Indirect Tax Alert | 19 March 2014

South Africa changes requirements to claim input tax deduction on importation

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Effective 1 April 2014, the South African requirements to claim an input tax deduction of Value-Added Tax (VAT) paid on importation of goods has been amended. This amendment affects the timing of when vendors may claim an input tax deduction on VAT paid on importation of goods and may result in significant negative cash flow implications for companies.

Until 31 March 2014, the South African VAT Act stipulates that a vendor may deduct the VAT paid on importation of goods into South Africa at the earlier of invoice date (generally the bill of entry date) or payment date. However from 1 April 2014, a vendor may only deduct the input tax in the tax period in which the VAT payable on importation is paid to the South African Revenue Service (SARS).

Therefore, going forward it cannot be said that the bill of entry date (i.e., invoice date) and payment date will fall in the same VAT period and it may result in a VAT liability in one VAT period and a VAT refund in a subsequent VAT period.

One factor to consider is how companies manage their imports. Companies may utilize a clearing agent but still manage the payments to SARS. In this instance it is easy for the company to monitor when they make payments to SARS.

Companies, who make use of clearing agents to handle the entire import process, will pay a clearing agent for their services provided and the VAT and duties applicable on imported goods. The clearing agent will then pay the VAT and duties to SARS on the company's behalf.

It is imperative that companies understand that the payment they make to the clearing agent and the payment the clearing agent makes to SARS may not occur in the same VAT period.

An important factor to consider is that companies and clearing agents may both utilize deferred payment accounts with SARS. This allows a deferment of the VAT and Duties payable to SARS on importation for up to 30 days. Companies will be required to obtain confirmation from their clearing agents of when the VAT payable on importation of their goods is paid to SARS by the clearing agent. It is only in the VAT period in which the payment to SARS falls that the importer may deduct the VAT paid on importation in its VAT return.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services Ltd, Johannesburg, South Africa
  • Folkert Gaarlandt
    +27 11 772 5220
  • Leon Oosthuizen
    +27 11 772 3612
  • Georgia Mavropoulos
    +27 11 772 3133
  • Redge De Swardt
    +27 11 772 3544
Ernst & Young LLP, US VAT Practice, New York
  • Narisha Parbhoo
    +1 212 773 4982

EYG no. CM4275