VAT benefit for EXSA members

I recently made a presentation on behalf of the Exhibition and Event Association of Southern Africa (EXSA) about the SARS ruling for the VAT zero-rating of exhibition services for international clients.

This ruling has been in place since 1999 and applies only to EXSA members. However, it is worth reminding everyone of this benefit and how it works, given that it creates a clear price advantage for companies wanting to secure work with international clients for exhibition stands in South Africa.

A quick history

In 1999, EXSA Chairman, Sean McCoy, obtained an opinion from PricewaterhouseCoopers on the VAT Act (No. 89 of 1991) regarding the zero-rating of goods and services applied to the exhibition industry. This resulted in the ruling that the rental of certain exhibition goods and services would receive a zerorating for international exhibitors and not be subject to output VAT, when being invoiced by EXSA members.

Since then, Andrew Dunkley, in 2005, Nigel Walker, in 2012, and Sue Gannon, in 2015, have been involved in re-securing the ruling. In 2018, EXSA Treasurer, Moses Nefale, obtained the latest ruling, which will be effective for the next five years.

The ruling

A ruling is beneficial to the industry as it creates clarity and certainty about the treatment of VAT. The ruling specifies that the companies that will benefit from it are EXSA members that are contractors and supply movable goods on a rental basis.

Movable goods include:

• Arranging for the rental of exhibition space;

• Arranging for the rental of goods, décor, fixtures and fittings;

• The rental of décor and goods inclusive of furniture and fittings;

• Designing the layout of the exhibition area;

• Erecting the stall on site (stalls are custom built for each exhibitor and are broken down completely after an exhibition); and

• Dressing and setting up the stall for the exhibitor.

The following conditions must be met in order to apply a zero-rating to the abovementioned items:

• The goods are being used for purposes of the foreign enterprise’s (i.e. a foreign exhibitor) commercial enterprise;

• The foreign enterprise must be conducted exclusively offshore;

• Payment of the rental should originate offshore, from the country where the foreign enterprise trades; and

• Documentary proof should be obtained and retained. This includes a tax invoice and a foreign exchange notification from the bank that originated the offshore payment.

Rand payment

Payment by a foreign enterprise can be in foreign currency or Rands, as long as the transaction which resulted in a Rand payment happened overseas and documentary proof of this is kept.

Exhibition space

The ruling states that VAT needs to be charged at a standard rate on exhibition space, and exhibition organisers have to charge VAT for exhibition space sales to a foreign enterprise.

However, I believe that there is an opportunity for conference organisers who include an exhibition component in their event, and exhibition organisers who include shell scheme packages in their pricing, to become EXSA members and benefit from the ruling. They will benefit from not having to charge VAT on the shell scheme build, or on stand packages which they supply to foreign enterprises.

Who is Justin Hawes?

Justin Hawes is a Chartered Accountant with a BCom, BAcc and HDip Tax from the University of the Witwatersrand, Johannesburg, South Africa. He has been managing director of exhibition, events and display company, Scan Display Solutions (Pty) Ltd, since its formation in 1996. Justin served on the executive committee of the Exhibition and Event Association of Southern Africa (EXSA) for six years. He was the association’s chairman in 2005 and vice chairman from 2002 to 2004. In 2011, Justin served on the International Federation of Exhibition and Event Services’ (IFES) marketing committee. He has been IFES’ Treasurer since 2012 and is the first African to be represented on the board.

Here are a few examples of the application of the ruling:

• If the exhibition stand builder builds a stand for Coca Cola South Africa and gets paid in foreign currency for the job, this would be subject to VAT as the enterprise (Coca Cola South Africa) is based in South Africa.

• If an exhibition company builds an exhibition stand on a rental basis and the international client then later asks if they can buy some of the stock and store it in South Africa, and the client has no enterprise in South Africa, then the sale portion would be subject to VAT.

• An exhibition stand builder is asked to organise exhibition space for R100 and builds a stand on a rental basis for R150. Even though the payment is made from overseas in Rands and the client has no enterprise based in South Africa, the R100 for the exhibition space is subject to VAT. As the exhibition stand portion of R150 is not subject to VAT, I would recommend that two invoices are generated to avoid any confusion on this transaction.