A special allowance in the Value-Added Tax Act grants a benefit to those individuals who stay frequently in hotels, retirement homes or similar establishments for extended periods of time.
For anyone staying 29 days or more in any hotel, guesthouse, inn, boarding house, retirement home, or similar establishment, only 60% of the all-inclusive charge for accommodation and domestic goods or services will be subject to VAT.
How VAT is applied to long-stay bookings
This VAT benefit only applies to unbroken bookings of 29 days or more.
When commercial accommodation is provided to a person for a period of 28 days or less, the full amount charged for the accommodation and any domestic goods and services (or any other supplies) are subject to the VAT at the standard rate.
"The calculation is applied to the all-inclusive tariff"
This means that the special VAT calculation is applied to:
- the accommodation charge, and
- any domestic goods and services.
What are domestic goods and services
The Act sees 'any domestic goods and services' as:
- cleaning and maintenance
- electricity, gas
- air conditioning or heating
- a telephone
- television set
- radio or other similar article
- furniture and other fittings
- meals
- laundry
- nursing services
- water
when supplied together with commercial accommodation.
Understanding the calculation
The long-stay guest VAT benefit is essentially:
- SARS claiming less VAT for the longer stay
- reducing the total bill cost for the guest.
The guest pay less VAT (effectively 9% instead of 15%), so their total bill is cheaper, making long-term stays more affordable.
Even though the bill is reduced, the property earns the same revenue since the benefit to the guest is deducted from the VAT portion of the total bill.
Properties become more competitive for long-term stays. They can market reduced VAT-inclusive pricing for extended guests, which can attract longer bookings.
- In this invoice example the VAT is charged at 15%
This calculation is 24 000 x (15/115) = 3130.43
Since the guest has stayed for 30 nights, the long-stay VAT benefit should be applied.
The correct calculation for the long-stay VAT would be:
- 24 000 x (9/109) = 1981.65
Now that we have the correct VAT amount, let's calculate the VAT benefit the guest should receive.
This would be the difference between the standard VAT and the long-stay VAT amounts:
- 3130.43 - 1981.65 = 1148.78
The VAT benefit amount is what the invoice total should be reduced by.
Information from SARS
The South African Revenue Service (SARS) has a detailed and informative document, 'VAT 411 - Guide for Entertainment, Accommodation and Catering'.
- It outlines all the specifics and provides examples along with mock calculations as guidance.
Feel free to access it via the the SARS website or simply download from the link below.
