ZERO RATED VAT: EXPORTS AND SERVICES TO FOREIGNERS

a4bIt is often confusing to determine when to charge Value Added Tax (VAT) on goods or services at zero rate (0%) instead of the standard rate of 14%. Below are some basic examples to illustrate the charging of the correct rate by South African VAT vendors. These are general illustrations and it is prudent to contact your tax practitioner if there is any uncertainty in this regard.

Direct Export of Goods – 0%

A direct export is the delivery of moveable goods to a recipient at an address outside of the Republic of South Africa (RSA) by a South African VAT vendor. The vendor must therefore physically deliver the goods to the recipient at the address outside the RSA or arrange for the delivery of the goods on behalf of the vendor with a cartage contractor (who must be a resident of the RSA as well as a registered VAT vendor). VAT at 0% may then be charged on these sales.

Strict documentation requirements are set by the South African Revenue Service (SARS) in order to charge 0% VAT, and the exports must take place through any of the designated ports.

Indirect Export of Goods – 14%

An indirect export is when the South African VAT vendor sells moveable goods to a foreign recipient, but the recipient will remove or arrange for the removal of the goods from the RSA to the foreign address. In such a case, the vendor will charge VAT at the standard rate of 14%.

However, the foreign recipient may be able to claim a VAT refund at the exit of the goods from the RSA at any of the designated commercial ports. The foreign recipient must be a qualifying purchaser (as defined) and the goods must be exported within 90 days from the date of the tax invoice. Strict documentation requirements are set in order to claim the VAT refund.

The only exception to this is if the supply is made in terms of Part Two of the VAT Export Scheme. In that case, VAT may be charged at 0%.

Local Services to Foreigners – 0%

Services delivered locally to non-residents by the South African VAT vendor will generally be subject to VAT at 0%. It is important to remember that the non-resident recipient of these services must not be physically present in the RSA at the time of the delivery of the service.

The exceptions to this (and therefore subject to 14% VAT) will be where the services are supplied:

  1. in respect of fixed property in the RSA,
  2. in respect of movable property in the RSA, unless the property is destined for export or forms part of a supply to a registered vendor, or
  3. to a recipient who is in the RSA when the services are rendered (unless it relates to a restraint of trade).

Services Delivered outside the RSA – 0%

Services that are physically delivered outside the RSA will carry VAT at 0%.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT SEPARATES INTER-VIVOS TRUSTS WITH TESTAMENTARY TRUSTS?

a3bA trust is the ideal long-term structure with which to protect assets from generation to generation while it effects a saving in terms of estate duty. Estate duty is the levy payable on all your assets upon your death.

An inter-vivos trust

An inter-vivos trust is also known as a living or family trust as it is set up during your lifetime. A big advantage of an inter-vivos trust is that it offers protection in case of a summons because the assets in the trust are excluded from such claims. When assets are bought through a trust or transferred to a trust, capital growth takes place within the trust which is excluded from your estate. This means that the assets within your estate can grow within the trust without causing higher estate duty for your estate.

It is recommended that you transfer growth assets to a trust by selling or donating them to the trust. The value of these assets sold to the trust will then be owed to you (or your estate) by the trust in the form of a loan account. The value of the loan account can be decreased successfully by R100 000 per year by paying the annual exempt amount of donations tax to the trust. The trust will pay back the amount of the donation to you in partial redemption of the loan account owed to you.

The disadvantage of an inter-vivos trust

The biggest drawback of the trust is the fact that full control of your assets is lost. As original owner you now become a co-trustee and possibly one of the beneficiaries of the trust. The co-trustees also have a say regarding the assets which had previously been controlled and managed only by you.

A testamentary trust

A testamentary trust differs from an inter-vivos trust in that it is set up according to someone’s will and would therefore only be activated once that person dies. The main aim of a testamentary trust is to protect the interests of the beneficiaries (who are often minors).

The trustees of the testamentary trust gain control of the assets and manage and administrate the assets in terms of the stipulations of the testamentary trust. This would be to the advantage and in the best interest of the beneficiaries. Testamentary trusts are usually terminated as soon as the trust’s beneficiaries reach the age as dictated in terms of the will, as opposed to inter-vivos trusts, which can last for indefinite periods.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

MANAGING DISPUTES OVER A DECEASED RELATIVE’S ESTATE

If someone leaves a sizeable estate behind, it may cause conflict among the possible heirs. The help of an attorney, when settling an estate after a death, can avoid unnecessary troubles.

The Administration of Estates Act, 1965, determines what must happen with an estate after a person’s death. There are certain steps that should be taken to ensure the process is legal. However, if the estate is worth a lot of money or the deceased has children, then it is a good idea to seek the assistance of an attorney, as family disputes and debts of the deceased can be confusing. In order to this an executor will be appointed to act on behalf of the estate.

Finding the will of a deceased relative

If the deceased person left a will the first thing to do is find it. If they did not tell you beforehand where their will was, you can try calling the probate court in their district or the office of the master of the High Court to check if they have a copy of the will. Other places to call would be the deceased’s life insurance company, bank or lawyer. Otherwise, they might have left a copy of it somewhere secure in their home.

Who is the executor?

An executor is the person appointed to handle the process of settling the estate. The executor will either be mentioned in the will of the deceased or appointed by the master of the High Court. The master will ultimately decide who will take the role of executor. If the chosen executor doesn’t know how to handle the estate or is unfamiliar with the legal procedure, he or she can go to a lawyer for help. Once the executor has been chosen, the master will give them “Letters of Executorship”, which will give only them the authority to handle the estate.

What does the executor need to do?

The executor has several responsibilities such as arranging the valuation of the estate’s property and assets. They will also be responsible for contacting and dealing with all the beneficiaries.

Some other responsibilities of the executor include:

  1. Arranging provisional payments for the family’s immediate needs.
  2. Opening a bank account for the estate and depositing the estates money in it.
  3. Paying all the necessary estate duties.

It’s important that any person who wants to act on behalf of the deceased person’s estate have the Letters of Executorship. If not, their actions would be considered illegal. This also applies to the spouse of the deceased person. This eliminates the possibility of several different family members trying to influence the estate’s dealings. The executor will also decide how the assets will be divided between the heirs and if any or all assets need to be sold. If a will is in place the executor will base his/her decisions on it.

Eventually, the executor will prepare a liquidation and distribution account. This would include what will they intend to do with all the assets left after expenses. This account would be delivered to the master, who will check to see if the executor’s actions reflect the will of the deceased and that all legal requirements have been fulfilled.

Important things to keep in mind?

The master of the High Court should be notified of the deceased person’s estate not later than 14 days after the death. According to the Department of Justice a death of anyone who owned property in South Africa must be reported to the master, whether or not they died in the country.

All estates that exceed R50 000 should be reported to the master of the High Court directly because magistrate’s offices have limited jurisdiction. If reported to the magistrate’s office, estates would usually be referred to the master.

References:

  • The Department of Justice and Constitutional Development. 2012. “Reporting the estate of the deceased”. Accessed from: http://www.justice.gov.za/services/report-estate.html/ on 11/05/2016.
  • Administration of Estates Act 66 of 1965. Accessed from: http://www.justice.gov.za/ on 11/05/2016.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT IS THE COST OF MY ESTATE DUTY?

a1bIn terms of the stipulations of section 4 of the Estate Duty Act No 45 of 1955 certain deductions from the value of an estate are allowed in order to determine the final value of the estate which will be subject to estate duty.

The following two rebates are the most well-known:

  • Section 4(q) – This is the total value of all the benefits bequeathed to the surviving spouse. The value of a usufruct also qualifies as an Article 4(q) rebate; and
  • Section 4A – This is the value of the rebate applied to all estates, which is currently R3.5 million.

Given the value of the section 4A rebate you can rest assured that your estate will not be accountable for estate duty if the net value (assets minus liabilities) is less than R3.5 million. The amount with which your estate exceeds R3.5 million will, however, be taxable for estate duty at 20%.

The Taxation Laws Amendment Act, 2010, amended the section 4A rebate by allowing the part of the R3.5 million rebate not used by the estate of the first deceased spouse to be carried over to the estate of the surviving spouse. This amendment applies to the estates of individuals passing away after 1 January 2010.

The carried over rebate between spouses can be illustrated with the following example:

  • Mr A, who is married to Mrs A, passes away. The net value of his estate is R800 000 after the rebate according to Article 4(q) has been calculated.
  • This amount is bequeathed to his children and therefore not deductible for estate duty.
  • There is no accountability for estate duty as Mr A’s estate only used R800 000 of the section 4A rebate of R3.5 million.
  • At Mrs A’s passing the net value of her estate is R8 million. The following rebate is applicable to her estate: Section 4A rebate to the value of R7 million minus the R800 000 deduction already utilised in the estate of Mr A.
  • Mrs A’s estate will therefore pay estate duty on R1.8 million (R8 million minus R6.2 million).
  • R1.8 million @ 20% = R360 000.

We have to put the utmost stress on the importance of estate planning and a will which gives you the best benefits regarding the composition of your assets and liabilities should the net value of your estate exceed R3.5 million. This does not mean that the use of trusts becomes obsolete in estate planning due to the larger rebate in the surviving spouse’s estate. There are still valid reasons why the bequeathment of a trust by the first deceased is an excellent option, even though it does not initially effect a saving in estate duty. In case of such a trust the assets can be managed by the trustees to the benefit of the surviving spouse and children. A small effort today for much peace of mind tomorrow!

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)