New standards and interpretations effective 1 January 2019

There has been a number of new standards and amendments issued by the IASB that will become effective from 1 January 2019 View PDF

Companies Amendment Bill 2018 – Proposed changes

On Friday, 21 September 2018 the Department of Trade and Industry published the draft Companies Amendment Bill 2018 for comment and comments closed on 20 November 2018. The following is a summary of the more significant changes proposed by the Bill. View PDF

IFRS 9: Financial Instruments – Restatement of Comparative Periods

The International Accounting Standards Board (IASB) have introduced a new accounting standard IFRS 9: Financial Instruments to replace IAS 39: Financial Instruments Recognition and Measurement. The standard is effective for annual periods beginning on or after 1 January 2018. The following are the principles behind the restatement of financial statements after adopting IFRS 9.

IFRS 9 does not require restatement of comparative period financial statements except in limited circumstances related to hedge accounting; however, entities may choose to restate.

The following decision tree outlines the IFRS 9 requirements related to restatement and required disclosures on transition:

  • If an entity elects not to restate comparative periods, then it is important to remember that the quantification of adjustments is still necessary in order to determine the transition adjustment in opening retained earnings or other components of equity, as appropriate.
  • If comparative periods are not restated, the difference between the previous carrying amounts and the new carrying amounts at the Date of Initial Adoption is recorded in opening retained earnings or other components of equity, as appropriate, of the annual period that includes the Date of Initial Adoption (DIA).
  • If an entity restates comparative periods, then it will also need to apply, IAS 1, Presentation of Financial Statements. IAS 1 requires a third balance sheet to be presented when an accounting policy is applied retrospectively and there is a material effect as a result of the change. As an example, if an entity restated comparative periods and the DIA is November 1, 2017, the following balance sheets may be required:
    – October 31, 2018
    – October 31, 2017
    – November 1, 2016
  • The needs and expectations of shareholders and other financial statement users should be considered in arriving at the decision. Without restatement, users may find it difficult to analyze the entity’s financial statements results; however, given that not all of the standard’s principles
    are applied retrospectively and IAS 39 continues to be applied for financial assets derecognized prior to DIA, results will not be comparable even if restated.
  • An entity could consider providing pro forma comparative results to enhance comparability. If an entity decides to restate comparative periods, the use of hindsight is prohibited. Regardless of whether an entity chooses to restate prior periods, there are transitional financial statement disclosures that are required; however, these do differ depending on the approach taken.

External Auditor’s Responsibility to consider Cybersecurity

Scope of auditor’s responsibility

The auditor is required to:

  • Understand how the business uses IT and the impact of IT on the financial statements,
  • Understand the extent of the company’s automated controls as they relate to financial reporting (including IT general controls that are important to the effective operation of automated controls and the reliability of company-produced data and reports used in the audit), and
  • Use his or her understanding of the business’s IT systems and controls in assessing the risks of material misstatement of financial statements, including IT risks resulting from unauthorized access.

The immediate conclusion may be that cybersecurity risk is not an area that requires special audit attention, but auditors would consider, as part of the risk assessment process, an entity’s business risks in the audit of financial statements. Cyber incidents can result in financial consequences and therefore, have an effect on the financial statements.

Cybersecurity risk should therefore be considered in every financial statement audit. Auditors should consider and assess the impact of such risk to the financial statements and, where necessary, the extent of the audit response required to address the risk.

It is important to note that the auditor’s role is limited to the audit of the financial statements and does not encompass an evaluation of cybersecurity risks of the company’s entire IT platform but only focusses on systems and controls affecting information used in the compilation of these financial statements.

Risk consideration and assessment

Risk assessment is part of the financial statements audit process and is a key fundamental process which must be performed during the planning phase of every audit. The auditor is required to identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment, including the entity’s internal control. With an in-depth understanding of the entity’s business and environment (this includes an entity’s IT
and cyber environment), it enables the auditor to identify the risks, and to design and implement appropriate audit responses to address those identified risks. The auditor should obtain an understanding of the IT general controls, evaluate their design and determine whether the controls that are relevant to the audit have been implemented.

The auditor should determine whether any of the risks identified (which could include cybersecurity risks) are, in the auditor’s judgement, significant risks that require special audit consideration. If information about a material breach is identified, the auditor would need to consider the impact on financial reporting, including disclosures, and any reporting obligation.

Re-Assessing Cybersecurity Risk Every Year

Changes in the risk environment and the ways in which businesses operate mean that business risks do not remain constant. In one year, cybersecurity risk may not have been identified as a key business risk that may result in risks of material misstatement, but this does not mean that the same will apply for the next year. Significant and rapid changes in information systems, incorporation of new technologies into production processes, or expansion of operations can bring about new cybersecurity risk.

Audit responses to risks identified

Where cybersecurity risks may result in risks of material misstatement at the financial statement level, the auditor should take appropriate steps to address these risks. This may include assigning more experienced staff or those with special skills such as IT specialists to the engagement, incorporating additional elements of unpredictability in the selection of further audit procedures to be performed and modifying the nature of audit procedures to obtain more persuasive and corroborative audit evidence.

The auditor would have to determine whether continued reliance can be placed on the IT dependencies/automated controls; consider the need to revise the initial risk assessment, and the impact to the nature, timing and extent of other planned audit procedures. The auditor would have to respond to the ineffective IT control environment by obtaining more extensive audit evidence from substantive procedures.

Audit responses to cyber attacks

Companies that fall victim to successful cyber-attacks may incur substantial costs and suffer significant damage. The auditor should:

  • Understand the nature and cause of the incident, carefully consider the costs and any adverse consequences arising from the cyber incident, and evaluate the impact it may have on the financial statements.
  • Assess the impact of the attack on the entity’s future revenue, potential litigation expenses, cybersecurity protection costs, etc and future cash flows, which may affect impairment assessments.
  • Examine whether the breach may indicate going concern issues for the entity.
  • Evaluate whether appropriate disclosures are included in the financial statements.
  • Consider any other requirements to notify the appropriate authorities in case management has not made appropriate disclosures or considered the auditor’s recommendations.

Use of eXtensible Business Reporting Language (XBRL) when submitting Annual Financial Statements online

What is XBRL?

XBRL (Extensible Business Reporting Language) is an Extensible Markup Language (XML)-based computer language for the electronic transmission of business and financial data. The goal of XBRL is to standardize the automation of business intelligence. XML is used to describe data.

The XML standard is a flexible way to create information formats and electronically share structured data via the public Internet, as well as via corporate networks.

What is required?

As from 1 July 2018, all qualifying entities will be required to submit their latest available approved / audited statements on the first date of submission applicable to them. The first date for XBRL submission for every entity is determined by the anniversary date of their date of incorporation.

The calculation of the first date of submission of a particular entity is different for close corporations and companies.

First date of submission of Annual Financial Statements via XBRL

As per current compliance process in the Act, entities submit their Annual Returns 30 business days after the annual anniversary of their Date of Incorporation, when submission of AFSs applies to them, except when an entity is a Close Corporation. CC’s have 60 business days to submit their

AFSs from the first day of the month of the anniversary of their date of incorporation.

Entities need to submit their latest final approved audited or independently reviewed AFS together with their Annual Returns, on the same day as their Annual Returns. The first date of submissions via XBRL, will be the first date of submission that falls on or after 1 July 2018, irrespective of the year of their latest final approved audited or independently reviewed AFS.

Which Entities will be using XBRL for submission of AFSs?

In terms of Section 33 of the Companies Act 71 of 2008, and regulations 28, 29 and 30 of the Companies Regulations of 2011, the following entities as they submit Annual Returns they need to also submit their AFS’s through XBRL as from 1 July 2018

▪ All public companies
▪ Private companies (qualifying and currently submitting using PDF)
▪ State owned companies
▪ Non-profit entities
▪ Close Corporations (qualifying and currently submitting using PDF)

How to determine whether the entity needs to comply with the XBRL determination of the CIPC?

If any of the following criteria applies to the entity, the entity needs to comply:

  • If the Memorandum of Incorporation (MOI) that prescribes filing of audited financial statements
  • If the entity is a private or personal liability company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million
  • If the entity is a private or personal liability company that compiles its AFSs internally (for example, by its financial director or one of the owners) and that has a Public Interest Score (PIS) of 100 or more
  • If the entity is a private or personal liability company that has its AFSs compiled by an independent party (such as an external accountant) and that has a PIS of 350 or more
  • Unless the entity has opted to have its AFS audited or voluntarily included audit as part of its MOI, a private or personal liability company that is not managed by its owners may be subject to independent review if:

– It compiles its AFSs internally and its PIS is less than 100
– It has its AFSs compiled independently and its PIS is between 100 and 349

Usage of XBRL for filing of AFSs is mandatory for entities who must submit audited AFS.The usage of XBRL is also available for entities who chooses to file Independently Reviewed AFSs, but it is not mandatory. They can still file a Financial Accountability Supplement (FAS) as prescribed in Regulation 30 (4) Where a company is required to be audited the financial statements must include the audit report which means that the audit must also be finalized within 6 months after year-end.

Will XBRL files be required to be audited?

Qualifying entities will still be required to maintain audit or independent review requirements as currently prescribed by the Companies Act, but only the XBRL format of AFSs will be uploaded via the CIPCs portal. Entities are however required by the Act to keep audit and independent review reports for a period of seven years, and the CIPC can at any point request access to these reports.

Revised Conceptual Framework for Financial Reporting

The IASB has recently published its revised ‘Conceptual Framework for Financial Reporting’. The project was initiated in 2004 however due to a series of changed priorities and abandonment in 2010 followed by a phase by phase approach, the resultant framework does not constitute a substantial revision as was originally intended, but instead focuses on topics that were not yet covered or that showed obvious shortcomings that needed to be dealt with. The Board and Interpretations Committee will immediately begin using the revised Framework. It is effective for annual periods beginning on or after 1 January 2020 for preparers that develop an accounting policy based on the Framework.

The primary purpose of the Framework is to assist the IASB by identifying concepts that it will use when setting standards. The Framework is not an IFRS standard and does not override any
standard, so nothing will change in the short term. The revised Framework will be used in future standard-setting decisions, but no changes will be made to current IFRS. Preparers can use the
Framework to assist them in developing accounting policies where an issue is not addressed by an IFRS.

The Framework is structured into 8 chapters, however only chapters 1 to 7 were revised. Chapter 8 which discusses the concepts of capital and capital maintenance remains unchanged. The key
changes in the chapters are summarized below:

Chapter 1 – The objective of general purpose financial reporting

  • This chapter notes that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.
  • This chapter also newly highlights increasing the prominence of stewardship in financial reporting emphasizing the need to provide information that is useful in making resource allocation decisions.

Chapter 2 – Qualitative characteristics of useful financial information

  • This chapter reintroduces an explicit reference to the notion of prudence and states that the exercise of prudence supports neutrality. Prudence is defined as the exercise of caution when making judgements under conditions of uncertainty.
  • Also new in this chapter is a clarification that faithful representation means representation of the substance of an economic phenomenon instead of representation of its legal form only.

Chapter 3 – Financial Statements and the reporting entity

  • This chapter states that the objective of the financial statement is to provide information about an entity’s assets, liabilities, equity, income and expenses that is useful to users in assessing the prospects for future net cash inflows to the entity and in assessing management’s stewardship of the entity’s resources.
  • The chapter notes that financial statements are prepared for a specific period of time and provide comparative information and under certain circumstances forward looking information. It also states IASB’s conviction that, generally, consolidated financial statements are more likely to provide useful information to users than unconsolidated financial statements.
  • New to the Framework is the definition of a reporting entity, which might be a legal entity or a portion of a legal entity.

Chapter 4 – The elements of Financial Statements

The main focus of this chapter is on the definition of assets, liabilities, equities, income and expenses.

  • Asset – A present economic resource controlled by the entity as a result of past events. An economic resource is right that has the potential to produce economic benefits
  • Liability – A present obligation of the entity to transfer an economic resource as a result of past events.
  • Equity – The residual interest in the assets of the entity after deducting all its liabilities.
  • Income – Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims
  • Expenses – Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims

New is the introduction of a separate definition of an economic resource to move the reference to future flows of economic benefits out of the definition of an asset and liability. The expression ‘economic resource’ instead of simply ‘resource’ stresses that the IASB no longer thinks of assets as physical objects but as sets of rights. The definition of assets and liabilities also no longer refer to ‘expected’ inflows or outflows. Instead, the definition of an economic resource refers to the potential of an asset/liability to produce/to require a transfer of economic benefits.

Chapter 5 – Recognition and derecognition

  • The Framework states that only items that meet the definition of an asset, a liability or equity are recognized in the statement of financial position and only items that meets the definition of income or expense are to be recognized in the statement of financial performance.
  • However, their recognition is dependent on providing the users with:
    i) relevant information about the asset or liability and of any income or expense or changes in equity; and
    ii) a faithful representation of the asset or liability and of any income or expense or changes in equity.

The Framework also discusses the concept of derecognition. The requirements are driven by 2 aims:

  • The assets and liabilities retained after the transaction or other event that led to derecognition must be presented faithfully; and
  • The change in the entity’s assets and liabilities as a result of that transaction or other event must also be presented faithfully.

The Framework also describes alternatives when it is not possible to achieve both aims.

Chapter 6 – Measurement

  • This chapter is dedicated to the description of different measurement bases such as historical cost, current value, fair value, value in use and current cost. It explains in detail about the information they provide and their advantages and disadvantages.
  • Current cost is newly introduced in The Framework as it is widely advocated.
  • The Framework also sets out factors to consider when selecting a measurement basis.

Chapter 7 – Presentation and Disclosure

The Framework states that the statement of profit or loss is the primary source of information about an entity’s financial performance for the reporting period and that only in ‘exceptional circumstances’ the Board may decide that income or expenses are to be included in other comprehensive income.

Submission of Company Annual Financial Statements and Penalties for Non-compliance

Section 30 of the Companies Act, Act 71 of 2008, requires a company to prepare annual financial statements within six months after the end of its financial year.

Requirement to submit annual financial statements

Section 30 of the Companies Act – Annual Financial Statements

(1) Each year, a company must prepare annual financial statements within six months after the end of its financial year, or such shorter period as may be appropriate to provide the required notice of an annual general meeting in terms of section 61(7).

Regulation 30 of the Companies Act Regulations – Company Annual Returns

(2) A company that is required by the Act or Regulation 28 to have its annual financial statements audited must file a copy of those audited statements––
(a) on the date that it files its annual return, if the company’s board has approved those statements by that date; or
(b) within 20 business days after the board approves those statements, if they had not been approved by the date on which the company filed its annual return.
(3) A company that is not required in terms of the Act or Regulation 28 to have its annual financial statements audited may, at its option––
(a) file a copy of its audited or reviewed statements together with its annual return; or
(b) undertake to file a copy of its audited or reviewed statements within the time contemplated in sub-regulation (2)(b).
(4) A company that is not required to file annual financial statements in terms of sub-regulation (2), or a company that does not elect to file, or undertake to file, a copy of its audited or reviewed annual financial statements in terms of sub-regulation (3), must file a financial accountability supplement to its annual return in Form CoR 30.2.

What does this mean?

Regulation 30 requires the submission of a company’s financial statements together with its annual return by “all companies that is required to have its financial statements audited”.

The following companies are required to have its financial statements audited:

  • public companies
  • state owned companies,
  •  any company that falls within any of the following categories in any particular financial year:

(a) any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R 5 million;
(b) any non-profit company, if it was incorporated––
(i) directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a company; or
(ii) primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; or
(c) any other company whose public interest score in that financial year is
(i) 350 or more; or
(ii) at least 100, but less than 350, if its annual financial statements for that year were internally compiled.

The above companies should therefore file a copy of its approved financial statements together with its annual return or within 20 business days after approval of the financial statements by the Board.

Reportable Irregularities

Section 45 of the Audit Profession Act requires an auditor that is satisfied or has reason to believe that a reportable irregularity has taken place or is taking place in respect of that entity to send a written report to the Independent Regulatory Board of Auditors (IRBA) with particulars of the reportable irregularity.

Companies and Intellectual Property Commission (CIPC)

The CIPC was established in terms of the Companies Act with one of its objectives to “promote compliance with the Act”. The CIPC received Reportable Irregularity reports from the IRBA, where companies were reported by their auditors for failure to comply with Section 30 of the Companies Act in respect of preparing its annual financial statements within six months after the end of its financial year end.

Where a company is required to be audited the financial statements must include the audit report which means that the audit must also be finalized within 6 months after year-end.

The CIPC recently utilized the provisions of Section 175 of the Companies Act, which provides for an administrative fine to be issued for a company where a Compliance Notice has been issued for specific continuous non-compliance with the requirements of the Companies Act.

As a result, court orders were granted for an administrative fine to be paid by these non-compliant companies. The administrative fine to be paid by each company is equal to 10% of their turnover during the period which the companies were found to be non-compliant.

Identifying if a Revenue or Purchase Transaction contains a financing element

There are different interpretations as to when one should “discount” revenue or purchases. There are two totally different views – the first one being that discounting begins on the day after the recognition of a sale or purchase and the second one allows for the concept of “extended payment terms” beyond “industry norms”. Note: This does not apply to debtors or creditors.

This issue deals only with the initial identification of a financing component by sellers or buyers of goods in transactions that possibly contain financing elements. The assessment of whether the financing component should be separately identified and recognised – and the related determination of the sale and purchase price – should be performed on initial recognition at a contract or transaction level. This issue does not provide guidance for the application of transactions falling within the scope of IFRS 15.

Identification whether a transaction contains a financing element

The following should be considered in determining whether a transaction contains a financing element:

  1. Differential pricing between the cash payment price and the price paid on deferred settlement terms;
  2. Settlement terms deferred beyond industry norms and practice;
  3. The date from which an entity is entitled to levy interest on overdue payments;
  4. The existence of a transaction initiation process and credit assessment process;
  5. Any collateral required for the transaction or payment;
  6. A substantial amount of the transaction price is variable, the variability is outside the control of both parties, and the parties have decided to delay payment until a substantial amount of the variability is removed;
  7. The business purpose for the different timing between delivery of the goods/ services and the payment; or
  8. Volume of credit sales in relation to cash sales.

Example: View 1

Entity A sells goods to Entity B for R 1 000 on 30-day payment terms and expects payment in 30 days. Entity A does not charge its customers interest. Entity A has determined after considering qualitative factors that a financing element does not exist as the selling price will remain at R 1 000 at 30 days. Entity A should therefore recognise revenue for the sale of goods of R 1000. The following journal entry at transaction date is required.

At the transaction date: Entity A should record revenue at the fair value.

Account           Debit           Credit
Receivable      1 000
Revenue                                 1 000

Example: View 2

Entity A sells goods to Entity B for R 1 000 on 30-day payment terms and expects payment in 30 days. Although Entity A does not charge its customers interest, as a result of recent regulatory findings they have deemed it prudent to follow regulatory advice which is that discounting begins on the day after the recognition of a sale or purchase. If one assumes that the interest rate is 12% then it would be 1% for 30 days. The present value or sale price at initial measurement would be R 990 and the financing component would R10. Entity.

The following journal entry at transaction date is required.

At the transaction date: Entity A should record revenue at the fair value.

Account                                                                  Debit                Credit
Receivable                                                               990
Revenue (R1,000/1+[12%/365 days])                                              990
Receivable                                                                  10
Interest Received                                                                             10

Note: Neither view is right or wrong. It is important to verify each transaction by evaluating each of the 8 considerations as indicated as per “identification whether transaction contains a financing element” above.

Tax implications for Cryptocurrency

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the
transfer of assets.

Cryptocurrencies are increasingly becoming more popular today. This is a kind of currency that does not have any physical substance and only exists in the digital world. Investors see it as a great investment opportunity since the value of a digital coin like ‘bitcoin’ fluctuates over time. For instance, the value of bitcoin rose from USD32 in 2011 to USD19000 in 2017. However, recent price fluctuations and the lack of a regulated market has caused some uncertainty on how to account for crypto currencies. It is therefore important to understand its legal status and tax implications.

Legal Status of Cryptocurrency

The legal status of cryptocurrency is not yet fully established as it varies from country to country. According to SARS guidelines, cryptocurrencies are neither an official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.

Are cryptocurrencies taxable?

The short answer is Yes. The South African Revenue Service (SARS) stated in a guideline issued that it will apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties. Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).

Tax treatment

Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of “gross income” in the Act. Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”. Alternatively such gains may also be regarded as “capital” in nature, and be subjected to “capital gains tax”. Determination of whether an accrual or receipt is revenue or capital in nature is tested depending on the circumstances of each case.

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade. If the gain is recognised as capital in nature then base cost adjustments can also be made if falling within the CGT paradigm.

Classification of Gains or Losses

Gains or losses in relation to cryptocurrencies can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:

(i) A cryptocurrency can be acquired through so called “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms. By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger.

This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realized through either a normal cash transaction (as described in (ii) or a barter transaction as described in (iii) below.

(ii) Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions.

(iii) Goods or services can be exchanged for cryptocurrencies. This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.

Value Added Tax (VAT) implications

The 2018 annual budget review indicated that the VAT treatment of cryptocurrencies still needs to be reviewed. Pending policy clarity in this regard, SARS has directed that it will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.

Things to consider with the VAT increase

As of 1 April 2018, the effective VAT rate will rise from 14% to 15%. There are important aspects to consider as a result of the increase. The VAT rate to apply to transactions depends on the “time of supply rules”. This is the date on which the transaction is deemed to occur according to the VAT Act. The general time of supply rule is the “earlier” of when (a) an invoice is issued or (b) payment is received.

Accounting Systems

Accounting systems must be updated to process transactions at the new VAT rate of 15% from 1 April 2018. However, in some instances, transactions processed after 1 April 2018 may be subject to the VAT rate of 14%. It must therefore be ensured that the accounting system is able to accommodate the different rates. The following are examples of such transactions:

  • Goods delivered or services performed before 1 April 2018 – VAT at the rate of 14% applies to goods (excluding non-residential fixed property) delivered, or services actually performed before 1 April 2018, even though the time of supply is triggered on or after 1 April 2018. This rate specific rule, however, does not apply if the time of supply has been triggered (for example, by the issuing of an invoice or payment being made) before 1 April 2018.
  • Supplies starting before and ending on or after 1 April 2018 – Where goods are delivered or services are performed during a period commencing before 1 April 2018 and ending on or after 1 April 2018, the VAT-exclusive price of the supply must be apportioned on a fair and reasonable basis and allocated to the respective periods. The VAT rate is then applied accordingly. That is, the rate of 14% is applied to the value of supplies before 1 April 2018 and the rate of 15% is applied to the value of supplies from 1 April 2018 onwards. This rule does not apply if the time of supply is triggered before 1 April 2018.This rate specific rule applies to – goods supplied under rental agreements; goods supplied progressively or periodically; goods or services supplied in construction activities; and services rendered over the period concerned, but does not apply to supplies of fixed property (including residential fixed property).
  • Goods delivered or services actually performed on or after 1 April 2018 where the time of supply is triggered between 21 February 2018 and 31 March 2018 – Rate specific rules also apply where the time of supply occurs between 21 February and 31 March 2018 (that is, on or after the date of the announcement of the increased VAT rate, but before the effective date of the increased rate). Under this rule, when goods are delivered on or after 23 April 2018, or services are performed on or after 1 April 2018, but the time of supply is triggered between 21 February and 31 March 2018 as a result of any invoicing or payment in relation to the supply, then VAT at the rate of 15% applies. However, if the goods are delivered before 23 April 2018 (that is, within 21
    days after 1 April 2018), or the services are rendered before 1 April 2018, then the supplies concerned will be subject to VAT at 14%. These rate specific rules do not apply –
    – where it is an established business practice for payments to be made, or invoices to be issued before the supplies are made;
    – in respect of the sale of residential property, certain real rights in residential property and shares in residential share block companies;
    – to the construction of a new dwelling by a construction enterprise.The rate specific rules do, however, apply to non-residential fixed property.
  • Supply of residential fixed property
    Even if the time of supply is triggered after 1 April 2018 due to payment or registration of the property in the purchaser’s name in a Deeds Registry taking place, the supply of residential fixed property could be subject to VAT at 14%. This rate specific rule only applies if –
    – the contract for the supply was concluded before 1 April 2018; and
    –  both the payment of the purchase price and the registration of the property will occur on or after 1 April 2018; and
    – the VAT-inclusive purchase price was determined and stated as such in the agreement.For purposes of this rule, “residential property” includes a dwelling and certain real rights and shares in share block companies relating to a right of occupation of or interest in a dwelling. The construction of a new dwelling by a construction enterprise is also included.
  • Lay-by agreements
    The VAT rate of 14% applies in the case of goods supplied under a lay-by agreement if that agreement was concluded before 1 April 2018 and the lay-by amount to set aside the goods was also paid by that date. The supply of goods under lay-by agreements concluded on or after 1 April 2018 is subject to VAT at 15%.If the lay-by agreement is later cancelled or terminated, the supplier must account for VAT on any amount retained in the VAT reporting period concerned. The old tax fraction of 14/114 must be used where the agreement was concluded and the amount to set aside the goods was paid before 1 April 2018. Otherwise the new tax fraction of 15/115 must be used.

Review existing agreements

Existing agreements and those relating to offers accepted before 1 April 2018 must be reviewed and the other parties to the agreement should be informed of the increase in the total contract price as a result of the increase in the VAT rate. All new agreements entered into from 1 April 2018 should reflect the new VAT rate of 15%.