Place of Supply: A Value Added Tax (“VAT”) triggering factor

Often suppliers of goods and services are confused as to their VAT obligations particularly on cross border transactions due to little understanding around “the place of supply” concept. Determining the place of supply and the resulting VAT obligations is more than ever of paramount importance considering the trending shift from place where suppliers reside to where consumers are located. In this article, we will shed lights on the identification of transaction links to the location of supply and their incidence on VAT registration or VAT reporting obligations in Mauritius.

When is VAT applicable?

Section 9 of the VAT Act states that VAT has to be applied on any supply of goods or services made in Mauritius, if it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

Based on the above section, it is evident that VAT is to be applied in Mauritius only if the nexus of the supply with the Mauritian territory is established. VAT per se is a territorial tax. The supply can be a taxable supply made by a VAT registration person but if the supply is made from outside the boundaries of Mauritius, VAT application becomes irrelevant. Broadly, VAT is chargeable, assuming other conditions are met, if the supply is made in/from Mauritius. However, there are many instances where despite the supply is connected with the country, yet there is no VAT incidence or the VAT applicable is 0%. What we are looking to cover here is an overview of the current place of supply rules for goods and services. Let’s look at different scenarios. The results may not be same.

a) A foreign person selling taxable goods/services in Mauritius in its own name through an agent that represents him exclusively, that foreign person should be VAT registered in Mauritius as he is making his supply in the country.

b) A foreign person selling taxable goods/services from Mauritius to foreigners in its own name through an agent that represents him exclusively, that foreign person is not bound to be registered in VAT Mauritius despite the fact that he is making his supply from the country.

c) A VAT registered person selling goods from abroad without transiting in Mauritius is not required to declare VAT on this transaction as it is not connected to Mauritius. This transaction is simply outside Mauritius VAT scope.

d) A foreign person selling taxable services in Mauritius to a VAT registered supplier is not required to register for VAT, though there is a nexus with Mauritius. Instead, it is the local VAT registered buyer that has to fulfil the VAT obligation for the foreign supplier through reverse charge mechanism.

e) A foreign person selling taxable service to a non-VAT registered person in Mauritius, VAT is not applicable on either the foreign person or the local buyer though the supply is made in Mauritius. We assume here the foreign supplier has no physical presence in Mauritius through whatever means, otherwise, VAT registration may be required.

f) A VAT registered person making a taxable supply to a foreign person, VAT is applicable at 0%, if it is a supply of goods. For supply of services, the supply is zero rated provided the buyer is outside Mauritius at the time the service is performed. This is an interesting point, particularly when it comes to hospitality industry where at the time the deposits are received, the buyer is outside Mauritius. Whether VAT at 15% should be applied on the deposits or VAT at 0% becomes a point of argument between taxpayers and revenue authorities that often leads to tax assessment.

So what are the first steps?

A supplier first needs to determine whether he is making a supply of goods or services. For VAT purposes, anything which is not a supply of goods but is done for a consideration is a supply of services. The VAT rate should also be considered and will be dependent on the underlying good/service being supplied. Whether you are supplying to a private consumer (B2C) or a business customer (B2B) should also be considered.

Next is the location of the customer. Is the supply of goods/services made within Mauritius or is there a cross-border transaction? For cross border supply of service, we consider location of buyer of service at the time the service is performed.

When the type of supply being made is identified, when the customers’ locations are established, it is then possible to determine the place of supply and its corresponding VAT incidence. However, while the primary obligation to apply the correct VAT treatment rest with the supplier, customers should also be aware of the place of supply rules to avoid a situation where VAT may be incorrectly charged, or where reporting obligations under the reverse charge mechanism is not missed out.

Other factors to consider:

• It is important to highlight that there is no supply if there is no consideration that backs the performance of services or transfer of goods. Suppliers should be knowledgeable of what could the tax authority consider as considerations. Unawareness may lead to unnecessarily VAT over/undercharged.

• Once VAT registered, the supplier should be mindful of his turnover which will determine whether he will submit VAT returns quarterly or monthly.

• Time of supply should be properly managed to avoid any underpayment of VAT.

• VAT invoicing requirement should be properly monitored particularly from input VAT perspectives in order not to be surprised with VAT claims disallowed.

As VAT remains an evolving element for revenue generating for the state, knowledge around VAT should also be kept evolving. Do speak to your tax advisors for further insights!