No Good Deed goes Unpunished -Vat on Imported Services

By Willem Bam, Tax Manager – VAT, BDO Tax

The development of satellite technology in the last 50 years has ensured that we can now see the world through our TV screens. There is a plethora of channels to choose from including reality TV, sports, documentary and sitcoms. Religious institutions have also seized this opportunity to spread their messages across the globe, broadcast their sermons, services, prayers and other religious content. Typically, a religious institution will contract a broadcaster to broadcast the content via satellite, often in a form known as free-to-air. Free-to-air often broadcasts unencrypted content and any person with adequate equipment can receive and view the content for free and does not have to pay a subscription or other fee. This form of broadcasting is popular amongst religious institutions since the institution will usually promote its religious activities for no fee (consideration).

In South Africa a religious institution that contracts with a foreign broadcaster may potentially be required to account for VAT on broadcasting services imported. Although VAT on imported services has been around since 1991, recipients of imported services are often not aware of their VAT liability. In essence, the recipient of the imported service has to pay VAT to the South African Revenue Service (SARS) on receipt of the imported services. VAT on imported services is aimed at protecting local suppliers that charge VAT on their supplies. VAT on imported services is payable by South African residents to the extent that the person does not use the services to make VATable supplies in South Africa. As the main source of income of many religious institutions is donations, they are often not required to register for VAT purposes unless their VATable supplies exceed R1 million per annum. They may, however, opt to register voluntarily if they make VATable supplies of R50 000 or more per annum. Typical VATable supplies of religious institutions include paid-for seminars, counselling, and book and coffee shop sales.

Religious institutions that do not, or do not only, make VATable supplies and import broadcasting services from a foreign broadcaster may have a liability to pay VAT on imported services. The institution must apply VAT to the greater of what was paid for the services or the open-market value. If the institution is not VAT registered, it must submit form VAT 215 and make payment to SARS within 30 days of receipt of invoice or making any payment (whichever is earlier). VAT registered institutions must account for VAT on imported services in their VAT returns. In practice, many institutions are not registered for VAT and are unaware of this VAT liability, and are often surprised by a SARS assessment of VAT on imported services. SARS can assess institutions going back at least 5 years.