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When can you apply zero-ratings to warranties?

by , 25 September 2013
Certain services are zero-rated for Vat purposes. This includes warranties. Read on to find out when you can apply this zero-rate on warranties to comply with the Vat Act.

If you're not sure when to apply the zero-rating to warranties, don't worry. The Practical Vat Loose Leaf Service has got you covered.

Here's how to apply zero-ratings to warranties correctly

One of the zero rated services refers to warranties and warrantors who are non-residents.

The Vat law says the following: Services relating to goods under warranty where the services are:

  • Provided in terms of that warranty
  • Supplied to the warrantor for consideration under that warranty given by the warrantor who is:
  1. A non-resident
  2. Not a vendor
  3. Outside of South Africa at the time the services are rendered; and
  4. For goods that were subject to Vat at importation.

In other words, where a South African Vat vendor renders services for a warranty to a warrantor who isn't a SA resident, not a vendor and outside of SA at the time the services are rendered, then the SA vendor can apply the zero-rate of Vat to his invoice.

This part of the law ensures Vat isn't a cost to a foreign warrantor where services are rendered for goods imported into South Africa.

You'll notice that the law speaks about services relating to goods under warranty. The supply of goods as part of the warranty service is seen as a supply of a service as a whole.

This means, if goods are supplied in respect of this service, the goods will also be zero-rated.

Here's an example of how this zero-rating Vat rule applies

Countrywide Airlines buys an aircraft from Boeing in Seattle, USA. One of the engines falls off the plane and Boeing pays Excel Aircraft Maintenance -– a South African vendor – to fix the engine and re-attach it to the plane. The repairs are paid for by Boeing under warranty.

This service will be zero-rated in terms of the Vat Act.

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