Written by Stefan Trouw, MaxProf Senior Auditor
Introduction
Managing VAT compliance for game ranches that specialize in wildlife viewing and game hunting requires a strategic approach. Whether catering to local or international clients, understanding the correct VAT treatment – whether standard-rated, zero-rated, or exempt – is essential for tax optimization and compliance.
Background
Game ranches offering wildlife viewing and game hunting services must navigate complex VAT regulations. The correct tax treatment is influenced by the customer’s residency status and where the hunting activity occurs.
- Local Clients: Services such as guided hunts and accommodation provided to local customers are typically subject to standard-rated VAT at 15%.
- International Clients: Services provided to foreign customers may qualify for zero-rating if they meet the criteria for exported services under the VAT Act.
Special Considerations: Game farms using vehicles for game viewing must manage VAT on purchases, modifications, and maintenance. Proper management of these vehicles, particularly when used for both taxable and non-taxable activities, is crucial. Additionally, game ranches must consider customs duties and regulations when exporting game meat, trophies, and related products.
Creating Zero-Rated Packages for International
Clients
To zero-rate a package that includes hunting, accommodation, and food for non-resident customers, game ranches must comply with Section 11(2)l) of the VAT Act. Key steps include:
- Customer Verification: Confirm the customer’s non-resident status through documentation like passports and visas.
- Detailed Record-Keeping: Maintain comprehensive transaction records, including contracts, invoices, and proof of payment.
- Invoice Compliance: Clearly state the zero-rated status on tax invoices and ensure all payments are processed through official channels.
- Proactive Measures: Regular internal audits and compliance checks help game farms meet zero-rated criteria consistently, thereby optimizing their tax positions.
Navigating Customs Considerations for Exporting
Game Meat and Trophies
Tax Implications for Outfitters and Game Farms
- Outfitters: Those organizing hunting trips and wildlife tours need to understand the VAT implications of their services, especially when structuring packages for international clients.
- Game Farms: Effective management of tax obligations includes claiming input tax deductions, handling VAT on luxury packages, and navigating customs duties for exports. Collaboration with outfitters can enhance VAT compliance and financial efficiency.
Case Studies: Practical
Examples of VAT
Application
Case 1: Trophy Hunting for International Clients Inside
South Africa
Scenario: A hunting lodge offers a trophy hunting package, including guided hunts, accommodation, meals, and trophy preparation and export.
Tax Implications:
- Guided Hunts and Accommodation: Subject to standard-rated VAT.
- Trophy Preparation and Export: Can be zero-rated with proper documentation.
Example:
- Invoice for guided hunt and accommodation: R57,500 (Standard-rated)
- Invoice for trophy preparation and export: R20,000 (Zero-rated)
- Total VAT: R7,500 (Zero-rated due to export)
Case 2: Trophy Hunting for International Clients Outside South Africa
Scenario: An outfitter provides a hunting package outside South Africa, including guided hunts, accommodation, meals, and trophy preparation and export.
Tax Implications:
- Guided Hunts and Accommodation: Zero-rated as supplied outside South Africa.
- Trophy Preparation and Export: Zero-rated with proper documentation.
Example:
- Invoice for guided hunt and accommodation: R50,000 (Zero-rated)
- Invoice for trophy preparation and export: R20,000 (Zero-rated)
- Total VAT: R0 (Zero-rated due to export)
Case 3: Sale of Game Meat to an International Retailer
Scenario: A game farm sells processed game meat to an international retailer, with the meat exported out of South Africa.
Tax Implications:
- The sale can be zero-rated, provided proper export documentation is maintained.
Example:
- Invoice for game meat: R100,000 (Zero-rated)
- Total VAT: R0 (Zero-rated)
Case 4: Special Vehicles for Game Viewing
Scenario: A game farm purchases and modifies 4×4 vehicles for game viewing tours.
Tax Implications:
- Input Tax Deduction: VAT on purchase and modification can be claimed if vehicles are used for taxable activities.
- Maintenance Costs: VAT on maintenance is deductible if used for taxable purposes.
- Apportionment for Mixed-Use: If vehicles are used for both taxable and non-taxable purposes, input tax must be apportioned accordingly.
Example:
- Purchase and modification cost: R500,000
- VAT on purchase and modification (15%): R75,000
- Total VAT claimed as input tax: R75,000 (if used exclusively for taxable purposes)
- If vehicles are used 80% for wildlife tours and 20% for private use: Input tax claimed at 80% of R75,000 = R60,000
Key Considerations for VAT Compliance
1. Differentiating Between VAT Treatments:
- Standard-Rated Supplies: Services to local customers, such as guided hunts, are generally subject to 15% VAT.
- Zero-Rated Supplies: Services to international clients, such as trophy preparation and export, can be zero-rated under specific conditions.
- Exempt Supplies: Game farms rarely deal with exempt supplies, but related activities may require VAT status evaluation.
2. Input Tax Deductions and Apportionment:
- Full Deduction: Assets used exclusively for taxable activities allow for full input tax deductions.
- Apportionment: For mixed-use assets, VAT must be apportioned to claim only the taxable portion.
3. Importance of Documentation and Compliance:
- Accurate Record-Keeping: Essential for substantiating zero-rated supplies and input tax deductions.
- Export Documentation: Necessary for zero-rating exports of trophies and game meat.
- Tax Invoices: Must meet SARS specifications to claim input tax deductions and apply VAT correctly.
4. Client Residency and Service Location:
- Client Residency: Plays a critical role in VAT treatment, especially for non-resident clients.
- Service Location: Impacts VAT treatment and must be carefully considered.
5. Customs Duties and
Exportation:
- Customs Compliance: Proper docu-mentation and permits are essential for zero-rating exports.
- Export Permits: Critical for ensuring smooth export operations and VAT com-pliance.
Conclusion
Effective VAT management for game ranches and outfitters involves a deep understanding of VAT laws, including standard-rated, zero-rated, and exempt supplies. Properly claiming input tax deductions, maintaining comprehensive documentation, and proactive tax planning are essential for optimizing tax positions and ensuring compliance.
By considering the residency status of clients and the location of services, game farms can navigate VAT regulations effectively. Maintaining meticulous records, including export documentation and tax invoices, is crucial for substantiating zero-rated supplies and input tax claims. Regular staff training and consultation with tax specialists are recommended for staying compliant with evolving tax regulations.
By implementing these best practices, game ranches can fulfil their tax obligations, avoid disputes with SARS, and enhance financial efficiency, ensuring they are well-prepared for tax audits and minimizing the risk of penalties.
If need assistance with your VAT compliance contact MaxProf today for a consultation.
