A foreign donor funded project is one in which you supply goods and services to beneficiaries from an 'international donor funding agreement' . With you and the international donor having to mutually agree on the beneficiaries. This whole agreement must include the South African government.
Do you receive donations from foreign governments and other foreign bodies? If the answer is yes, then it's important to know how to deal with Vat correctly. Doing so can help you boost your cash flow because of big Vat refunds.
Here is a checklist of eight steps you can take for foreign donor funded projects:
1. Register the foreign donor funded project for Vat. If the goods and services provided by your project exceed R1 million per year, you must register for Vat.
2. Apply the zero-rate of Vat to the foreign payment s received and make sure that the South African government is in the agreement and that it says the money won't go for taxes.
Zero-rated goods? You need to be prepared for SARS' microscope
You must keep all documentary proof when you buy or sell zero-rated supplies. The Vat Act says you must be able to prove to SARS that
you were entitled to do so.
SARS will come with it's microscope and interrogate you. If you don't have the right documents, or you don't have all your documents in order, SARS will see the zero-rated invoice as a standard-rated one.
And demand the 14% Vat from you and will charge you additional penalties and interest!
3. Keep with you copies of all agreements, letters and Government Gazettes that relate in any way to the foreign donation for a minimum of five years.
4. Claim all input tax that relates to the foreign donor funded project.
5. Make sure to always hold valid invoices for your input tax claims.
6. Submit your Vat returns as soon as possible so as to receive your refunds as soon as possible.
7. Declare output tax, at the normal rate, on all the assets you sell at the end of the foreign donor funded project.
8. When the foreign donor funded project is finalised, deregister as a vendor.
So there you have it! There are eight steps to take for foreign donor funded projects.
To find out more details on foreign donor funded projects, click below…
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