Mbusi Mthwane - GTP(SA)
13 May 2022
The general requirements for registration is that one must be a person that carries on any enterprise where the total value of taxable supplies exceeds R1 million or is reasonable expected to exceed R1million in any consecutive 12 month period. It is important to note that there is no requirement that the person must be a company or a branch registered in South Africa for the requirements to register for VAT in South Africa to be met.
Are you carrying on an enterprise?
What is key to determining whether or not your organisation should be registered for VAT you many need to consider whether or not you are carrying on an enterprise. An enterprise is defined in section 1 to include any activity which is carried on continuously or regularly by any person in the Republic or partly in the Republic and in the course or furtherance of which goods or services are supplied to any other person for a consideration, whether or not for profit.
For the purpose of this discussion, paragraph (b)(vi) of the same definition also requires the supply of “Electronic Services” by any person from the place in a foreign country to have at least the two of the following additional requirements for it to be conducting an enterprise:
Has your revenue (specifical value of taxable supplies) reached the registration threshold?
The exception to the obligation to register is when the total value of the taxable supplies within 12 months period is not deemed to have exceeded or likely to exceed the R 1 Million threshold where the Commissioner is satisfied that the said total value will exceed or is likely to exceed the threshold amount solely as a consequence of:
Consequently, the supply of electronic services require normal requirements as envisaged in section 23 and two additional requirements as stated in paragraph b(vi) of the definition of an enterprise unless the supply qualify for the exception point as stated above.
The scenario that is of question is what could be considered abnormal circumstances of a temporary nature on the supply of electronic services i.e. a once-off supply of electronic services that is more than the required R 1 Million threshold. Would this meet the definition of enterprise requirements of “continuous or regular basis? If a taxpayer can provide adequate evidence that where revenue from electronic services equals to or exceeds R1million in a 12 month period purely as a result of temporary abnormal circumstances such a person will not be obligated to register for VAT in the Republic of South Africa.
Currently, the VAT Act does not define “continuous or regular basis”. A person who has proven that the supply of electronic services is of temporary nature may also argue that the definition of an enterprise is not met as a result of not meeting the “continuous or regular basis requirement.
‘Continuously’ is generally interpreted as unchanged or uninterrupted, that is, the duration of the activity is continuing without changing, stopping, or being interrupted in space or time; nor has it ceased in a permanent sense. The term ‘regularly’ generally refers to an activity that occurs in a fixed, unvarying, or predictable pattern, with equal amounts of time or space between each one.
Therefore, an activity can be regular if it is carried out on a regular basis according to an established routine or schedule repeated at reasonably fixed intervals taking into consideration the type of supply and the time taken to complete the activities associated with making the supply.
In New Zealand (Case N27 (1991) 13 NZTC 3,299 at 3,238) the court interpreted the word “continuous or regularly” to mean that the ‘activity has not ceased in a permanent sense or has not been interrupted in a significant way . . . The object and purpose or the physical break in the activity, whether it be for rest, recreation, health and such like reasons may be of importance in determining whether the activity is being carried on continuously”.
As a general rule, isolated or ‘once-off’ transactions will not qualify as conducting ‘an enterprise’. It is therefore not easy to determine, particularly when a series of steps are involved, whether a transaction may correctly be classified as an isolated event, as opposed to an activity carried on continuously or regularly.
In this regard, careful consideration needs to be applied in classifying the supply of electronic services to be a once-off and for the obligation to register for VAT purposes to be exempted.
