The South African government may enter into international donor funding agreements with foreign governments or other international entities in terms of which goods or services must be supplied for the benefit of people in South Africa. The international donor funding agreements, also commonly referred to as Official Development Assistance Agreements (ODAAs), are pursuant to section 231(3) of the Constitution of the Republic of South Africa Act 108 of 1996 (the Constitution) and the ODAA stipulate that such funding cannot be used to pay for any taxes imposed under South African Law.
The project under which this agreement is facilitated is known as an FDFP.
In order to give effect to the requirement stipulating that such funding cannot be used to pay for any taxes imposed under South African Law, the South African VAT legislation was designed in such a way that –
• no VAT is levied on the international funding received; and
• South African VAT charged to the FDFP on the acquisition of goods or services or VAT paid by the FDFP on the importation of goods, for purposes of the project, may be deducted as input tax.
Recent legislative changes resulted in a significant change in the administration of FDFPs for VAT purposes. The main difference between the old and new legislation is with reference to the “person” who is required to register for South African VAT. The purpose of this reference guide is to provide certainty to taxpayers on the VAT treatment of FDFPs implemented by an implementing agency.
The guide is divided into five parts:
• Part I sets out the development of the South African VAT system with regard to FDFPs and introduces the concept of an FDFP together with the different persons involved.
• Part II provides guidance on the VAT registration requirements and procedures of FDFPs registered by SARS as vendors on or after 1 April 2020.
• Part III sets out the VAT consequences of any transactions entered into by an implementing agency for the purpose of an FDFP.
• Part IV deals with the various documentary and record keeping requirements set out in the VAT Act.
• Part V contains comprehensive examples illustrating the various VAT principles discussed in this guide.
Source: gov.za
