In simple terms, foreign donor-funded projects these are funds you receive from foreign donors for a foreign donor funded project which is carried out in SA.
Here's an example of a foreign donor-funded project:
Let's say the Swiss Government enters into an agreement with the South African Government to provide €10 million to South Africa to build low-cost houses.
This agreement is gazetted and the SA Government appoints Honest Al's Builders to carry out this project. Although Honest Al is a Vat vendor for his own building business, he registers the project as a separate Vat vendor and shows the €10 million as a zero-rated supply. Because he's done this, SARS will allow the project to claim the input tax on all its expenses.
You might recall that we always say 'when you charge Vat at the zero-rate, you must prove to SARS that you were entitled to do so.' This goes for foreign donor-funded projects where supplies are made to the foreign donor too.
Keep the following documents to substantiate your zero-rating of foreign donor-funded projects:
The Vat treatment of foreign donor-funded projects explained
Using the above example, the new registered project, with Honest Al as the representative, will write the amount of R100 000 000 in block 2 of the Vat return.
Knowing how to deal with Vat treatment of foreign donor-funded projects will help ensure you avoid harsh penalties.
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