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Inland Revenue Warns Registered Persons – mainly Chinese Retailers to notify changes to their business status within 21 days

A Business License is required from Rates and Taxes Section before the new partnership can commence trading. If the turnover from all the business activities the partnership carries on exceeds 4 million vatu, then it is required to register for VAT by completing the Application for VAT Registration form, CT201 and must provide all the relevant information as required. 

The previous partnership must advice the VAT Office in writing within 21 days of change in partnership and must apply to cancel its VAT registration by completing the Application to Cancel VAT Registration form, CT209. The partnership must also provide a list of all assets including the details of stock sold or retained.

Furthermore, for such transaction to satisfy the provisions of a going concern it must meet all the required conditions as defined in Section 2 of the VAT Act No. 12 of 1998 CAP [247]. The following can be used as a checklist for going concern determination:

  • Are both the supplier and recipient registered for VAT?
  • Does the supply constitute the transfer of the whole or part of a taxable activity as “going concern”?
  • Are all of the goods and services that are necessary for the continued operation of that taxable activity or that part of a taxable activity being supplied to the recipient?
  • If the supply is of part of a taxable activity, is that part capable of separate operation?
  • Is the supplier carrying on the taxable activity or part of that taxable activity up to the time of transfer to the recipient?
  • Have the supplier and recipient agreed in writing that the supply is the supply of a taxable activity as a going concern?       

Registered persons are advised that the VAT Office recognizes a partnership occurs when there are two or more individuals sharing the profits of a business. Generally all partners in the partnership contribute both labour and capital to the business; however in some cases a partner may contribute only one or the other. Before a partnership exists there must be either a written or verbal agreement. This agreement sets out the rules of operation of the partnership including the capital contributions and profit shares for each partner.

From the VAT and accounting point of view each individual partner’s personal activities and finances are treated separately from the business. However, the partnership is not a separate legal entity from the partners so each individual partner is liable for all the debts and liabilities of the partnership which also includes all tax liabilities.

The VAT Office has also noticed that businesses mainly from the retail industry frequently change their business status and do not inform the VAT Office as required by the VAT legislation. 

A VAT registered person must notify the Director in writing within 21 days after any change to your business circumstances. These changes include:

  • Any changes in the name, address, or nature of main taxable activity or activities;
  • Any changes in the address or the name in which any taxable activity is carried on i.e. change of address of the business premises and/or change of business name
  • Ceases to be eligible as a member of a group within the provisions of section 45. 

Under section 51(1)(b),of the VAT Act, a person who refuses or fails to furnish any return or information as and when required by the VAT Act or by the Director commits an offence. For example, Section 14 requires a registered person to notify the Director in writing within 21 days of the specified change of business status. It is therefore an offence if the registered person fails to do so.This Offence is committed whenever the act or omission is done regardless of the intentions or motives of the person involved. It is an offence of strict liability, i.e. it need not be done knowingly.

On the first occasion on which a person is convicted of any such offence (or offences) the person becomes liable to a fine of up to 40,000 vatu for each offence for each month of the default. Upon conviction on any subsequent conviction the maximum fine is increased to 70,000 for each month of the default. For any subsequent offences, the VAT Office will proceed with prosecution actions.

For more information on any of our articles published in our weekly column, please contact the VAT Office by phone: 00678 24573 or email us.