If you receive funding from a foreign donor and aren't clear about the Vat consequences, the Practical Vat Loose Leaf Service has got you covered.
Is your project funded by a foreign donor? Find out how Vat works
A foreign donor funded project is a project established as a result of an international donor funding agreement to which the South African government is a party, says the Practical Vat Loose Leaf Service.
A foreign donor funded project will provide goods or services to beneficiaries (not from the donor).
This agreement is binding on South Africa in terms of the Constitution and the funding IS NOT subject to tax.
This means, where a foreign donor funded project is registered as a Vat vendor, the funding it receives from an international donor is zero-rated.
The distinction with the zero-rating here is important.
Although the foreign donor funded project accounts for Vat at the zero-rate on its international funding received, it can claim the relevant input tax relating to the project.
Well there you have it. If your project is funded by a foreign donor, the funding won't be subject to tax.