated at 15%.