Calculating VAT on imported services

alue Added Tax is levied on taxable supplies which include goods and services traded locally, imports and exports. This week’s edition looks at the treatment of imported services for VAT purposes.

What is an imported service?An imported service is:

(i) A service made by a supplier who is resident outside Zimbabwe or carries on business outside Zimbabwe to a resident of Zimbabwe.

(ii) The service should be utilised or consumed in Zimbabwe by an operator in making non- taxable supplies (exempt supplies).

Examples of imported servicesVAT on imported services normally arises when a local business operator imports foreign services.Common examples are consultancy, information technology and other various services supplied to financial institutions (such as banks and insurance companies), universities and Government ministries. The latter companies supply VAT exempt services.Calculation of VAT

• The value of the imported service is generally the invoice value. In this case the VAT is calculated by charging 15 percent on the invoiced amount.

• For example, the invoice value in respect of consultancy services rendered and  charged by a foreign supplier  to a local commercial bank is US$10 000.

• The VAT on this imported service is calculated as follows:

15/100 x 10 000 =US$1 500Who accounts for VAT?

• The recipient of an imported service is required to calculate VAT on imported services and remit it to the Zimbabwe Revenue Authority as prescribed in the VAT Act.