In this article the VAT Office explains the procedure and requirements to obtain a VAT zero rated certificate for an Approved Aid Project.
The effect of zero-rating is that as VAT is charged at the rate of zero percent, there is no VAT component in the price of the zero-rated taxable supplies. However, as the supplies are taxable supplies, input tax credits are available on expenses incurred in deriving the taxable income.
With regards to the “Approved Aid Project” Clause 7 of the Third Schedule of the VAT Act provides that a supply of goods or services under this category is zero rated. However it is important to note that clause 7 extends the zero-rating only to supplies made directly to the aid donor or administrating government department. This means that the only zero-rated supplies in respect of an aid project will be the services supplied by the primary contractor(s) to the donor or government department administering the project.
The VAT Act does not allow zero-rating for local purchases made by the primary contractors working on the Aid Projects, however as a registered person, the primary contractor is entitled to claim back any VAT paid on project purchases in their VAT returns.
When a Project is confirmed to be funded or to be renewed, the Government Department responsible must request the Zero Rate CERTIFICATE through the Department of Strategic Policy Planning, & Aid Coordination with the Prime Minister’s Office.
Once the letter from the Department of Strategic Policy Planning, & Aid Coordination within the Prime Minister’s Office is received. The following requirements must be met in order to obtain a Zero Rate Certificate from the VAT Office.
1).The letter must have the following
- A GIP NUMBER
- A project name
- Name of the Funding agency
- Project period
- Government Department responsible for implementing the project. (including address and contact number)
- Project Manager ( person responsible for the projects purchasing with the zero rate certificate)
2).There must be a copy of the
Memorandum of Agreement
/Understanding (MOU/MOA) signed by
the Aid Donor and the Vanuatu Government. In the MOU/MOA there must be a statement mentioning the Zero rating that applies under clause 7 of the third schedule of the VAT Act.
3). All Project Extensions must have a copy
of the variation signed by both parties that is the Vanuatu Government and the Aid Donor.
Where there is an NGO co-coordinating the project, there must be an agreement signed by the Donor and the Vanuatu Government. In the MOU/MOA the Vanuatu Government must state clearly the name of the NGO responsible for co-coordinating the project.
Once these documents are checked and agreed, and then the VAT Office will issue a VAT Zero Rate Certificate.