The Value Added Tax Act, provides for a reverse charge system in connection with importation of taxable services from foreign suppliers.
Under this provision, the obligation to calculate VAT on the value of the supply of the imported services and subsequently pay the calculated tax due to the SRA has been reversed from the foreign supplier to the Swazi purchaser.
The objective of this new system is to ensure that VAT is paid on imported services and to protect local suppliers of similar taxable services. Local suppliers are obliged to charge, collect and pay VAT on similar services they provide locally.
The reverse charge system is NOT a withholding system. The calculation of VAT must be done on the total payment of the services and the calculated tax is not going to be withheld in the payment to the foreign service provider.
Note that the reverse charge system has no implication on withholding tax. Swazi importers of foreign services must still withhold income tax on their payments to foreign supplies of services and pay it to the SRA.
An example: A Swazi business engages a foreign service provider to do a job in Swaziland at a price of E100,000. After the job is done the Swazi business must calculate VAT at 14% of E100,000 and pay the E14,000 to SRA. Furthermore, the Swazi business MUST withhold 15% income tax on E100,000 and pay that E15,000 to the SRA. The end result for the Swazi business is as follows:
Payment to the foreign service provider E100,000 less E15,000 equals E85,000
Payment of withholding tax to SRA equals E15,000
Payment of VAT to SRA equals E14,000
Total cost to the Swazi business equals E114,000
Had the Swazi business engaged a local service provider to do the same job at the same price, the Swazi supplier would have invoiced E100,000 and charged VAT at 14%. Consequently, under a reverse charge system, the cost for the Swazi business will be the same no matter if the service provider is local or foreign.
A declaration form which must be used by Swazi importers of taxable services.
Payment of VAT calculated on imported taxable services must be done monthly to the SRA latest on the 20th following the month in which the invoice for the services is dated or payment for the services are done, whatever is the earliest.
NOTE: VAT registered businesses with full input tax credit rights will not be obliged to apply the reverse charge system on their imported services.