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WHAT IS TAXABALE ACTIVITY?
Supplies of goods or services in Vanuatu are subject to VAT only when they are made by a registered person in the course of carrying on a taxable activity.
As mentioned in our previous article that registration for VAT is determined by whether the person is conducting a taxable activity.
This makes the meaning of “taxable activity” crucial for both registration purposes and in establishing whether a person must account for VAT on specific supplies made by them.
A taxable activity for VAT includes:
- any activity that is carried on continuously or regularly and
- involves the supply of goods and services to another person, and
- consideration (payment) is received for that supply, and
- the supply does not necessarily have to be for profit and
It includes (but is not limited to) any such activity carried on:
- in the form of a business, trade, manufacture, profession, association, club, or
- by any government agency
When applying for VAT registration you must make sure that all criteria’s that define taxable activity are met. We have experienced in the past that some registration applications are lodged that does not satisfy the criteria “consideration (payment) is received for that supply”. In these circumstances the applications are kept pending until such time the relevant criteria is satisfied.
The VAT Act does not provide a definition of consideration, other than to say that it “includes all forms of consideration but does not include an unconditional gift”. This means that the common English usage of the word applies, that is, payment or reward for a supply of goods or services.
A taxable supply by definition is goods and services supplied in Vanuatu in the course of conducting a taxable activity.
Note: a taxable activity cannot exist without taxable supplies.
Distinction between “taxable activity” and “business”
It is important to distinguish between the VAT concept of “taxable activity” and the general concept of “business”. The key difference is that a business involves a profit motive on the part of the person operating it, whereas the profit motive is not necessary precondition for a taxable activity.
Also as an example, an organization selling goods to raise funds for its charitable work is not carrying on a business, but it carrying on a taxable activity and will be required to register if its supplies exceed the registration threshold.
For more information on taxable activity and/or its linkage with VAT registrations contact the VAT Office by phone: 00678 24573 or email us at email@example.com