The VAT refund process
The VAT refund process
By Aaliya Adam, Assistant Manager
A VAT refund is an amount of VAT that is payable by SARS to a vendor.
In terms of section 1 of the VAT Act No. 89 of 1991 (“the VAT Act”), a vendor means any person who is or is required to be registered under the VAT Act, provided that where the Commissioner has under section 23 or 50A determined the date from which a person is a vendor, that person shall be deemed to be a vendor from that date.
A VAT refund will apply where the total amount of VAT charged to the vendor on the acquisition of goods and services or on the importation of goods (“input tax”) exceeds the total amount of VAT charged on the supply of goods or services by the vendor (“output tax”) for that period, or if a vendor has paid an amount of VAT which exceeds the amount that should have been paid to SARS.
If a vendor is entitled to a VAT refund, SARS must pay that VAT refund within 21 business days of receiving the correctly completed VAT return.
Should the refund not be paid within 21 business days, SARS must pay interest to the vendor at the prescribed rate, on the amount that is refundable.
Circumstances in which SARS can withhold a VAT refund or suspend the 21 business day rule include where:
VAT refunds that are due to electronic service providers come with their own complications, considering that these vendors are foreign entities and as such do not usually have bank accounts in South Africa.
According to SARS, refunds are only paid into valid South African bank accounts. The basis for SARS’ practice of only paying VAT refunds into local bank account refunds is uncertain, as neither the VAT Act nor the Tax Administration Act provide that refunds must be paid into a South African bank account. One possible reason is that SARS does not want to pay the high bank charges associated with foreign exchange payments.
In these circumstances, the vendor will need to appoint a tax representative in the Republic and make use of the representative’s bank account for purposes of receiving the VAT refund.
SARS may also select vendors for verification in respect of their VAT refund claims. In this case, the vendor will be required to submit supporting documentation.
The documentation submitted (for example, tax invoices or credit notes) needs to comply with the requirements of the VAT Act.
It is important to note that the submission of the correct information is also crucial because the submission of incorrect documentation may result in SARS raising an additional assessment, which would result in a delay of the VAT refund being paid out. If there is any doubt, the VAT vendor should therefore call SARS prior to submitting the documentation to establish exactly which documentation it requires.
In the event SARS raises an additional assessment, a vendor may also object to or appeal against such assessment, if they are dissatisfied with it. An objection must usually be submitted within 80 business days after the date of the additional assessment.
Should a refund arise because the vendor made an erroneous payment to SARS, the vendor must make a claim to SARS and within 90 days of that claim and provide their banking details to SARS. SARS will not pay out a claim without adequate justification and the vendor’s banking details will have to be of a bank account in the vendor’s name. Reasons will also have to be provided as to why the payment was made as well as a stamped proof of payment issued by the vendor’s bank.
If a vendor has an outstanding tax debt, a VAT refund will be set off against that outstanding debt and should there be a balance remaining thereafter, this will be payable by SARS to the vendor. The vendor will have to go through a payment allocation process to request these additional funds.
The payment allocation process includes the submission of various documents to SARS, which can be a burdensome process.
Vendors who are registered on e-Filing can view the status of their VAT refund by obtaining a statement of account or checking the e-Filing refund dashboard.
We at BDO can assist you with overcoming these hurdles to ensure your VAT refunds are paid out timeously.
A VAT refund is an amount of VAT that is payable by SARS to a vendor.
In terms of section 1 of the VAT Act No. 89 of 1991 (“the VAT Act”), a vendor means any person who is or is required to be registered under the VAT Act, provided that where the Commissioner has under section 23 or 50A determined the date from which a person is a vendor, that person shall be deemed to be a vendor from that date.
A VAT refund will apply where the total amount of VAT charged to the vendor on the acquisition of goods and services or on the importation of goods (“input tax”) exceeds the total amount of VAT charged on the supply of goods or services by the vendor (“output tax”) for that period, or if a vendor has paid an amount of VAT which exceeds the amount that should have been paid to SARS.
If a vendor is entitled to a VAT refund, SARS must pay that VAT refund within 21 business days of receiving the correctly completed VAT return.
Should the refund not be paid within 21 business days, SARS must pay interest to the vendor at the prescribed rate, on the amount that is refundable.
Circumstances in which SARS can withhold a VAT refund or suspend the 21 business day rule include where:
- The VAT return or supporting documents submitted are incomplete. SARS may not be satisfied with the documents provided if they do not comply with the requirements of the VAT Act. The vendor should ensure, before submission of the VAT return, that their documents meet these requirements.
- Banking details are not provided or cannot be successfully verified by SARS. The vendor must ensure that the proper documentation is submitted to SARS so that SARS can verify the vendor’s banking details. This process usually takes 21 business days. Once the banking detail validation process has been completed, the refund should normally be paid within 72 hours.
- There are VAT returns outstanding for other tax periods. The vendor should ensure they are compliant and submit all returns timeously, as well as check their compliance status on a monthly basis.
- If the vendor is a non-resident, they have not appointed a VAT representative. This appointment process can take up to 21 business days, provided the correct documentation is submitted to SARS.
- The VAT return is selected for audit. It could take up to 90 business days from the date of receipt of all the required supporting documents in a complete and correct manner, unless alternative arrangements are communicated, whereafter the refund should be paid within 72 hours.
VAT refunds that are due to electronic service providers come with their own complications, considering that these vendors are foreign entities and as such do not usually have bank accounts in South Africa.
According to SARS, refunds are only paid into valid South African bank accounts. The basis for SARS’ practice of only paying VAT refunds into local bank account refunds is uncertain, as neither the VAT Act nor the Tax Administration Act provide that refunds must be paid into a South African bank account. One possible reason is that SARS does not want to pay the high bank charges associated with foreign exchange payments.
In these circumstances, the vendor will need to appoint a tax representative in the Republic and make use of the representative’s bank account for purposes of receiving the VAT refund.
SARS may also select vendors for verification in respect of their VAT refund claims. In this case, the vendor will be required to submit supporting documentation.
The documentation submitted (for example, tax invoices or credit notes) needs to comply with the requirements of the VAT Act.
It is important to note that the submission of the correct information is also crucial because the submission of incorrect documentation may result in SARS raising an additional assessment, which would result in a delay of the VAT refund being paid out. If there is any doubt, the VAT vendor should therefore call SARS prior to submitting the documentation to establish exactly which documentation it requires.
In the event SARS raises an additional assessment, a vendor may also object to or appeal against such assessment, if they are dissatisfied with it. An objection must usually be submitted within 80 business days after the date of the additional assessment.
Should a refund arise because the vendor made an erroneous payment to SARS, the vendor must make a claim to SARS and within 90 days of that claim and provide their banking details to SARS. SARS will not pay out a claim without adequate justification and the vendor’s banking details will have to be of a bank account in the vendor’s name. Reasons will also have to be provided as to why the payment was made as well as a stamped proof of payment issued by the vendor’s bank.
If a vendor has an outstanding tax debt, a VAT refund will be set off against that outstanding debt and should there be a balance remaining thereafter, this will be payable by SARS to the vendor. The vendor will have to go through a payment allocation process to request these additional funds.
The payment allocation process includes the submission of various documents to SARS, which can be a burdensome process.
Vendors who are registered on e-Filing can view the status of their VAT refund by obtaining a statement of account or checking the e-Filing refund dashboard.
We at BDO can assist you with overcoming these hurdles to ensure your VAT refunds are paid out timeously.