Understanding VAT in Zimbabwe: Time of Supply and the Treatment of Advance Payments

The Value Added Tax (VAT) system in Zimbabwe, governed by the VAT Act [Chapter 23:12], is a critical component of business operations and tax compliance for registered operators. Two fundamental concepts in this system are the Time of Supply (often called the ‘tax point’) and the treatment of Advance Payments from customers, as these determine when a business becomes liable to account for and remit VAT to the Zimbabwe Revenue Authority (ZIMRA).

What is the Time of Supply (Tax Point)?

The Time of Supply is the specific moment a transaction is legally deemed to occur for VAT purposes. This point is crucial because it dictates:

1. The accounting period in which the VAT (Output Tax) must be declared to ZIMRA.

2. The deadline by which a VAT-registered operator must issue a Fiscal Tax Invoice (within 30 days of the time of supply).

    

3. The moment the recipient becomes eligible to claim Input Tax (for business purchases).

    

In Zimbabwe, the VAT Act sets out the basic rule for determining the time of supply for a taxable transaction of goods or services. The time of supply is the earliest of the following events:

• The time an invoice is issued by the supplier or the recipient in respect of that supply.

• The time any payment of consideration (or any part of it) is received by the supplier in respect of that supply.

Exceptions and Specific Rules

The basic rule is modified for specific types of supplies:

This “earlier of” rule is designed to prevent taxpayers from delaying the payment of VAT by postponing the issuance of an invoice, even if the goods have been delivered or the service rendered.

💰 Treatment of Advanced Payments from Customers

An Advanced Payment (or deposit) is a portion of the total selling price that a customer pays to a business before the goods or services are supplied.

In Zimbabwe VAT law, advance payments are explicitly treated as a trigger for the time of supply, which means VAT becomes due immediately upon receipt of the advance payment.

Key Implications of Advanced Payments

1. VAT Liability is Immediate: When a registered operator receives an advance payment from a customer, the time of supply is triggered for the value of that payment. The VAT on the amount received must be accounted for and remitted in the VAT return for the period in which the payment was received.

   Example: A customer pays a ZWL 100,000 deposit for goods in January. Even though the goods will only be delivered in March, the VAT (at the standard rate) on the ZWL 100,000 must be declared in the January VAT return.

2. Tax Point on the Advance: The specific tax point for the advance payment is the earliest of:

   • The date a VAT invoice (Fiscal Tax Invoice) for the advance payment is issued.

   • The date the advance payment is received by the supplier.

3. Treatment of the Balance: When the remaining balance is paid, or the final invoice is issued (whichever is earlier) for the rest of the consideration, a further tax point is created for that remaining amount.

🎯 Summary for Registered Operators

• Time of Supply is Key: The principle is to account for VAT at the earliest triggering event: invoice, payment, delivery/possession, or performance of service.

• Advances Accelerate Liability: Any advance payment or deposit received from a customer triggers a VAT liability immediately for the value of that payment, regardless of whether the goods or services have been supplied.

• Documentation is Paramount: A registered operator must ensure a Fiscal Tax Invoice is issued within 30 days of the time of supply (the tax point).

Understanding these rules is vital for cash flow management and compliance, as failure to correctly determine the time of supply and account for VAT on advance payments can result in penalties and interest levied by ZIMRA.

Would you like help?

Get in touch with Lucent Consultancy or have a live chat with us