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Taxes on imported electronic services: The new rules that apply in 2015

by , 10 June 2015
You probably already know that SARS set out new rules for Vat treatment of imported electronic services. They came into effect on 1 April 2015.

Today we'll look at these rules so you can make sure you don't miss out on your input tax deductions.

So let's assume your supplier needs to issue you with a credit or debit note. He can only do this if he first gave you a valid tax invoice.

This means that then he can issue a credit or debit note with the following information:

1. His company's name, address and Vat registration number;
2. Your name and address as the recipient of the electronic services;
3. The date he issues the credit or debit note;
4. A brief explanation of the circumstances giving rise to the credit or debit note.
5. The new consideration amount whether it's increased or decreased. And the tax amount. If the consideration is in:

• Rands, the tax invoice must show the new Vat amount. Or it must have a statement that the consideration includes the new Vat amount and the rate the Vat was charged; or
• Any other currency, the tax invoice must show the new amount of tax in Rands. Or your supplier must give you a separate document, also showing the new amount of tax in Rands; and

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6. The exchange rate used, which must be the same as the rate used in the tax invoice (Section 21(5) of the Vat Act).

Pay attention to the fact that if your supplier's credit note doesn't meet these criteria, SARS will disregard it completely. It will see it as if the credit note doesn't exist. This means the Vat on the tax invoice will become payable to SARS.

The exchange rate and value of supply is important too

If your supplier gives you a tax invoice or a credit/debit note in a currency other than Rands, he must convert the tax charged to Rands.

The exchange rate he must use to work out the tax charged in Rands, is the rate published by either:

• The South African Reserve Bank at www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx;
• Bloomberg at www.bloomberg.com/markets/currencies/cross-rates;
• The European Central Bank at www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html.

He must use the exchange rate on the date the time of supply occurs. Or the monthly average rate for the month that the time of supply occurs.

The time of supply is the first of either:
• The issue of the invoice; or
• The supply of services whichever takes place first.

Also, pay attention to the fact that if your supplier doesn't follow these rules, SARS may see your tax invoice as invalid and disallow your input tax claim. And it will charge you fines and penalties for trying to claim input tax without valid documentation.

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