The South African VAT system, like most other jurisdictions’ VAT systems, is a destination based VAT system. In short, this generally means that goods or services consumed in South Africa attracts VAT at the standard rate while goods or services consumed outside South Africa should be subjected to VAT at the zero rate.
While the principle is indeed simple, the practical application thereof often gives rise to tremendous difficulties as the principle is riddled with exceptions, the nuances of which must be carefully examined and considered in light of the facts associated with each supply. Of equal importance is the often overlooked supporting information required to support the rate applied.
Incorrectly relying on a zero rate could have devastating financial and business relationship consequences. While the VAT act indeed provides a right of recovery of the VAT that should have been charged, penalties of up to 200% of the VAT not charged could follow in addition to a 10% late payment penalty and interest.