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Do you have foreign clients? Avoid these three mistakes when issuing tax invoices or it could trigger a Vat audit

by , 08 December 2014
If you operate in South Africa but supply goods or services to foreign clients, you still need to register for Vat. You also have to give your foreign clients tax invoices.

SARS needs to see these documents to verify you handle your Vat correctly.

But here's the thing: Many Vat vendors make big mistakes with these invoices because they send it to a client in a foreign country.

These mistakes could raise red flags for SARS and cause an audit.

Today, I'm showing you three of the most common mistakes and how to avoid them so this doesn't happen to you...

*********** Hot off the press  ************
Get your tax invoices right, the first time, every time
Do you know what a tax invoice should look like?
What information should be where and how it must be presented so that SARS will be happy?
Did you know that you could get a penalty from SARS if your invoices aren't correct?

Never make these three mistakes when you issue a tax invoice to a foreign client

Mistake 1: Charging your service or goods with the incorrect Vat rate
There are only a few goods and services that have the zero Vat rate. If you get this wrong and charge the wrong item as zero-rated, it will be on your tax invoice. This means SARS will see when you made this mistake. 
This is a very serious mistake because it means you didn't charge Vat at the correct amount when you should have. You'll have to go back and levy the Vat you should have in the first place. Then you'll need to issue another tax invoice.
To help you avoid this, here are the 19 goods and services that are zero-rated:
1. Exports;
2. Going concerns;
3. Gold to the banks;
4. Certain agricultural goods;
5. Petrol and diesel;
6. Certain foodstuffs;
7. Gold coins not set as jewellery;
8. Paraffin;
9. Triangular supplies;
10. Land to the Minister of Land Affairs;
11. Duty free shops;
12. International transport;
13. Services to land situated in other countries;
14. Services to foreign going ships or aircraft;
15. Services to non-resident clients;
16. Intellectual property to non-residents;
17. Certain payments received from Government or municipalities;
18. Rates; and
19. Winnings paid to certain owners of race horses.
These apply to local and foreign clients. Make sure you only treat these as zero-rated supplies. 

For more information on zero-rated supplies, check out the Practical Vat Loose Leaf Service.
Mistake 2: Using the wrong exchange rate
This is probably the most common mistake. Because you're dealing with someone overseas, you might not be sure of how the exchange rate affects your tax invoice. 
To avoid this mistake, reflect the cost of the supply in a foreign currency as well as the relevant exchange rate on the tax invoice. 
Use the daily exchange rate the South African Reserve Bank puts on its website at the time of supply to work out the rand value of the cost of the supply. 
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Mistake 3: Not having the correct documents to support your tax invoice

Just like when you issue a tax invoice to a local client, you must have the relevant supporting documents when you issue a tax invoice. 
Here's what you need for your foreign client's tax invoice: 
  • An order or contract with your client that proves you must supply goods or services;
  • Proof of payment;
  • Form F178 for exchange control declaration;
  • One of these three Vat forms depending on the type of supply you sell:
  1. Vat 266 - Declaration of goods (including fuel) supplied at the zero rate;
  2. Vat262 - Zero-rating of Vat in respect of services supplied directly to goods temporarily admitted into the RSA from an export country for the purposes of being repaired or serviced; and
  3. Vat 267 - Declaration in respect of goods and services supplied and delivered / rendered to a CCAE.
Always check all the information on your tax invoice is right and that you have the right supporting documents to make sure you don't make these mistakes. 
If you do, SARS will be suspicious. That means an audit is coming your way and, take it from me, a SARS audit is very stressful. 
Check out the Practical Vat Loose Leaf Service for more on issuing foreign clients with tax invoices. 

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