nix
26-10-2010, 04:52 PM
Hi all,
My name is Niki, I'm a member of an independent software development company based in the Western Cape. We develop educational software and web games for clients in SA and overseas. We've had a fairly smooth ride thus far, that is until our accountant pointed out a snag involving VAT and our foreign clients.
First a disclaimer: I'm neither an accountant nor a tax practitioner. The information I present is based on my understanding after consulting with practitioners and SARS officials. My reasons for posting is to determine what measures other developers in our field have taken to avoid the pitfalls I present while remaining complaint with the ruling VAT legislation.
What's the problem then? As SA residents any vendor who supplies a non-resident is required to retain documentary proof of why they rated their goods/services as a zero rated supply.
According to SARS callcenter officials there a ruling stating that software delivered electronically can be rated at 0% VAT because it is seen as 'Direct export goods'. For example, a SA developer has created an exciting game and has sold it via the internet to some devout US indie supporters. The price of the game does not include VAT and they don't need to charge their customers VAT either.
In the case where a SA developer is contracted to develop a game for a US company using a supplied IP licence, something else comes into effect. In order to transfer ownership of copyright to the US client the SA developer has to ensure that the client agrees not to use the IP in SA. Please refer to http://www.sars.gov.za/home.asp?pid=5996# Section 11(2)(m) ? services connected with intellectual property rights
So as SA Game Developers we find ourselves in a ridiculous situation where we have to expect our client to somehow ensure that no SA resident is going to buy the final product or we need to charge them 14% extra.
The tax consultants at my local SARS branch suggested that I apply for a special ruling which will enable us to conduct our business, but will also take a number of months to achieve. What is the interim solution, to charge or not to charge ? they suggested charge the customer now and refund them later.
Hopefully some diligent dev has already overcome this issue. Hopefully there is an exceptionally simple solution. Either way I look forward to hearing from the community.
Regards,
Niki
My name is Niki, I'm a member of an independent software development company based in the Western Cape. We develop educational software and web games for clients in SA and overseas. We've had a fairly smooth ride thus far, that is until our accountant pointed out a snag involving VAT and our foreign clients.
First a disclaimer: I'm neither an accountant nor a tax practitioner. The information I present is based on my understanding after consulting with practitioners and SARS officials. My reasons for posting is to determine what measures other developers in our field have taken to avoid the pitfalls I present while remaining complaint with the ruling VAT legislation.
What's the problem then? As SA residents any vendor who supplies a non-resident is required to retain documentary proof of why they rated their goods/services as a zero rated supply.
According to SARS callcenter officials there a ruling stating that software delivered electronically can be rated at 0% VAT because it is seen as 'Direct export goods'. For example, a SA developer has created an exciting game and has sold it via the internet to some devout US indie supporters. The price of the game does not include VAT and they don't need to charge their customers VAT either.
In the case where a SA developer is contracted to develop a game for a US company using a supplied IP licence, something else comes into effect. In order to transfer ownership of copyright to the US client the SA developer has to ensure that the client agrees not to use the IP in SA. Please refer to http://www.sars.gov.za/home.asp?pid=5996# Section 11(2)(m) ? services connected with intellectual property rights
So as SA Game Developers we find ourselves in a ridiculous situation where we have to expect our client to somehow ensure that no SA resident is going to buy the final product or we need to charge them 14% extra.
The tax consultants at my local SARS branch suggested that I apply for a special ruling which will enable us to conduct our business, but will also take a number of months to achieve. What is the interim solution, to charge or not to charge ? they suggested charge the customer now and refund them later.
Hopefully some diligent dev has already overcome this issue. Hopefully there is an exceptionally simple solution. Either way I look forward to hearing from the community.
Regards,
Niki