South Africa introduces a VAT reverse charge on gold and goods containing gold

Under the DRC mechanism, the responsibility to account for VAT is shifted from the supplier (seller) to the recipient (purchaser). The three requirements that need to be met in order for the DRC to apply are (1) the supplier and recipient must be registered vendors (the recipient cannot be a non-vendor), (2) the supply must be taxable at the standard rate (zero- rated supplies do not apply) and (3) the supply must be that of a defined valuable metal. If any of the requirements are not met then the supply is not subject to the DRC and the standard VAT rules apply (i.e. the Supplier will account for the VAT).

The Regulation broadly defines a valuable metal to mean any goods containing gold in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, granules, or in a solution or residue or similar forms, including any ancillary goods or services. The definition is subject to certain exclusions. The 2023 Budget review proposed that the policy rationale for the definition be clarified as there is uncertainty about the interpretation of inclusions and the scope of exclusions.

The DRC regulations place certain responsibilities and obligations on both the supplier and the recipient of the defined valuable metal. The supplier is required to issue a tax invoice which states that the supply is subject to DRC and a statement stating that the recipient has to account for and pay the VAT on behalf of the supplier to the tax authority. No VAT should be included on the invoice. The supplier must only declare the value of the supply in its VAT return.

The recipient must be in possession of a valid tax invoice and must declare and pay the VAT amount in the tax period corresponding to the time of supply (that is, the date appearing on the tax invoice issued by the supplier). The recipient must notify the supplier in writing by means of a statement within 21 days after the end of the calendar month during which a tax invoice was issued to the recipient. The statement must contain, amongst other things, the value of the DRC supplies; a full description of the valuable metal as well as the percentage of the gold content contained within the valuable metal and confirmation that the VAT charged by the supplier was accounted for and paid to the tax authority. The recipient will be entitled to a VAT deduction only if the VAT amount levied by the supplier has been declared and paid in the recipient’s VAT return.

Failure to apply the DRC Regulations will result in the supplier and the recipient, being held jointly and severally liable for any VAT loss suffered by the fiscus. Vendors transacting in defined valuable metal should seek professional advice if there are any uncertainties about the DRC regulations.

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