Company A is based in South Africa and is registered as a VAT vendor. Company B is based in Singapore. Supplier X sold goods to Company B. Company A was invoiced by Supplier X and was paid in full by Company A. Company A claimed the input vat. Company A w
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Based on your facts, Supplier X sold and supplied goods to Company B. Company A never owned the goods. So the payment of the invoice to Supplier X was a service that Company A supplied to Company B. The zero rate would apply to this service in terms of section 11(2)(l) of the Value-Added Tax Act: services supplied to a person who was not resident in the Republic at the time of the service and the service was not in connection with property situated in the Republic. Company A will invoice Company B and will be paid in shares in Company B. The VAT part is easy; the flow will be as set out above. Once the relationship between Company A and Company B has been reduced to a debt due, the debt is a financial service and exempt from VAT. So we can leave the VAT at that. Now for the income tax part. Company A incurred an expense in paying Supplier X. No capital asset was created, only a debt claim. The expense was therefore revenue in nature and deductible. The invoice to Company B amounted to recoupment of the expense and taxable under section 8(4)(a) of the Income Tax Act. If Company B had settled the claim by cash payment, Company A would have debited Bank and credited loan claim. Instead, Company B issues shares in payment. So Company A debits share investment and credits loan claim. As to exchange controls, the payment by Company B should enter SA via the foreign exchange desk of the company’s banker, so that the transaction is on record with FinSurv.