VAT Amendments – South African Budget 2018

 

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On Budget Day, 21st February 2018, the South African Minister for Finance released updated draft regulations in relation to VAT levied on electronic services provided by foreign businesses.  The aim is to extend the definition of “electronic services” to include “any service supplied by means of an electronic agent, electronic communication or the internet…”

 

If enacted, the amended draft regulations could result in a significant overhaul of the VAT treatment electronic services.

 

In 2014 Section 89 of the Value Added Tax Act 1991 was amended.  From 1st June 2014 on-wards the definition of “enterprise” was to include in the supply of electronic services provided by foreign suppliers to recipients within South Africa. As a result, non-resident suppliers of these services were required to register for VAT where their supplies exceeded the threshold amount of R50 000 in a twelve month period.

 

The amendments proposed in this Budget, which should take effect from 1st October 2018, include the following:

  • Repealing the current Regulation – This would allow for the deletion of the specific types of services currently outlined as “electronic services” and
  • Revising the definition of “electronic services” to effectively include any type of service supplied electronically with the exception of telecommunication services and educational services provided by a person who is regulated by an educational authority in a foreign jurisdiction.

 

This new definition will bring into the South African VAT regime; foreign suppliers whose services were previously outside its scope including online advertising, broadcasting, cloud computing, access to databases and information systems, etc.

 

The VAT Act does not, however, distinguish between Business to Business (B2B) supplies and supplies made directly to South African consumers (B2C). This will have a significant impact on the tax compliance burden for foreign suppliers who supply services electronically into South Africa as well as for the South African Revenue Service.

 

Amendments have been proposed for intermediaries and platforms to be allowed to register as vendors.  This will enable them to account for the VAT arising on sales made through such platforms providing the platform or intermediary facilitates the supply and assumes responsibility for the issuing of invoices and collection of the associated payments.

 

The National Treasury has allowed until 22nd March to provide comments.  Following which, if the proposed amendments are enacted they will become effective from 1st October 2018.

Nestlé UK Ltd. loses its Case – Strawberry and Banana Nesquik are liable to standard rated VAT

 

Chocolate milk

 

Nestlé has lost its appeal against the original 2016 ruling by the UK’s First Tier Tribunal over the VAT treatment that should apply to its strawberry and banana flavoured Nesquik powders.

 

The First Tier Tribunal found in favour of the HMRC not repaying the £4 million of output VAT which had been over declared by Nestlé on these products.  Nestlé’s grounds for seeking this repayment were that the fruit flavoured powders were liable to the zero VAT rate as they were deemed to be “a powder for the preparation of beverages.”

 

The Tribunal held in favour of the HMRC that the products in question should remain at the standard VAT rate and as a result, no claim for the over declared output VAT is to be allowed.

 

Nestlé argued that strawberry and banana Nesquik should be zero rated. The reason being that they encourage milk drinking and milk is zero rated.

 

Nestlé also argued that these flavours should have the same VAT treatment as the chocolate flavour powder because they are in essence, the same product.

 

Both Nestlé and the HMRC agree that the chocolate flavoured Nesquik should be zero rated on the basis that this product contains cocoa thereby allowing it to fall within the list of “exceptions to the excepted items” according to the UK’s zero rating provisions.

 

The Upper Tribunal pointed out that there are number of other anomalies within the VAT system. For example, the fact fruit salad is zero rated while fruit smoothies are liable to VAT at the standard rate.

 

This case is likely to be appealed by Nestlé.

 

The lesson to be learnt from this case is that advice should always be sought in advance, especially with regard to new supplies, to ensure that the correct VAT treatment is always applied.

 

The full ruling can be found here:

 

 Nestlé UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 29, Appeal number: UT/2016/120 

 

 

 

 

Image courtesy of tiverylucky at FreeDigitalPhotos.net

4% Stamp duty rebate on development land used for residential development

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A stamp duty refund scheme in respect of land purchased to develop residential property was signed into the 2017 Finance Act on 25th December 2017.

 

The Act provides that where stamp duty, at the new higher rate of 6%. is paid on the acquisition of land which is subsequently used to build residential property, the purchaser will be entitled to a rebate of 4% being 2/3rds of the duty paid.

 

It is important to keep in mind that the refund of stamp duty is only applicable in relation to the proportion of the land used for residential development.

 

 

The Main Points of the Scheme are:

 

  • The scheme only applies where the residential development begins within thirty months of the date the land was acquired but before 1st January 2022.

 

  • It only applies to the construction of dwelling units.

 

  • It does not apply to the refurbishment or completion of existing or partially constructed units.

 

  • The time taken to conclude any planning appeal may be added to this 30 month period.

 

  • The development must commence on foot of a Commencement Notice served in compliance with the Building Control Regulations and must be completed within two years of the relevant Local Authority’s acknowledgement of the Commencement Notice.

 

  • There is a four year time limit on claiming a repayment.  Please be aware that the repayment does not carry interest and must be claimed using Revenue’s e-Stamping system.

 

  • The 4% duty refund can be claimed following the commencement of the works

 

  • Where the residential development is being carried out in phases, repayments can be sought on a phased basis i.e. the refund can be reclaimed on the commencement of each phase but only in proportion to the area of the land in each phase.

 

  •  75% of the land, for which the refund claim is made, must comprise of dwelling units.

 

  • If the legislative conditions are not met or if the works have not been completed within the 2 year deadline then Clawback Provisions will apply to this refund.

 

 

Despite the fact that this scheme has been signed into legislation there are still areas of uncertainty.  It is expected that Revenue will issue guidance material to clarify matters in due course.

 

 

Irish Employment Tax

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It’s very difficult to keep up to date with all the amendments to the Irish tax system so here is a summary of some of the changes to be mindful of in 2018:

 

 

1. Annual Membership Fees paid to a professional body (Revenue eBrief 04/18 published on 9th January 2018)

 https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0042018.aspx

 

The updated Revenue guidance notes allow an employee to claim a deduction for professional membership fees only in circumstances where:

  1. There is a statutory requirement for that employee to be a member of a specific professional organisation or body or to hold a practicing certificate in order to carry out the duties of his/her employment or
  2. In the absence of that professional membership or practicing certificate the individual cannot legally fulfill the full duties of his/her employment.

 

Where the employer pays the membership fee on the employee’s behalf and either of the above two conditions apply then no Benefit-in-Kind is deemed to have arisen.  Subsequently no payroll taxes will arise.

 

We would advise all employers to ensure the payment of professional membership fees on behalf of employees can be supported in the event of a Revenue Audit.

 

 

 

2. Increase in Employer’s Pay Related Social Insurance from 10.75% to 10.85% from 1st January 2018.

 

 

 

 3. Benefit-in-Kind Exemption of Electric Vehicles for 2018. 

Finance Act 2017 introduced this exemption for electric vehicles which were available for private use for employees during the 2018 tax year.  It is not clear whether or not this scheme will be extended into 2019 which may result in a low uptake in purchasing electric vehicles by employers.

 

The exemption applies to cars and vans deriving their power from an electric motor.

 

It does not apply to hybrid vehicles.

 

 

 

4. PAYE Modernisation or Real Time Reporting

From 1st January 2019 all employers will be required to accurately provide PAYE data to Revenue on a Real Time basis.

 

This effectively means:

  • Revenue will be able to automatically review employees’ payroll information and immediately identify any discrepancies and errors.
  • The PAYE information submitted to Revenue must be 100% correct.  In other words, the opportunity to amend errors at the end of the year has been elimited.

 

For further information, please follow the link:

https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-892017.aspx

 

We would advise all employers to take the time, sooner rather than later, to ensure their payroll processes will be adequate to handle the increased obligations of the Real Time Reporting.

 

 

 

 Here is a list of other relevant Revenue eBriefs:

 
Home Carer Tax Credit – Revenue eBrief No. 009/18 (29 January 2018) https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0092018.aspx

 

Change in Basis of Assessment – Schedule E – Revenue eBrief No. 127/17 (29 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1272017.aspx

 

Taxation of payments to craft apprentices by Education and Training Boards –Revenue eBrief No. 126/17 (29 December 2017)

 

Benefit-in-Kind on use of Company Vans – Revenue eBrief No. 124/17 (28th December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1242017.aspx

 

Exemption from Income Tax in respect of certain payments made under employment law – Revenue eBrief No. 118/17 (20 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1182017.aspx

 

PAYE Services: Tax and Duty Manual Updates – Revenue eBrief No. 111/17 (01 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1112017.aspx

 

Amendments to the Employment and Investment Incentive on 2nd November 2017 – Revenue eBrief No. 99/17 (02 November 2017)
 https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-992017.aspx

Stamp Duty for Non-Residential Properties

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As you are aware, Finance Act 2017 increased the rate of stamp duty on the transfer of non-residential property from 2% to 6% with effect from midnight on Budget Day.

 

The change applied to instruments executed on or after 11th October 2017.

 

This dramatic increase will, most likely, reduce the number of commercial property transactions carried out in Ireland in 2018.

 

On 27th October 2017, The Irish Revenue Commissioners published Revenue eBrief No. 94/2017 outlining the transactions eligible for the 2% Stamp Duty rate under Transitional Relief Measures:

 

In circumstances where a binding contract has been entered into before 11th October 2017 the rate of stamp duty will remain at 2%, provided the following two conditions are met:

 

  1. the instrument was executed before 1st January 2018, and

 

  1. the instrument contained certification that the instrument was executed on foot of a binding contract entered into before 11th October 2017.

 

 

A person who filed a stamp duty return before the enactment of the Finance Bill and who was satisfied that the transitional measures would have applied if the Finance Bill had been enacted, had two options:

 

  1. To file a return through the e-stamping system, pay stamp duty of 6% and be issued with a stamp certificate.  Now that the Finance Act has been enacted the filer can amend the Return, submit the relevant documents to Revenue thereby requesting a refund of 4% (i.e. the difference between the 6% and 2% rate). Please follow attached link for detailed instructions:

 https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf or

 

  1. To file a return through the e-stamping system and pay the stamp duty at the lower rate of 2%.  In this situation a stamp certificate was not be issued at this stage.

 

On 4th January Revenue published guidelines on how this postponed stamp certificate can be obtained. To receive the certificate, you must amend the Stamp Duty Return by following the link:

https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf

 

For those who filed their Returns but did not pay the correct amount of Stamp Duty at the 2% rate, you will not have received a Stamp Certificate.

 

In order to obtain the stamp certificate you must amend the Stamp Duty Return, pay the Stamp Duty of 2%, pay any Interest accruing on the late payment of Stamp Duty and pay any surcharge arising on the late filing of the Return, if relevant.

 

Once the payments have been processed your Stamp Certificate will issue automatically.