One of our consultants paid monthly subscription fees for software (in USD) on behalf of a client. We need to invoice the client (South African) for this. Do we charge VAT at the standard or zero rate?
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 is exempt from VAT in terms of section 12 of the VAT Act. Section 54(2) of the VAT Act determines that where any vendor makes a taxable supply of goods or services to an agent who is acting on behalf of another person who is the principal for the purposes of the supply, the supply is deemed to be made to the principal. Application of the principles The critical enquiry is the capacity in which the consultant incurred the costs. If the consultant was the legal recipient of the supply (i.e. the consultant contracted with the non-resident for the software licence) and on-charged the cost to the client as a project disbursement, the on-supply would constitute a supply for VAT purposes subject to VAT at the standard rate (currently 15%). If the consultant contracted with the non-resident acting as the agent of the South African client (unlikely scenario), the recovery of the amount paid on behalf of the client (essentially having advanced a short term loan to the client), will not be subject to VAT being a recovery of money, not constituting consideration for a taxable supply of goods or services.