In its simplest form bartering involves direct exchange of goods and/or services for other goods and/or services without reference to money and/or money value. In Vanuatu when a VAT registered person receives the supply that comprises its part of a barter and/or in-kind transaction, this is deemed to be payment of consideration for the supply whether provided by a VAT registered person and/or by a person who is not registered for VAT and a VAT liability arises.
For example if a legal practice registered for VAT is to prepare a new lease for a stationery store (whether registered or not registered for VAT), the usual fee for doing so would be 50,000 vatu inclusive of VAT. However both parties were to agree on a barter transaction/arrangement rather than a cash-for-service arrangement, the stationery store would provide the legal practice 50,000 vatu of paper products in return for preparation of the lease.
The legal practice must account for VAT on the 50,000 vatu and a proper tax invoice must be issued by the legal practice. A tax invoice is required for a barter transaction as it is for any other business transactions and a VAT registered person must keep all records that record and explain vat-able business transactions.
Recently the VAT Office experienced a situation where 3 VAT registered construction companies were borrowing heavy machinery from each other on a regular basis (based on specific conditions through internal arrangements). These machines were used in deriving the VAT taxable incomes for their businesses and all three companies failed to account for VAT on these barter transactions.
The VAT Act No 12 of 1998 [CAP 247] provides the provisions that enable the Director, through the VAT Office, to enforce tax. These enforcement provisions take the form of offences against the Act (Section 51(1) and the associated penalties imposed on persons found quality of these offences (Section 51(2) to (7).
The VAT Office encourages registered persons involved in barter transactions to take the correct and legal approach and account for VAT in the VAT return periods in which the barter transactions are executed.
For more information on any VAT issues, please contact the VAT Office by phone: 00(678) 24573 and 00(678) 37517 (Santo), visit us at our Office in Carnot Street, Port Vila or email us.
