The taxpayer is a VAT registered advocate. The taxpayer is billing a South African attorney for services rendered by him (the taxpayer) to a non-resident client. There is an underlying agreement proving that the services are being rendered to an overseas
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or are exempt from VAT in terms of section 12 of the VAT Act. Section 11(2)(f) zero-rates services supplied directly in connection with land or any improvements thereto, situated in any export country. Section 11(2)(g) zero-rates services supplied directly in respect of moveable property situated in any export country at the time that the services are rendered. Section 11(2)(l) of the VAT Act zero-rates services supplied to non-residents, subject to certain limitations. Section 11(2)(k) zero-rates any services physically rendered outside South Africa. Section 11(2)(m) of the VAT Act zero-rate supplies of services consisting of the filing, prosecution, granting, maintenance, transfer, assignment, licensing or enforcing (including the incidental supply by the supplier of such services of any other services which are necessary for the supply of such services) of intellectual property right, including patents, designs, trademarks, copyrights, know how, confidential information, trade secrets, or similar rights, to the extent that the rights are for use outside South Africa. Application of the principles We assume that the client has received an instruction from the South African attorney to provide the legal services to the non-resident client. The client therefore legally supplies its services to the instruction-giving attorney who would on-bill the costs to its non-resident client. Based on the above analysis, the services are legally supplied to a South African recipient and cannot be zero-rated under the general zero-rating provisions contained in section 11(2)(l) of the VAT Act. Should the nature of the services provided fall into the activities envisaged in sections 11(2)(f), 11(2)(g), 11(2)(k) or 11(2)(m) of the VAT Act, the charge by the client to the instruction-giving attorney may be zero-rated notwithstanding the fact that the service is supplied to a South African recipient based on the legal relationships. If the services do not fall into one of the above categories, VAT must be charged at the standard rate of 15%.