- Supplies of goods or services made directly to an aid donor or the administrating government departments are VAT zero-rated if they are made in respect of an approved aid project;
- Offshore and local contractors making supplies to aid projects in Vanuatu are required to register for VAT if the value of their supplies exceeds 4 million vatu in a 12-month period. (This means the contractors are entitled to claim back any VAT paid relating to business purchases in their VAT returns.) and
- To qualify as an “approved aid project”, the project Memorandum of Understanding must include a statement that zero-rating applies under clause 7 of the Third Schedule of the VAT Act.
Clause 7 of the Third Schedule of the VAT Act provides that a supply of goods or services is zero-rated for VAT purposes if that supply is made:
(a) in respect of an “approved aid project”, and
(b) directly to a Diplomatic Mission of a foreign state, an international aid organisation, or the Government of Vanuatu.
Clause 8 of the Third Schedule of the Value Added Tax Act 1998 defines the term “approved aid project”. This clause was amended by the Value Added Tax (Amendment) Act No.28 of 2001, it reads:
For the purposes of this Schedule the term “approved aid project” means an aid project for which the project Memorandum of Understanding, or other like document, approved by the Council of Ministers and lodged with the Minister contains specific provision for zero-rating under clause 7 of this Schedule.
It is important to note that clause 7 extends the zero-rating only to supplies made directly to the aid donor and/or administrating government department. This will generally cover only the services supplied by the primary contractor to the donor or government department
Proper usages of Zero-Rate Certificates
The VAT Office advises all approved aid project end users of zero-rated certificate to ensure to adhere to the correct usages of the certificate, as failure to comply would allow changes of the way we’ve been issuing this certificate.
The correct usages of the certificate would be that the end users must ensure to adhere to the following.
(1) Only the approved holders of the certificate have the privileges to use the certificate and not the second or the third person;
(2) Purchase items directly relates to the approved aid project only;
(3) Purchase items only within the funds disposed for the project itself and
(4) All receipts and invoices of the payments made in relations to this project should be kept as required under section 54 of the VAT Act for inspection purposes.
The VAT Office advices that it will soon carry out inspection on all approved aid project end users of zero-rate certificates to ensure holders do complies with the VAT Act and check for irregularities in its usages. Those found for non-compliance will be reported and dealt with accordingly.