Loan Intermediary Services: South Africa

Abstract

VAT is levied on a broad base at a single standard rate, with few exemptions, zero-ratings and exclusions. A descriptive list deems certain activities to be financial services, which are exempt from VAT irrespective of whether they are supplied by financial institutions. Loan intermediation and direct loan services involving the supply of interest-bearing credit constitute financial services and are exempt from VAT, but may be zero-rated if supplied to a non-resident. Financial leases and rentals are deemed to be taxable supplies but different rules govern the value and timing of the supply. In principle, activities for which an explicit fee or commission is charged are not financial services and are subject to VAT. Consequently all explicit fees or charges in relation to the supply of financial services are subject to VAT, including services ancillary to financial services and outsourced financial services. VAT on expenses may only be claimed to the extent that the expenses are incurred for the purpose of making taxable supplies. The prescribed method of apportionment is revenue based and requires the ratio of taxable revenue to total revenue to be applied, unless a written ruling authorizes an alternative method. A specific apportionment method has been approved for certain banks. VAT is payable by the recipient of services acquired from a non-resident to the extent that the services are utilized or consumed in South Africa for purposes other than making taxable supplies.