Defining “resident” for VAT and income tax purposes | KPMG | GLOBAL

South Africa: Defining “resident” for VAT and income tax purposes

Defining “resident” for VAT and income tax purposes

The definition of “resident of the republic” under South Africa’s value added tax (VAT) law includes any person that is a “resident” as defined in section 1 of the Income Tax Act. However, the definition for VAT purposes goes further and includes any person to the extent that such person carries on in the republic any enterprise or other activity and has a fixed or permanent place in the republic relating to such enterprise or other activity.

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The VAT law does not provide insight as to what is meant by a fixed or permanent place. Income tax treaties cannot be relied upon because they apply in the context of determining whether a person has a permanent establishment, and the VAT and income tax laws are vastly different in this regard. 

The next step is to consider the common meaning of the term, and this leads to various interpretations. Some would interpret this requirement to mean that the non-resident must have fixed premises from where it actively conducts trading activities. Others argue that that the mere representation of the foreign company in South Africa through an accountant is sufficient to fulfil the requirement, or, if the non-resident has an employee in South Africa, the presence of that employee and the place where that employee conducts activities would be sufficient. It is evident that there are various interpretations that need to be consider it on a case-by-case basis.

 

Read a May 2017 blog item posted by the KPMG member firm in South Africa

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