VAT daffuq?


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edited in Questions and Answers
I'm told we will need to be VAT registered. I will be finding out more about that shortly, but I'd like to know as much as possible right now in the context of our type of business.
I don't know too much about how VAT works with a business like ours that gets its revenue entirely from oversees vendors.
I know most businesses here have to pay VAT on the goods they sell locally.
Is VAT a thing we need to worry about? Can anyone share their experience in this area?

Comments


  • Notice: Undefined variable: GuestHourOffset in /home/nitrogen/public_html_mgsatest/forums/themes/mgsa/class.mgsathemehooks.php on line 281
    Who's telling you this?

    We've managed to avoid being VAT registered so far. Don't need it for Steam, don't seem to need it for Humble. What is this for?

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    Accountants.
    That our company (or us as sole-proprietor) needs to be VAT registered here in SA. This isn't for Steam or anything like that.

    I didn't think we needed to worry about VAT, so I'd like to make sure I don't step in some bullshit in the gap between where we understand the laws and where local financial people understand international trading.

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    Your accountants need to motivate as to what you need VAT registration for. They probably don't understand what it is you actually do... Or, alternatively, if there's a great reason to be VAT registered, let the rest of us know what it is to pls :)

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    Yes, hopefully it's that simple.
    Haha, I'll let you know if there is anything interesting.

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    Good god no. No no no. Get a new accountant before you register for VAT. Seriously. You only need to be registered if you are charging VAT for services or products, in which case you pay that to SARS. If your revenue is coming in from non-ZA sources, you don't charge VAT and do not need to pay it, which keeps you free from needing to register.

    What absolutely horrible advice.

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    You'd only need to register for VAT once your domestic revenue exceeds R1million, if your domestic revenue exceeds R300K you can voluntarily register for VAT. Benefits of registering for VAT? Well, you can claim back VAT on any expenses that you run through the company (so that 14% of that new 'company' car you just bought can be off-set against and VAT you collect, and you can essentially get a rebate, but speak to tax specialists).

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    Benefits of registering for VAT? Well, you can claim back VAT on any expenses that you run through the company (so that 14% of that new 'company' car you just bought can be off-set against and VAT you collect, and you can essentially get a rebate, but speak to tax specialists).
    We looked at this recently (seeing as we're doing the whole buying cars thing) and our accountant pointed out that it wasn't really useful OR possible in our situation. We simply don't earn enough income from SA to make it worthwhile, plus the stores we use handle VAT for SA sales on our behalf, we don't get the option to say "No, please don't deduct VAT, we'll do that on our end" and I like it that way - it's much simpler.

    What probably happened is your accountant saw your income spike (grats on that!) and panicked because they didn't realise that wasn't domestic revenue. Like I said, people don't seem to understand our business models because they're so different to the expected way a company works.

    Although, if someone IS earning R1M+ a year from expressly local game sales, that would be seriously impressive.

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    edited
    Thank you very much guys!
    Get a new accountant before you register for VAT. Seriously.
    Six of one, not quite 7 of the other. Trying to find experts on this around this area...
    dislekcia said:
    What probably happened is your accountant saw your income spike (grats on that!) and panicked because they didn't realise that wasn't domestic revenue. Like I said, people don't seem to understand our business models because they're so different to the expected way a company works
    (Thanks!) People not understanding and panicking seems to happen a lot. I suppose the only solution is to proceed with caution and be prepared for people to not understand at all.
    MGSA's experienced members are an invaluable resource :)

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    You'd only need to register for VAT once your domestic revenue exceeds R1million, if your domestic revenue exceeds R300K you can voluntarily register for VAT. Benefits of registering for VAT? Well, you can claim back VAT on any expenses that you run through the company (so that 14% of that new 'company' car you just bought can be off-set against and VAT you collect, and you can essentially get a rebate, but speak to tax specialists).
    Actually you can't get the VAT back for your company car - specific anti-avoidance procedures around that :(

    There are some benefits on registering for VAT (as an exporter) and some downsides. If you're in Cape Town I'd be happy to discuss over a cup of coffee (I'm a bean counter). The downside unfortunately if you're consistently claiming refunds (which as an exporter you're probably doing) is that you'll be targeted for audits.


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    Hey I just got this mail, I'm sure I'm not the only one who got it. Thought it was relevant to us:
    Dear Steven,

    Within the next 24 hours, pricing on the South African App Store will change to account for VAT (Value Added Tax), which has been introduced at a rate of 14 percent.

    Price adjustments on the App Store are made periodically due to changes in foreign tax rates. Within 24 hours, you will see the new Pricing Matrix in the Rights and Pricing section in Manage Your Apps on iTunes Connect.

    On June 2, 2014, updated agreements were made available and can be viewed in Contracts, Tax, and Banking on iTunes Connect.

    If you have any questions about these changes, contact us.

    Regards,

    The App Store team
    So App store is going to take VAT now, does that change anything for us Saffas?

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    Tuism said:
    So App store is going to take VAT now, does that change anything for us Saffas?
    No. They're handling VAT on your sales, you don't have to do anything, other than check the prices you want people to see when they're browsing the SA app store.

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    The reason its taken me so long to reply to the original thread is that I needed to ensure that I had my ducks in a row and went out and bought the latest tax guide circa R1k! The law says that you need to register if the value of your taxable supplies exceeds R1m per year. The problem with this definition is that exports ARE a taxable supply. They are just taxed at 0%. They are not an exempt supply. So your accountants knew what they were talking about .... Subtle, but annoying difference in the language that lawyers make a fortune from.

    I've semi followed the implications of the VAT charged on online purchases by South Africans, but I'll look at it in a bit more detail and if you're interested I can present at the next CT monthly meeting... what it means for suppliers.

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    edited
    @carteki: But why are sales of digital products by overseas distributors exports? We're not exporting anything, they are selling software that we have licensed them to sell on our behalf.

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    Would you rather they not be exports and pay 14% vat on them? Seriously don't argue! as the other option is that you drop your revenue by 14% (actually 14/114)
    Its odd. So when I lived overseas my accountant didn't have to charge me VAT to do my SA tax returns - yet his offices and his life are in SA. His service to me was considered an "export". Now that I've returned I pay 14% VAT on his services.

    The new VAT rules relate to the "import" of software / e-services, but thats a topic for another discussion.

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    carteki said:
    Would you rather they not be exports and pay 14% vat on them? Seriously don't argue! as the other option is that you drop your revenue by 14% (actually 14/114)
    I don't understand...

    Right now, we don't pay VAT on sales because sales are made by distributors internationally. They handle VAT and applicable taxes in whichever territory games are sold in, so if a South African buys our game, they pay 14% VAT and we get the rest. That's all rolled together with ALL the earnings from every sale around the globe. Are you saying that we should be charged VAT on the revenue we get from our distribution partners overseas?

    This is my problem with all of this: The assumption is that we manage individual sales, we don't.

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    @dislekcia The short answer is "yes" you should be charging VAT on what you receive from your distributors if your revenue is greater than R1m. Because the VAT rate is 0% for overseas sales its not any different to not charging anything. It really depends on the specific contract that you have, but whether you manage individual sales or not is immaterial. This works for ease of admin, but is not technically correct. It also means that you're not claiming back Input VAT that you could be - any expenses that have VAT on them you can claim back if you are registered ... electricity, web and telephone costs and possibly rental - you can claim back 14/114 from SARS.

    This is just in general. If you want to meet up and talk more specifics please drop me a note and we can arrange.

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    edited
    Wait, so we should ALL be VAT registered and we should ALL be claiming 14/114 from all our expenses? Or are all those above true ONLY if your revenue is greater than R1m per annum?

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    @tuism - Registration is voluntary from R300k revenue and up. It is compulsory when your revenue exceeds R1m per annum. There is paper work to be handled with regards to registration and you need to decide (if you're below the R1m limit) whether or not the benefit outweighs the costs.

    You can only claim input VAT back on where it has been charged to you. So it would exclude salaries as you don't pay VAT to your staff. Food and entertainment is another general exclusion.

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    edited
    @carteki: I think we're talking past each other.

    Steam sells our game to multiple people in different countries. Buyers that are in the US pay taxes according to their state. Buyers in Canada pay their VAT. South African buyers now pay local VAT (or if they haven't started yet, they will soon). Indonesian buyers pay their local taxes. Everybody buying our game has paid tax. Steam pays all the taxes it collects in lump sums to each country's revenue collection organisation as required, they don't pass that on to us. Steam pays us revenue minus any cuts/shares and all taxes, according to our licensing agreement with them...

    Where does VAT come into it from our side and why? Our accountants disagree with your assessment, I'm trying to figure out if that's a problem.

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    dislekcia said:
    Steam pays all the taxes it collects in lump sums to each country's revenue collection organisation as required, they don't pass that on to us.
    I think this is the linchpin of the issue.

    In theory this means we're indirectly paying our a portion of VAT as well.
    For us it's pretty useless to try claiming back on VAT as I've looked at sales in SA and they are, uh well, insignificant... We made more sales from Kazakhstan than SA.

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    @dislekcia All I'm doing is stating the law. I don't believe I'm misunderstanding anything. If SARS ever query why you're not registered for VAT I'm sure they'll go running away very quickly when your accountants show them that by being registered you'd be asking for a cheque every month rather than paying over fines and penalties for not being registered (and given that the penalty is calculated on the amount outstanding there isn't a problem).

    @Darkcarnivour It doesn't matter how much of your sales are in SA or out of SA you can claim back the VAT on ALL your expenses if you're registered. It has to do with the legal difference between 0% and exempt. I once audited an exporter and they got a bi-monthly cheque back from SARS for all the VAT they'd spent and didn't charge their customers a cent of VAT.

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    @carteki: Okay, I think I'm starting to understand now. Although the way I see it, we're not leaving "free money" on the table (the cash we'd claim back on operating expenses here in SA) given that SARS has a strong case to argue that we're not "exporters", given how our products are sold. I've heard it argued both ways depending on which bank and/or institution I'm talking to and which interpretation best suits their interests.

    I guess maybe I'm just tired of alternately being told that we're exporters or we're not, or we're franchisees or we're licensors or we're service-based when the people doing the telling keep not actually understanding what it is that we actually do. It wears on you eventually, not trying to take anything out on you. I appreciate the explanation.

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    carteki said:
    @Darkcarnivour It doesn't matter how much of your sales are in SA or out of SA you can claim back the VAT on ALL your expenses if you're registered. It has to do with the legal difference between 0% and exempt. I once audited an exporter and they got a bi-monthly cheque back from SARS for all the VAT they'd spent and didn't charge their customers a cent of VAT.
    That sounds interesting. I'll make sure that's on the table when we next meet with our accountants.
    dislekcia said:
    ... when the people doing the telling keep not actually understanding what it is that we actually do. It wears on you eventually, not trying to take anything out on you.
    I can relate. It's frustrating putting all this effort into things that generate zero value when there are so many other things that need attention.
    And these institutions act like complying with their systems is the only thing you have to do, and how can you be such an idiot that you don't know how it works.

    On another note, I had a really positive experience with a financial adviser I went to check out the other day. He seemed to show an interest in what we were doing and actually asked... wait for it... what our game was and what it was all about!
    Made a nice contrast from the usual 'glazing over'.


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    dislekcia said:
    Okay, I think I'm starting to understand now. Although the way I see it, we're not leaving "free money" on the table (the cash we'd claim back on operating expenses here in SA) given that SARS has a strong case to argue that we're not "exporters", given how our products are sold. I've heard it argued both ways depending on which bank and/or institution I'm talking to and which interpretation best suits their interests.
    I think you misunderstand me (and the intended sarcasm aimed at SARS looking for every cent they can get their hands on). Funnily enough SARS really isn't too stressed as to how you make your money, just that you pay tax on it.

    VAT deals with 2 types of things - goods and services. Goods are tangible. Services are not. Therefore any sort of programing, software development etc is a service.
    S11
    2)Where, but for this section, a supply of services would be charged with tax at the rate referred to in section 7(1), such supply of services shall, subject to compliance with subsection (3) of this section, be charged with tax at the rate of zero per cent where-
    l)the services are supplied to a person who is not a resident of the Republic
    m)the services comprise-
    i)the filing, prosecution, granting, maintenance, transfer, assignment, licensing or enforcement, including the incidental supply by the supplier of such services of any other services which are necessary for the supply of such services, of intellectual property rights, including patents, designs, trade marks, copyrights, know-how, confidential information, trade secrets or similar rights;
    Does this address your business? If so, then if the users of these are outside of RSA then the VAT applicable is 0% and you are losing out on claiming back the portion of VAT spent on your expenses.

    @darkcarnivour I hope this addresses your concerns too.

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    Can we ease all this stuff down to simpler English, or even maybe bullet points of sequence of events? XD

    For example, is this right?

    South Africans studio/individual makes stuff here.
    Pays for expenses locally, pays vat because it's part of any price
    South African games are sold internationally and people pay whatever they pay wherever they are
    Publishers or stores or individuals pay us from external. We pay tax on that.
    (From here I don't quite understand the VAT thing)
    1. Because the people buying our stuff don't pay SARS VAT, we can't claim VAT back from our expenses
    Or
    2. We get to claim back VAT because we operate in SA

    Which is it, or is it an alternate option 3?

    Much confuse, so wow.

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    @Tuism: Income tax on earnings and VAT are not the same, don't confuse the two. The logic goes as follows:

    1. South African studio makes IP here.
    2. South African studio signs licensing agreement with international distributor to sell game on their behalf.
    3. People buy the game from the distributor and pay whatever sales tax is applicable in their areas: SA buyers pay VAT, for instance.
    4. Distributor pays SA studio, minus any sales taxes, minus the distributor's cut.
    5. SA studio's income from distributor is:
    a. Not a sale or a service and thus doesn't count as a thing that VAT applies to; or
    b. Is a service provided to an international client and is thus a thing VAT applies to, but at a rate of 0%.
    c. Is magically the sale of a good to an international client and thus is a thing VAT applies to at 14%.
    6. SA studio files tax information every year on total profit, pays capital tax accordingly.
    a. SA Studio does not claim any VAT that they paid for services/goods here in SA as operating expenses back from SARS, because studio isn't VAT registered.
    b. SA Studio claims any VAT that they paid on expenses back from SARS as either tax breaks/discounts or cold, hard cashola (I don't know which).
    c. SA Studio gets taxed twice on earnings, because people don't realise that VAT is paid by the buyer, so we'd have to charge distributor extra.

    I'm pretty sure everyone's afraid of C, despite that being incredibly unlikely. @carteki is suggesting that B is the case, especially if SA Studio's revenue is over R1M a year (is this gross or net? I don't think anyone's going to hit R1M a year net until Broforce hits PS4). My accountants are saying A is the case until we hit the R1M boundary, then we switch to B if (and only if) we can make sure that our VAT rate that we're supposed to be "charging" distributors is 0% - I have no idea how we're supposed to charge distributors anything, they're way bigger than us and have way more accountants than we do, their contracts never mention VAT on transactions between them and us.

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    My understanding is in line with @carteki both from when you need to register to what will happen if you try claim back tax. I assure you the money you could claim wont be worth the time you spend proving they owe it to you. SARS does not take lightly VAT refunds.

    The last time I did a VAT registration they wanted few invoices and a bank statement showing where those invoices are paid. Specifically to prove turnover and trading (apparently). Then they will want to inspect your place of business and of course FICA documents. If you working from home a lot of this can be a real pain as they don't like home "offices" that are really just people trying to save a quick buck. You going to probably struggle to register anyway.

    The only real issues to be considered is the ramifications of not registering when you supposed to have and that's pretty much the 1 million a year mark no matter what we think SARS sees all invoices are taxable money (even if the government only taxed you 0%). If there is no further ramification then the penalty (which is all I am aware of too) then 10% + n% per month of 0=zero so no real issue. I don't know if there might be further ramifications for example you might need to consider you going to need a tax clearance certificate in a hurry one day to apply for any of the funds that @LexAquillia has been working hard on. I don't know how that might be effected by you not registering if your turn over is exceeding the 1 million. Also I don't know if your IT14 will flag a question about the VAT registration issue when its handed in.

    My personal recommendation is try register and don't claim back the small amounts you might be able to. Only claim back if its really significant enough to be bothered to do so (in other words if you happy to visit SARS a few times with your accountant). You can file ZERO VAT returns and if SARS fights about it they end up owing you money anyway. You won't get VAT back on a vehicle very easily if at all. If you can't register keep all the paperwork handy so if you ever asked why you didn't you have that on hand.

    Now I want to bring something else to your mind as a bit of personal advice. You really should be asking a different question about tax and you should be asking a real expert (that's not me) you are making a silly amount of profit (certainly as a percentage of profit/costs) and you going to pay for it. You should be drawing salaries to a certain level so that you can get cash out below the profit tax + dividend tax margin (even if you don't want that money you can accumulate the excess in loan accounts). Paying the PAYE and all the skills levies and etc. If you just leave all the cash in the business at the end of your financial year you going to pay a huge chunk to SARS as profit tax. The reason this interests me so much is if we take a 2 year cycle of building a game then the money made shows as profit only against the year it was sold. You probably don't have a loss to show for the previous investment of time and effort. If you keen to chat further on this we could skype. its a bit lengthy to go back and forth here.

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    This is important:
    If you just leave all the cash in the business at the end of your financial year you going to pay a huge chunk to SARS as profit tax.
    I'm currently digging into tax structures and dealing with all the implications of registering a company. If you're not taking advantage of appropriate tax structures you are leaving A LOT of money on the table.

    That all starts with which business form to take: sole prop or private company (cc's are no longer an option). Sole prop is by far the simplest, and I'd recommend it for anyone by themselves not making much money from sales. (Though for the sake of government grants organised by @LexAquillia you might want to register a company anyway).

    Registering a company throws all kinds of other variables into the mix. For instance you will be a Small Business Corporation and have to pay different tax rates from that of an individual. But paying out salaries is a deductible expense - so if your make R1m rand you but pay four salaries of R250k each, then the business has made no profit and pays zero tax. (Note this is profit, and separate to VAT registration). The kicker is each person then pays income tax on those salaries.

    However if you're are all shareholders in the business, then it is possible to take advantage of things like dividends which are fixed at a tax of 15%. Depending on the amount this can work out more or less than paying out a salary of an equivalent amount. (Edit: and as @tbulford points out, also a good idea to offset earnings into loan accounts so you distribute your tax obligations over time)

    Downsides to companies is that there are (significant) administrative costs to being a business, as you have do financial statements every year. Seems the cost/benefit starts to swing heavily in the companies favour when your start make a lot of money (think millions). Note: this is purely from a tax pov, companies also gives you significant liability coverage when dealing with third parties - aka a damn good idea when it's more than just you by yourself.

    To confuse things even more there are things like turnover tax, which besides being administratively simpler is a very favourable tax rate on your turnover (aka raw sales, instead of profit which is sales - expenses) available to both sole props and companies. This has a lot of compelling incentives, as well as rules:
    * you can't be a service provider (aka freelancer trading art/programming expertise)
    * turnover can't exceed a million rand (if it does you are disqualified and must register for vat).
    * you can't claim expenses. So even if the company (or sole prop) makes a loss after expenses are deducted, it still has to pay tax on sales.
    * On the upside, the tax you pay is super reasonable. Eg if you turnover the limit of a million rand you're still only liable for R30k tax
    * You can declare dividends tax free up to R200k.

    For our industry turnover tax is a very appealing option, as most of our expenses are personnel related and have very marginal cost of sales otherwise.

    As I'm discovering it's a very deep rabbit hole and I'm still trying to come to terms with everything.


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    edited
    Also I think for the sake of the original question, and the emerging understanding coming from the thread:

    Being vat registered, and having a vat number, is NOT the same thing as paying vat on sales.

    Edit: Just checked up on SARS documentation. Seems being vat registered means you have more returns to fill out (yay!) but otherwise those returns should indicate you don't need to pay any vat. I've also reread the thread. I'm still super hazy on how you reconcile and account vat to foreign vendors in say an appstore agreement?

  • Notice: Undefined variable: GuestHourOffset in /home/nitrogen/public_html_mgsatest/forums/themes/mgsa/class.mgsathemehooks.php on line 281
    Could we get a bit of a Wiki as part of the site, and have this VAT stuff explained on there? (Once we agree on the way it's meant to work)
    Perhaps a handy guide for Indies, to help them find where they fit in, and what the best tax route is for their specific situation?
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