Background Two company are entering into a joint venture. As I understand it, each company (partner) must register in their own right for income tax purposes as the JV is not a legal person. Question With regards to VAT, will the JV be able to register
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act
Section 51(1) of the VAT Act determines that where any body of persons, whether corporate or unincorporate (but excluding a company) carries on or is to carry on any enterprise, the body of persons is deemed to carry on the enterprise as a person separate from its members. The body of persons must therefore register as a separate person for VAT purposes.
The term “body of persons” is not defined in the VAT Act. It therefore, takes its normal meaning.
The Commissioner for SARS issued a draft interpretation note in 2014 setting out its interpretation of the term. To date the interpretation note has not been finalised. In the draft interpretation note three categories of arrangements are listed that, in the Commissioners' view would constitute a body of persons, a partnership, joint venture and an association of persons.
A joint venture is described in the draft interpretation note as an arrangement between two or more persons on an agreement to generally operate a single, limited or defined project. The parties to such an agreement will generally share control of the arrangement and share the product or output of the venture.
Application of the principles
For VAT purposes the JV is treated as a person separate from its members notwithstanding the fact that it does not have the status of a person in law. It must accordingly register as a separate VAT vendor if a VAT registration in relation to the level of activities carried on by the JV requires registration. The activities carried on or supplies made by the members of the JV must for the purposes of determining the liability of the JV to register as a VAT vendor, be ignored.