How do you run effective remote meetings?

How do you run effective remote meetings?

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  1. Send an agenda in advance to all who will be taking part in the meeting.
  2. Take time to prepare for the meeting.
  3. Ensure you are familiar with the functionalities of the technology you will be using to run the meeting.
  4. Ensure that your people understand the technologies you will be using and that they know who to talk to if things fall apart or if they struggle.
  5. Ensure that your internet connection is good well before the meeting starts.
  6. Begin the meeting by breaking the ice. Ask attendees how they are or ask them to share any of their positive stories from the past week/days.
  7. At the start of the meeting share the agenda and share the timing (how long you expect the meeting to start)
  8. Remember to keep the meeting as short as possible.
  9. Make sure you are sitting at a place where there is sufficient lighting, not too much light as this can kill engagement.
  10. Do not turn off your camera, you want to keep everyone engaged.
  11. make sure your body language is right because the camera is like a microscope that pics up all your body language.
  12. Sit up straight and always keep looking at your camera. This encourages engagement.
  13. Involve everyone in the meeting by asking questions or asking them to comment.
  14.  At the end of the meeting, ask for feedback on how the meetings can be improved or what people what to talk about in the next meeting or even which technology they want to use in the next meeting.
  15. Always end with a strong call to action. What do you want attendees to do after the meeting? Who is doing what, by when and how etc.

    talk to us using the comment box below. How are you running your remote meetings? What are you doing so well? What are some of the challenges?

What happens if you do not pay VAT on time?

What happens if you do not pay VAT on time?

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Introduction: 

The past few months and weeks have been difficult for businesses in terms of cash flow management. This is due to the COVID-19, the lockdown and the uncertainty around the whole thing. When does the lockdown end, will it be extended again? How long will the COVID-19 pandemic last and what is the impact on a business’ cash reserves?

As month-end approaches, some businesses are wondering if they should pay their VAT obligations or if they should delay these a bit until their businesses have recovered cash wise.

In terms of the VAT Act, a registered vendor is required to submit their VAT returns and to pay their VAT taxes by the 25th of the month if they are submitting manually or the last day of the month if they are submitting online on eFiling. If these dates fall on a weekend or public holiday, the submission and payment have to be made on a day before the weekend.

As far as we all know, the government has not introduced any relief measures as far as VAT is concerned. This means that SARS is expecting your VAT returns at the end of the month.

What happens if you are unable to submit or submit but unable to pay? 

The VAT Act (section 39) and the Tax Administration Act (TAA, Section 187 and Section 4) provides for the interest application and treatment where a taxpayer fails to submit or pay a VAT return.

If you are unable to submit, SARS immediately levies a 10% penalty on the amount that was due.

If you are able to submit, but unable to pay, SARS will levy interest on the outstanding amount from the date the tax debt was due until the date the debt is paid off.

So, if you failed to submit and pay the punishment is two-fold. A 10% penalty and interest that is charged on a daily basis at the prescribed interest rate until the debt is paid off.

A question that arises is what happens should a vendor fail to submit a VAT return and have a “valid” reason for failing to submit and pay a VAT return?

What happens if you fail to submit? 

At the onset, we must point out that in terms of Section 234(d) of the Tax Administration Act, it is a criminal offence to fail or neglect to submit a return. So, if a taxpayer is to fail to submit a VAT return, there it has to be proven that there were circumstances beyond the vendor’s control that resulted in him/her not being able to submit or pay a VAT return. In terms of TAA section 187(7) these circumstances are limited to:

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services; or
  • a serious illness or accident.

So, unless you can prove these things your return and payment remains due and payable at the end of the month.

Can the penalty and interest ever be waived? 

Section 187(6) provides that the interest can be waived (directed that so much of the interest as is attributable to the circumstances is not payable by the taxpayer) if a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances beyond the taxpayer’s control. The circumstances are covered above.

What are your options if you cannot pay your VAT taxes when they fall due? 

If your business is in a situation where you do not know if you should pay your VAT or not due to COVID-19 or lockdown, do some scenario planning before your VAT payments become due bearing in mind the penalties and interest that may hit you if you do not submit or pay in time. The three scenarios you can look at are:

  1. What happens to your business’s cash flow for the next three months if you pay the 100% VAt due without delay
  2. What happens if you pay a portion of it when the payment becomes due
  3. What happens if you delay the payment completely and pay in a month or two.

The second option is to submit your return and apply for a repayment plan with SARS.

The third option is to apply for business continuity relief plans the government has unveiled for SMMEs.

The fourth option is to get a VAT payment loan.

How to avoid a similar problem in the future: 

It is in your best interests to avoid repeat late submission and payment of VAT. Continually failing to pay your VAT may lead to your business going under. You act as an agent for SARS in collecting the 15% VAT. If your clients are paying you, there is no reason why you should not be able to pay VAT because technically that money does not belong to you. If your clients are paying you late, then you need to be looking at your debtor management systems and processes.

You do not want to make late payment a recurring problem. You may want to consider some of the following general measures:

  • Open a separate business VAT savings account.
  • Whenever an invoice is paid, put aside the 15% into this savings account.
  • Implement cash flow management tools and means that ensures you are always paid on time.
  • If you have retainer clients, switch them over to debit orders instead of waiting for them to do EFT.
  • Include a payment method when sending out invoices. Invoices that have a payment method tend to be paid much quicker.
  •  Do you have any asset that you no longer use or that you are under-utilising? Do you think these can be sold if there is a market for them?
How can we help? 

Contact or call me on 078 361 5200 for:

  • VAT registrations
  • Online VAT registrations
  • Cash flow management
  • SARS debt repayment plans
  • VAT audits
  • VAT submissions

Have a question? Join my community and ask post a question on what is keeping you awake at night.


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Your personal data-room

Your personal data-room

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Your personal data room is a place where you keep all your important documents, whether online or in a physical file.

Your personal data room should include:

  • Your latest bank statements
  • Your latest payslip
  • Certified copies of your passport, permit and/or ID documents
  • Certified copies of your birth certificates
  • Medical records for yourself and your dependents
  • Your latest income tax assessment and other supporting documents
  • Your latest statement of assets and liabilities
  • Investment and insurance policies
  • If you run a business, your latest financial statements
  • Title deeds and registration documents for your vehicles
  • Wills and testaments

A personal data file is important because:

  • You will have all your important documents in one place
  • You will make and have a one-pager document with all your investments, bank account details, policy providers and account numbers.
  • In cases of emergencies, you will not have to run around to get your documents when (e.g. applying for finance or other life-essential requirements). Also, remember some bankers love dealing with organised people
  • It will make it easier for your loved ones once you are no longer there
  • Putting together your personal data-room may also help you discover policies, bank accounts or investments that you had forgotten about
  • You may also discover credit card or retail shops’ card that you no longer use but where you are still be charged certain fees. You will have an opportunity to destroy these cards and close all accounts that you no longer use.
  • Going through your bank statements may help you identify unauthorised transactions. This will help you save and cut unnecessary costs.

 

I hope you will find this useful.

Acknowledgement – encamoneymatters

Is SARS always right? What if I do not agree with their assessments?

Is SARS always right? What if I do not agree with their assessments?

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Many of us see SARS as that horrible master who just wants to take our money at every opportunity possible, and it’s money they didn’t even work for. Sometimes you look at an assessment and you even wonder what they are trying to do. Maybe they even issue an assessment and go on to recover monies owed by you by issuing an instruction to your bank to deduct whatever they feel is due to them. If this happens, what are your options?

Once the Revenue Authority issues an assessment on your tax return and they have issued a notification for the tax payable or refundable under your tax return, you can:

  • Choose to accept the assessment
  • Ask for reasons as to how SARS arrived at the issued assessment. This must be done within 30 days from the date of the assessment
  • You can choose to lodge an objection within 30 business days from the date the assessment is issued or within 30 business days after receiving the reasons on how SARS arrived at its assessment

SARS has a detailed guide on how you may file a notice of objection. However, I would advise that you consult a professional tax practitioner to assist you:

  • Ascertain if SARS’ assessment is correct
  • Determine if the relevant tax laws were applied correctly
  • Correctly lodge a Notice of objection on your behalf

 

Tips to get your objection right: 
  1. Ensure that you have all the supporting documents for the amounts you are objection to justify your reasons for objecting to the assessment. (For example, if you believe SARS missed your Medical Aid contributions, then you must have the supporting medical aid certificate when you lodge your objections)
  2. Ensure that you indicate the tax type(s) and tax years that you which to proceed and object
  3. Ensure that you select the items to dispute against by selecting the relevant tick boxes
  4. Ensure you have selected the correct source codes/ transaction code of the disputed item is displayed. It is important that you get the correct source codes as SARS may reject the Objection based on the fact that you put an incorrect code even though the objection is on valid grounds.
  5. Watch that you distinguish between dispute amount and requested amount. Again, SARS may turn back your objection if the distinction between these two is not shown. The disputed amount is the amount that has been charged for interest or penalties for late payment are displayed. The requested amount indicate what you believe the amount should be. This is important because if this amount and the amount above are the same, SARS will reject the NOO on that technicality.

An objection that does not comply with the rules of objections and the Tax Administration Act may be disallowed. In terms of the rules, you may submit a revised objection within 20 days of receipt of the notice of invalidity by SARS

If the objection is disallowed, you may elect to accept the outcome or appeal against the decision. If you elect to appeal the outcome, then you may elect to take the Alternative Dispute Resolution (ADR) route or the litigation route (via the tax board if less than R1 million or the tax court in all other cases).

You can initiate ADR by indicating that you wish to make use of the ADR process in your notice of appeal. Within 30 business days of your notice of appeal, SARS will inform you whether the matter is suitable for an ADR process. The ADR process must be concluded within 90 days.

If the dispute is resolved between you and SARS, it must be recorded and signed by you and a SARS representative. A settlement agreement must be approved by a senior SARS official. SARS will issue, where necessary, a revised assessment to give effect to the agreement reached by ADR. If the dispute is not resolved by ADR you may continue to appeal to the Tax Board, if the tax in dispute is below R1000 000, or the Tax Court.

Again, I want to stress out the need to consult a professional Tax Practitioner to assist you with this process. if you have gone through all these processes and have now won your case against SARS (where SARS issued unnecessary assessment without proper foundation), may you recover wasted costs incurred (consultations with lawyers and tax practitioners or accountants fees) through the unnecessary conduct of SARS officials?

The decision to use the services of professionals rests on the taxpayer. However, it goes without saying that the complexity of tax laws and regulations renders it necessary for one to consult with tax lawyers, accountants and tax practitioners. Currently, there is no formal authority covering whether taxpayers can recover their costs from SARS. But, practices in other tax jurisdictions allows taxpayers to recover damages in cases where they have suffered financial losses due to the conduct of the revenue authorities. In South Africa damages may be awarded by a competent court if the taxpayer can prove that he/she suffered financial loss as a result of the conduct of SARS.

Why do Small businesses fail?

Why do Small businesses fail?

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According to statics, 50% of small businesses fail within 24 months of launch. According to research and report by the UWC, between 70% and 80% of small businesses fail with 5 years. This is a significant number of small business that fails. The consequences of this to the economy and unemployment are significant.  But what exactly closes doors for small businesses?

 

Lack of planning: 

Most businesses are brought into existence for survival. The business owners simply register a company and hope everything will just be fine. There is no detailed plan on how the business is going to be run. There are no well defined short-term and long-term goals. As a result, there is no understanding of costs, responsibilities, markets, funding needs and other requirements of the business. Before long, the owners of the business run out of steam and find themselves back to the drawing board. Therefore, it is critical for business owners to have a clearly defined plan for their business. Also, a business data room that contains all critical information about the business is essential. This will come in handy when talking to investors or when seeking funding.

 

One-person show: 

In small businesses, often the owner is the go-to person. They are the main source of contact for everything to do with the business. They deal with customers, suppliers, employees, production, admin, dealing shareholders and putting out fires in general. This leaves them with little time to run the important aspects of the business. They have no time allocated for growing the business and attending to strategic issues relating to the business. This is why it is important for business owners to identify, early on in the business, aspects of their businesses that they can hand over or delegate to their assistants or other people in the business. This will, in turn, free up their time to focus on what matters.

According to the UWC report, personal initiative and goal setting are consistently related to business success. In other words, a business owner who is always reacting instead of proactively dealing with issues is more likely to fail than one who proactively deals with issues.

 

Failure to separate personal and business accounts: 

You often hear people say, “This is my business. This is my money. Why can’t I get the money out?” We have dealt with one such business before. The owner had a gambling problem. As a result, he spent over a million rands over two years in gambling. None of the winnings would come back to the business and no taxes would be paid over to the authorities for the business. While this business is still there, it consistently had cash flow problems and may not be around for a very long time.

Using a company account as a personal account will no doubt cause a lot of confusion. Business owners will struggle to keep track of their costs and will find it difficult to measure their profitability. Secondly, they will create significant loans accounts in the business, which will be difficult to clear.

As a general rule, business owners should decide on how much they need to survive on a monthly basis and pay themselves a salary from the business, obviously taking into account the cash flow and tax implications of doing so. Secondly, one should not owe the business unless they have a solid plan of paying or reducing this loan in the future.

Lack of proper records and financial systems: 

Many small businesses lack proper financial records and systems and technology. This could be related to the fear of the cost or fear of the unknown when it comes to technology.  But, many businesses that have adopted cloud accounting and other technologies have achieved efficiencies in a number of areas of their business. This is so because they no longer spend a lot of time on manual processes. Having data in real-time has also improved the way and quality of decision making in many small businesses. For many small businesses, technology should not be seen as a threat but as an ally. Small business should, therefore, be proactively looking for technology solutions before the lack of it throws them out of business.

 

Late payments by larger businesses: 

According to Moneyweb, Kenya is considering making late payment of suppliers a criminal offence.  This shows you how big this problem is. In South Africa, many government departments are known for paying way too late. In the Western Cape, the City of Cape Town is in a legal battle with a water supplier they asked to build a desalination plant in the Water Front. The company built the plant with over R37 million of their money, but to date, only about R4 million has been paid.

For any business, cash flow is anything. Small businesses also need to pay their suppliers who may in themselves also be small businesses. So, a call on large companies to pay their suppliers in time should become even louder than it is currently. Government departments should also look at how they can process supplier payments quicker. We also hope the new dawn that is sweeping through the country will also deal with officials who ask for kicks backs from these small businesses.

 

Passion is not expertise: 

Passion is not a substitute for experience. In fact, experience is a bad teacher. Often one only learns from it after a mistake is already made. So, it is important for small business owners to stay ahead of their game by attending managerial, business management, finance and tax training. Do not wait until it is too late for you to learn. Have an interest in your numbers and finances as much as you do in your money and bank balance.

 

Poor management: 

Ever heard people say, “People do not leave jobs, they leave managers?” When hiring managers, one needs to get someone who has a passion for developing and listening to people. When this is not the case, staff turnover becomes too high, so do the costs of hiring and training new staff members.

Are you looking for someone to help your business grow or survive? Click here to contact us

What does a SARS completion/verification letter mean?

What does a SARS completion/verification letter mean?

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What is a verification: 

Being selected for an audit and verification are two different processes. With a verification, SARS is doing a face value verification of the information declared by the taxpayer on the declaration or in a return. This involves the comparison of the information on the return against the financial and accounting records and/or other supporting documents. All this is to ensure that the declaration/return is a fair and accurate representation of the taxpayer’s tax position.

Remember, in terms of the Tax Administration Act, the onus is on the taxpayer to provide supporting documentation in order to prove that the deductions and information on their declaration are reasonable, fair and accurate.

Who can be selected for verification:

Any taxpayers can be selected for a verification process for the purpose of proper administration of tax. The selection can also be done on a risk basis.

What should I do if I am selected for verification:

SARS will notify the taxpayer if they have selected them for verification. The letter issued will state what the taxpayer must do or provide to SARS. The letter will also notify the taxpayer to check their tax return and to make any correction if there are any discrepancies on their tax return. The taxpayer will be given 21 business days from the date of the letter in which to provide the supporting documents and schedules.

The supporting documents or schedules can be submitted via eFiling or manually at the SARS branch near you.

During the verification, you can expect to get another letter requesting additional information if the relevant material initially supplied was not sufficient to finalize the verification. If you are due for a refund, you may not get this until the verification process is finalised.

 

What happens if you do not respond to the verification: 

If you choose not to respond, SARS may:

  • Issue a second letter reminding you to submit relevant information
  • Issue a final request for relevant information
  • If you still do not respond, a SARS official will contact you telephonically and request that you submit the necessary relevant material within 5 business days.
  • Should you still not respond, SARS may raise an assessment based on information readily available or obtain from a third party.

NB: It is always best to respond to all queries as quickly as possible. There is a possibility of penalties and interests

 

What to expect when verification is completed: 

You will receive a completion letter notifying you of the verification outcome. If all went well, this letter will normally notify you that no adjustments have been made. In that case, SARS will not be making adjustments to their assessments. If you are due for a refund, it should be paid out in 7 working days (provided you have no tax debt due or outstanding tax returns from prior years). If you were the one owing SARS, the amount due will remain payable.

 

Click here to contact us should you need help

 

 

 

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What you need to know if you are earning foreign income

What you need to know if you are earning foreign income

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    • Key takeaway points:

 

    • 1. Before 1 March 2020, all foreign income (as defined) was exempt
    • 2. After 1 March 2020, the exemption is limited to R1.25 million
    • 3. Certain conditions have to be met before the exemption can be applied
    • 4. Independent contractors and individuals who are self-employed are excluded from this exemption.
    • 5. Tax residency is NOT based on Citizenship.
    • 6. You must notify SARS as soon as you cease to be a tax resident.
    • 7. SARS will require certain supporting documents to verify your foreign income and residency status

What is foreign income exemption?
“Section 10(1)(o)(ii) provides for an exemption for foreign employment income received for services rendered outside South Africa, provided the requirements are met.”

Before 1 March 2020, if all conditions were met, the entire income was exempt.

 

The conditions include:

1. Be a tax resident of South Africa
2. Earn certain types of income (such as salary, taxable benefits, leave pay, Wage, overtime pay, bonus, gratuity, Commission, Fee, emolument, allowances including travel and advances, amounts received in respect of share vesting…)
3. In respect of services rendered by way of employment
4. Outside South Africa
5. During specified qualifying periods (see paragraphs that follow)
6. Have a formal employment contract (with a resident or non-resident employer)

Since 1 March 2020, the exemption is limited to R1.25 million if the conditions are met. Any remuneration received in excess of R1.25 million will be subject to normal tax rules in South Africa. Before 1 March 2020, the income would have been exempt if all conditions were met.

You must file your tax return even when you qualify for this exemption and the qualifying income must be declared under the relevant SARS codes.

 

Who is a tax resident?
Citizenship does not define tax residency. A tax resident is a person who is ordinarily resident or becomes a resident by way of a physical presence test, which requires one to be in SA for a certain period of time to be considered a tax resident. If you do not want to be a tax resident, your option is to financially emigrate However, emigration alone does not remove the residency status as the physical presence test may still be applied to determine your tax residency status.

You must notify SARS as soon as you cease to be a tax resident.

 

The physical presence test:

This is a calculation of the actual amount of time you physically spend in SA. You are considered a SA tax resident if you meet all of the criteria below:

1. 91 days in South Africa in the current year of assessment, and
2. 91 days or more in each of the preceding five years of assessment, and
3. 915 days in total during those five preceding years of assessment.

You fail the physical presence test if you fail to meet any one of the above criteria.

 

What are the qualifying periods?

An employee must be outside South Africa for certain periods to qualify for the exemption:

1. A period not exceeding 183 full days (in total) during
2. Any 12 month period (not a calendar year or a tax season) and
3. A continuous period exceeding full and unbroken 60 days during that 12 month period

 

Who does not qualify for this exemption?

1.Independent contractors
2. People who are self-employed
3. A public office holder appointed or deemed to be appointed under an Act of Parliament
4. Employees who are employed in the national, provincial or local sphere of government, certain constitutional institutions, national and provincial public entities and municipal entities.

 

Supporting documents required by SARS:

1. Spreadsheet showing number of days in and out of SA
2. Copy of your passport showing days in and out of SA
3. Letter from your employer stating you’re allowed to work overseas (and for what periods), plus what amount was earned during that period
4. Foreign/ex-pat assignment employment contract
5. IRP5 showing foreign employment income earned (e.g source code 3651, 3653, 3655, etc.

We hope this was helpful. If you have any questions, feel free to use the comments section below or contact us here.

What are and how will the new WhatsApp terms and conditions affect you or your business?

What are and how will the new WhatsApp terms and conditions affect you or your business?

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New WhatsApp terms and conditions will come into effect on 8 February this year.

Before you click on “Accept” let us try and understand what these new terms and conditions are all about.

Also, let us be aware that without accepting these terms and conditions we cannot continue using the App. So, there is no choice. You either accept or you’re out.

So, this is exactly why it is so important for us to understand, if we are accepting, what we are getting into.

This is what will happen after 8 Feb 2020:

  1. WhatsApp will share the user’s personal information with Facebook and other services managed.
  2. The service collects contacts, business data when using Facebook, and even the user’s IP or geographical address (this applies to Apple phone users too)
  3. The terms and conditions state this: “Even if you don’t use our location-related options, we use the IP address and other information, such as area codes for phone numbers, to estimate your general location (for example, city and country). We also use your location information for diagnostic and troubleshooting purposes,”
  4. Whatsapp will also collect information from the primary user and their contacts or third parties. So, they will have access to your contact list and this will be gathered when other people or parties interact with you.
  5. By accepting the new terms and conditions,  you are allowing Whatsapp and Facebook to have almost total access to your activities, which range from text messages, contacts, purchases, and interactions with third parties, payments (if you are using WhatsApp to make payments – this is already happening in India, I think). So, you are remaining in vulnerability by not having privacy.
  6. Your data will be accessible to Facebook and other companies it is linked with.
  7. Whatsapp and Facebook claim they are collecting this data for the following reasons:
  • To “understand how our services are used,”
  • To evaluate and improve these services
  • To conduct research
  • To develop new services and functions
  • To carry out activities to solve problems of the application.

Of course, we must point out here that only they know their real intentions. You have to know what you are getting into before you accept these terms and conditions.

What does this mean to you? 

If you are running a business:

  1.  Update your website terms and conditions and notify your clients that you use WhatsApp as a means of communication.
  2. Update your engagement letters or mandate letters to notify your client that you make use of WhatsApp as a means of communication. This should also apply if you use other applications like Grammarly, which means you need to notify your clients that there is an App reading their emails.
  3. If you are not happy with the terms and conditions, and this applies to individuals not running a business, do not accept the new terms and conditions. Look for alternatives like Telegraph and Signal.

For further reading and references:

Moneyweb

Dominicantoday

Archyde

Can you take money out of South Africa?

Can you take money out of South Africa?

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Some questions you may have about getting money out of South Africa may include:

  1. What are the tax implications of sending money out of South Africa as gifts?
  2. How can I send investment out of South Africa?
  3. What does a Single Discretionary Allowance mean? Does this cover gifts and investments send to a country outside South Africa?
  4. What are the tax implications for me receiving dividends from a country outside the Republic?

Let us now look at each of these questions:

What are the tax implications of sending money out of South Africa as gifts?

Gifts will be deemed as donations. But, he normal rules regarding donations and what is exempt will apply. Where exemptions do not apply, donations will attract 20% tax up to an amount of R30 million and 25% to an amount above R30 million. However, individuals will get an annual exemption of R100 000. This R100 000 will form part of the discretionary allowance.

If you are planning to send gifts, you may do so up to R100 000 before you can get taxed on it. We will discus the discretionary allowance later on in this article.

How can I send investment out of South Africa?

There are two ways through which you can send money out of South Africa for investment purposes.

  1. The single discretionary allowance – R1 million (does not require tax clearance)
  2. The foreign investment allowance – R10 million (requires prior tax clearance) With this one you can transfer R10 million per year. But you will need to get a tax clearance before making the transfers.

You can use these vehicles to send money for:

  1. Gifts
  2. Investments
  3. Fees
  4. Loaning people outside the country
  5. Child or spousal support support
  6. Travel purposes

What does a Single Discretionary Allowance mean? Does this cover gifts and investments send to a country outside South Africa?

Single discretionary allowance means you can send R1 million per calendar year without getting a tax clearance to do so. You can use this to send gifts but remember you are exempted from donations tax up to R100 000.

You can use the discretionary allowance to send gifts and investments out of South Africa. But, if you are using the single discretionary allowance, it means the money you send in a single year cannot exceed R1 million.

What are the tax implications for me receiving dividends from a country outside the Republic?

  1. Most foreign dividends are exempt if the South African resident holds at least 10% of the equity in the entity paying the dividend. – 100% of the dividends will be exempted.
  2. Otherwise, dividends are taxable in SA at a rate of 20% for equity less than 10%
  3. The resident can claim tax credits for foreign taxes levied on the dividends where applicable.

Do you need more help? Get in touch with us here or visit our website here.

Is there VAT on residential property?

Is there VAT on residential property?

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Can you charge VAT on residential property?

Let’s get straight into it. There is no VAT on residential property. This is an exempt supply in terms of the VAT Act. However, one needs to be careful and correctly distinguish between residential and commercial letting.

The distinction between residential and commercial property is important because while residential accommodation is exempt, commercial accommodation attracts VAT at the standard rates. Also, certain rules apply where commercial accommodation is supplied for less or 28 days and where is supplied for more than 28 days. We will look at this later. First, let us define and distinguish between residential and commercial accommodation.

Residential accommodation:

Simply put, this is where you own a residential house that you let out, predominately used as a place of residence or abode of a natural person but excludes the supply of “commercial accommodation.” Where this is the case, there is no VAT applicable to your rental income. Also, you cannot claim input tax.

Commercial Accommodation:

This is the supply of such accommodation such as hotel, B&B, guest house, retirement home, frail care homes etc. It is clear that excludes a dwelling as defined under residential accommodation.

This kind of accommodation attracts VAT at the standard rates.

The 28-days rule:

It gets a bit interesting when the commercial stay is a bit longer.

Under commercial accommodation, if the stay is 28 days or less, then the full amount chargeable to the client is vatable at the full standard rate. In other words, the VAT charge is the standard rate multiplied by the full charge before VAT. For example, assuming that the full charge before VAT is R100 and the standard rate is 15% then the VAT charge would be equal to R100 x 15% and the full price plus VAT would be equal to R115.

If the stay is of an unbroken period of longer than 28days, then only 60% of the amount charged is deemed to be vatable. Using the example above, this would be R60 of the full price charges. This effectively means that the VAT rate drops to 9% (15% x 0.6)

Practicality:

You may need to get your accounting system to have this additional VAT rate for stays longer than 28 days (but of course, you need to remember that this is for an unbroken period of stay.)

Secondly, your VAT201 return will need to disclose the 60% and 40% separately because they are using a different tax rate. One needs to be careful with the 40% because it is not an exempt supply, which means it may not have a place on the VAT return.

This will now mean that reconciliations should be done and kept because an IT14SD reconciliation may be issued because the 40% may not necessarily be disclosed on the VAT return.

We must also point out that you will be able to still claim 100% on the input side because the 40% is not treated as an exempt supply.

Do you need more help regarding the VAT treatments of your business? Get in touch with us here or visit our website here.

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