Vat Shock! Vat registration or deregistration dilemmas…

Dear Reader,

I’ve just updated the chapter in the Practical Vat Loose Leaf, on deregistration, especially because I know it’s always an issue for Vat vendors.

But more worrying is the number of clients who approach me, in dire straits with SARS, because of Vat registration or deregistration dilemmas.

It has come as a shock to me that some SARS offices are making Close Corporations (CCs) that convert to companies, or vice versa, apply for new Vat registrations. Especially considering all the trouble and expense associated with new Vat registrations…

SARS is wrong!

Section 23 of the Vat Act states that any “person” who carries on an enterprise and who becomes liable (compulsory registration) or eligible (voluntary registration) for Vat will be registered as a vendor.

And when I check the definition of a “person” in the Vat Act, I find that the definition includes a “company”. But nowhere does it mention a CC.

I do know, however, that the Vat Act borrows its definition of a “company” from the Income Tax Act. And there, the definition includes a CC.

But what does the law say about conversions?

In a nutshell, it says that when a company (registered under the Companies Act, 1973) has been converted into a CC — or vice versa — the company or CC is deemed to be one and the same. In other words, it remains the same legal entity.

As the “person” has not changed, it retains its Vat registration too. No new “person” has come into being, so there’s no new “person” to register for Vat, income tax or PAYE.

So what do you do, if you find yourself in this position?

You must advise SARS of the change and furnish SARS with a new CM1: the Certificate of Incorporation for a Company, or a CK: the Founding Statement for a CC .

For the purposes of SARS’ records, the change is similar to the change of name of a company or CC, or a female vendor changing her surname upon marriage.

SARS must issue you with a new (amended) Vat registration certificate showing the new name — but not with a new Vat registration number.

Prof Marius Maritz
Editor-in-Chief, Practical Tax Loose Leaf

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More tax and Vat tips and recent updates…

Don’t forget, debts due by the “old” CC or company, including debts owed to SARS, carry over and you must pay them!