- INTRODUCTION TO VAT IN VANUATU
- OUTLINE OF VAT
- EXEMPT SUPPLIES
- ZERO-RATED SUPPLIES
- REGISTERED PERSONS
- TAXABLE ACTIVITY
- ACCOUNTING FOR VAT
- TOOLS, FORMS AND OTHER REFERENCES
INTRODUCTION TO VAT IN VANUATU
In 1998, as part of the financial reform element of its Comprehensive Reform Program (CRP), Vanuatu introduced a Value Added Tax (VAT).
Vanuatu’s VAT was modelled based on the New Zealand’s GST regime operating with rates of either 12.5% or 0% and minimal exemptions.
that was imposed under the, at the rate of 12.5% on the supply of most goods and services.
In 2018, this rate was increased to 15%.
Up until 2019 the law pertaining to VAT was contained in the VAT Act No. 12 of 1998. From 1 January 2020, the Tax Administration Act came into effect. It contains some changes that apply to other Acts as well as Value Added Tax Act [CAP 247].
The law that is relevant for VAT is now in both the Value Added Tax Act [Cap 247] and Tax Administration Act no 37 of 2018.
OUTLINE OF VAT
VAT is an indirect consumption tax imposed at the rate of 15% on most goods and services supplied in Vanuatu by registered persons in the course of a taxable activity.
It is also imposed on most goods imported into Vanuatu. Some supplies are specifically exempted from VAT, while others are zero-rated (i.e. treated as taxable supplies but at a rate of 0%).
VAT operates on a credit-offset basis. A VAT registered person (whether they be an importer, manufacturer, wholesaler or retailer) is required to account for VAT on the value of each taxable supply they make, however they are entitled to recover this amount from the consumer as part of the cost of the goods or services supplied. In addition, the registered person is entitled to deduct any tax paid on supplies made to them by another registered person.
Therefore, it is not the registered person (business) that bears the burden of VAT – it is the final consumer of the good or service.
Supplies which are exempt from VAT include financial services, education supplied by an approved educational institution, donated goods and services sold by non-profit organisations, residential rental accommodation, and the sale of a property which has been used for residential rental accommodation for at least 5 years.
Supplies which are zero-rated include exported goods, goods not situated in Vanuatu at the time of supply, taxable activities sold as going concerns to registered persons, international transportation of passengers and goods, services provided to non-residents who are outside of Vanuatu, services physically supplied outside Vanuatu, goods or services supplied directly to approved educational institutions and goods or services supplied to aid donors in respect of approved aid projects.
Exempt supplies are completely excluded from the VAT regime – no VAT is charged on them and VAT cannot be claimed back on the expenses incurred in supplying them. With zero-rated supplies, however, VAT is charged at the rate of 0% on the supply but VAT can be claimed back for expenses incurred in making the supply.
Anyone who carries on a taxable activity, or who intends to do so from a definite date, may register for VAT.
A sole trader, company, partnership, cooperative, non-profit body or any other organization registered for VAT is called a “registered person.”
Registered persons must charge and collect VAT from their customers on behalf of the Government, file returns, and account for VAT to the Department of Customs and Inland Revenue, Taxpayer Services Office.
VAT is charged only on supplies made by registered persons. A person must be registered for VAT if they carry on a taxable activity and their total taxable supplies in any 12-month period exceeds, or is expected to exceed, VT4 million.
Persons with an annual turnover of less than VT 4 million have the option of registering for VAT, provided they are carrying on a taxable activity. The purpose of this threshold is to reduce compliance and administration costs by excluding part-time traders, non-profit organisations, and hobbyists whose VAT liabilities would be insignificant.
A taxable activity is any activity carried on continuously or regularly, whether or not for profit, which involves the supply of goods and services for consideration. It includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association, or club. The activities of public and local authorities are specifically included.
Private recreational pursuits or hobbies, employment (including engagement as a company director), activities carried on by international companies and activities which involve the making of exempt supplies are not taxable activities.
ACCOUNTING FOR VAT
Registered persons are required to account for VAT and file VAT returns. A “registered person” is any person who is registered or is liable to be registered under section 12 of the Act.
Registered persons are required to furnish VAT returns and pay the tax owing (if any) on the 27th day of the month following the end of their taxable period, except in the case of returns otherwise due on 27th December which are not required until 5th January of each year.
Also, if a return due date falls on a weekend or public holiday then the due date is shifted to the first working day after the weekend or public holiday. The normal taxable period is 1 month, however if a person’s taxable supplies are less than VT8 million a year they can apply to file 3 monthly (quarterly) returns.
There are two ways in which registered persons can account for VAT - on the invoice (accruals) basis or the payments (cash) basis. Accounting on the invoice basis means that both output tax (tax on sales, or outputs) and input tax (tax on supplies received, or inputs) must be accounted for in the taxable period in which the supply is made (i.e. accordingly to the “time of supply” rules”). Under the payments basis, VAT is accounted for in the taxable period in which the person receives payment in respect of taxable supplies made, and makes payment in respect of taxable supplies received.
The amount of tax payable for each taxable period by registered persons is the difference between the tax collected on their sales/income and the tax paid on their purchases/expenses. If the amount of tax paid exceeds the amount collected, the registered person receives a VAT refund. A number of adjustments might be required when calculating the tax to pay/refund (e.g., for private use of business assets, entertainment expenditure, bad debts recovered, barter transactions, and changes in the accounting basis used).
A credit for tax paid on purchases/expenses can only be claimed if the registered person holds a valid tax invoice. A registered person who makes a taxable supply to another registered person is required to issue a tax invoice within 28 days of that other person making a request for such a tax invoice.
VAT is initially self-assessed i.e. VAT is paid in accordance with the information provided by the registered person on their VAT return. Inland Revenue will usually issue an assessment notice in the following situations:
- an incorrect calculation is made on the return (false return);
- no return is filed and a default assessment is issued;
- a return is audited and a reassessment is made;
- late payment penalties are charged.
TOOLS, FORMS AND OTHER REFERENCES
VAT Return Calculation Check (Open PDF and Save or Right click and Save as before Use)
Click here to access VAT Forms
Click here to access VAT Brochures
Click here to access VAT Policies and Booklets