Cross border supplies and their VAT challenges
Cross border supplies and their VAT challenges
When considering expansion into new markets, red tape often results in delays and inaction. This being said, technological advances have made it possible for enterprises to provide their services electronically from anywhere in the world without having to set up a fixed place of business within a country.
It could therefore be said that these technological advances have made it easier to operate without having to go through the red tape and also reduces the costs associated with setting up a fixed place of business in a new jurisdiction. This being said, the question that follows is, how do Revenue Authorities ensure that enterprises making electronic supplies within a country abide by the respective tax legislations?
Any person carrying on a taxable activity with the value of their supplies exceeding the required threshold, is required to register and levy VAT on their supplies in terms of the Namibian VAT legislation.
A “supply” is defined to include “the granting, assignment, cessation or surrender of any right” or “making available any facility or advantage”. It can therefore be said that electronically supplied services such as making available a facility for consumers to make hotel and travel bookings in Namibia, online subscriptions, the supply of e-books, music and online films would constitute a supply as defined in the Namibian VAT legislation.
“Taxable activity” is defined as “any activity carried on continuously or regularly by any person in Namibia or partly in Namibia… that involves or is intended to involve, in whole or in part, the supply of goods or services to any other person for consideration.” It follows that for a business to have a registration liability in Namibia, it must carry on business in Namibia and it must be doing so continuously or regularly.
On the basis that the facility of making use of electronic services is always available, the requirement of continuous or regularly is met. The real question that follows is, is the activity carried on in Namibia?
“Namibia” as defined in the Namibian VAT legislation, makes reference to the geographical area, thus the general interpretation is that the activity has to be physically carried on, on the continent or the territorial sea over which Namibia exercises sovereign rights.
This being said, the absence of place of supply rules in general and specifically in relation to electronic supplies poses the challenge of making it difficult to establish whether the supply is indeed in Namibia as defined, as there may not be a physical presence in Namibia. This places a Namibian registered business also supplying electronic services in Namibia at a distinct disadvantage from the foreign supplier of the same or similar electronic supplies.
The importance of place of supply rules in legislation is that it determines the country where VAT is payable and if VAT is to be accounted for by the supplier of the service or its customer. It is therefore an important part of legislation that should be enacted to support a country’s taxing rights.
Ultimately, place of supply rules in legislation eliminates the exposure of loss in revenue from the entities supplying these services to Namibians that should be accounting for VAT on their supplies.
Most importantly, it levels the playing field between these foreign suppliers and Namibian registered businesses supplying similar services in Namibia.
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