In recent times it has become commonplace for property owners (hosts) to let their holiday homes or accommodation in their private homes as short-term accommodation to customers (guests) through the use of online accommodation reservation applications (Apps), which are available on various internet websites (platforms).
As there is some uncertainty and non-compliance regarding the various tax laws that apply regarding supplies of commercial accommodation, SARS issued a media statement on 11 March 2021 to highlight various concerns. (See the media statement All forms of rental income must be declared to SARS.) This article aims to provide further detail on the VAT laws that apply in support of what has been stated in the media statement to assist suppliers to become tax compliant. It also highlights transactions arranged via platforms as the media statement is written in more general terms and did not address this aspect.
How platforms and Apps generally work
There may be different ways as to how the arrangements work, but generally the App and the platform are used as a mechanism for the host to list (advertise) the availability of the accommodation on the internet to a wide audience of potential guests. The duties and responsibilities of the host and the platform entity are typically formalised by way of what is commonly referred to as a “hosting agreement”. The platform entity will do most of the administration, including the billing of guests and the collection of any charges (including VAT, if applicable) for the accommodation, cleaning fees, security deposits etc on behalf of the host. The host is responsible for giving the guest access to the accommodation and making sure that the accommodation meets the required quality and cleanliness standards as advertised. Potential guests that subscribe to the App or access the platform will search for and book the accommodation of their choice online. The guest pays the platform entity for the accommodation as well as a separate service fee for arranging the accommodation. The platform entity will then process the payment and the necessary paperwork. Thereafter, payment is made to the host for the accommodation and any other additional charges due to the host. The administration is then finalised and a disbursement statement is issued, indicating any charges by the platform entity to the host for arranging or advertising the supply of accommodation.
General VAT principles
VAT is a tax on any goods and services supplied for consumption in South Africa. Such supplies are usually subject to VAT at the standard rate (currently 15%), subject to certain exemptions and exceptions. The liability of a person to register and charge VAT is based on the concept of an “enterprise”. Some of the requirements of an enterprise (amongst others) are that the person must make taxable supplies on a continuous or regular basis in South Africa and must charge a consideration for those supplies. If the value of those taxable supplies exceeds, or is likely to exceed, the VAT registration threshold in any 12-month consecutive period, then the supplier is required to register as a VAT vendor. That vendor must then charge and collect VAT on any taxable supplies made and remit the VAT to SARS. See the VAT 404 – Guide for Vendors for further information on the general VAT principles.
In so far as platform entities are concerned, it should be clear that their activities are merely the arranging or advertising of the accommodation and not the supply of the accommodation itself. This will apply whether or not platforms do the billing for the supply of the accommodation and collecting the VAT-inclusive charges for that supply on behalf of the host. Non-resident platform entities may be required to register for VAT in South Africa for their arranging or advertising services on the basis that they supply “electronic services” to South African customers, but that is a separate matter and is not the focus of this article. (See the FAQs on Supplies of Electronic Services for more details in this regard, in particular, Question 42.) The normal VAT rules as explained in this article will apply to Platforms that have a local presence in South Africa.
Commercial accommodation
In principle, the supply of commercial accommodation is a taxable supply. It follows that the supplier of commercial accommodation in South Africa (the host) may be required to register for VAT if the value of those taxable supplies exceeds the VAT registration threshold. The term “commercial accommodation” is defined in the VAT Act, but in layperson’s terms, it is essentially short-term accommodation supplied together with “domestic goods and services” (also a defined term), which are either included in the price for the accommodation, or supplied for a separate consideration for consumption at the place where the accommodation is supplied. Examples of commercial accommodation include accommodation supplied at hotels, guest houses, boarding establishments, camping sites etc. Examples of domestic goods and services include meals, beverages, room service, cleaning, laundry, fees for using sporting facilities, telephone, electricity, internet etc. There are some special rules which apply as regards the VAT registration threshold and certain valuation rules if the commercial accommodation is supplied for an unbroken period of more than 28 days. These will be explained briefly below.
The supply of a “dwelling” (also a defined term) must be distinguished from the supply of “commercial accommodation” as those terms are mutually exclusive. This distinction is important because the supply of a dwelling is exempt, whereas a supply of commercial accommodation is taxable. The supply of a “dwelling” is the supply of the exclusive right of use of a specified property under a lease or rental agreement for a fairly long period of time as a place of abode for the lessee(s).
For further information on the concepts of “enterprise”, “taxable supplies”, “commercial accommodation” and “dwelling”, see the VAT 411 – Guide for Entertainment, Accommodation and Catering.
VAT registration
The normal rule is that a person is liable to register for VAT and to charge VAT on any taxable supplies if the value of those supplies exceeds R1 million in any consecutive period of 12 months. Alternatively, a person may register for VAT voluntarily if the value of taxable supplies in any consecutive period of 12 months has exceeded R50 000. However, there is a special rule for persons that make supplies of commercial accommodation. The rule is that the minimum threshold of taxable supplies for voluntary registration of R120 000 (and not R50 000) must be exceeded before that person may qualify as an enterprise and register as a vendor. It follows, for example, that if a person supplies commercial accommodation over a period of 12 months and the value of those supplies is R80 000, that person does not conduct an “enterprise” and will not be allowed to register. In that case, no VAT should be charged on the accommodation supplied.
Accounting for VAT by the host
The host (being a vendor) and not the platform entity is liable to account to SARS for the VAT that is due on the supply of commercial accommodation in South Africa. This applies whether the commercial accommodation is supplied through the use of an App on a platform or not. The host cannot rely on the platform entity to account for the VAT to SARS, but the platform may collect the VAT on behalf of the host as part of the price charged for the commercial accommodation. Importantly, VAT (output tax) must be accounted for on the full price of the accommodation, including any other domestic goods or services supplied together with the accommodation by the host. It is not correct to work with the net balance received by the host as reflected on the disbursement statement if any charges due to the platform entity have been set-off against the full VAT-inclusive price of goods or services supplied by the host. However, if the platform entity is registered for VAT in South Africa (whether as a non-resident supplier of “electronic services” or as a local resident platform), the VAT on any VAT-inclusive price charged by the platform to the host for arranging or advertising the commercial accommodation may be deducted as input tax. The platform entity must issue a separate tax invoice to the host in that regard if the disbursement statement does not meet the requirements of a tax invoice.
If the commercial accommodation (including any domestic goods and services) is supplied for an unbroken period of more than 28 days at a VAT-inclusive charge, then a special value of supply rule is applicable. In such a case, the consideration in money is deemed to be 60% of such all-inclusive charge. Hosts that make their supplies of commercial accommodation through the use of Apps and platforms should inform the platform entities accordingly so that the correct amount of VAT can be collected. VAT must be charged at the standard rate on the full price of any goods or services supplied to guests that do not meet the definition of “domestic goods and services”. (For example, gift shop sales.)
Source: gov.za
