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How to treat Vat on supplies to Industrial Development Zones

by , 18 February 2014
Vat law says that supplies to the Industrial Development Zones' (IDZs) Customs Controlled areas are zero-rated goods. Continue reading to find out how to deal with Vat when it comes to these supplies...

Earlier today we wrote an article on foreign donor-funded projects. We told you that these projects fall under zero-rated goods.

Now we're going to give you another item that's considered a zero-rated supply and how to deal with it when it comes to Vat.

We're talking about Supplies to the Industrial Development Zones' (IDZs) Customs Controlled Areas.

The Practical Vat Loose Leaf Service says a Customs-Controlled Area is essentially seen, for Vat purposes, as a foreign country.

That means the Vat Act sees goods sold to vendors in an IDZ/ Customs Controlled Area (CCA) as exports and the normal export rules apply.

For example, let's say Jeremiah's Materials (a Vat vendor) in Johannesburg sells 15 rolls of fabric to Jimmy's Market (also a registered Vat vendor) situated in the IDZ for R35 000. Jeremiah can apply the zero-rate of Vat if he treats this sale as a direct export.

But just like with foreign donor-funded projects, you must keep certain documents to substantiate your zero-rating.

Keep these five documents to substantiate your zero-rating of supplies to the Industrial Development Zones' (IDZs) Customs Controlled areas:

  • A copy of the order or agreement between the parties. In this case, Jeremiah's Materials must keep this copy;
  • The zero-rated tax invoice. Jeremiah's Materials must issue the original to Jimmy's Market and retain a copy for himself;
  • Proof of payment, which Jeremiah's Materials must keep;
  • SAD forms stamped by Customs. These must be filled in by either Jeremiah or the transport company he appoints; and
  •  
  • Proof of receipt of the goods, which someone at Jimmy's Market will issue or sign, to show they've received the goods.

Here's how to deal with Vat on supplies to the Industrial Development Zones' (IDZs) Customs Controlled areas

Using the above example, Jeremiah will write the amount of R35 000 in block 2A of the Vat return.

Now that you know how to deal with Vat on supplies to the Industrial Development Zones' (IDZs) Customs Controlled areas, make sure you comply.

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