Are scrip lending fees Vat exempt?

Simangele Mzizi, Fsp Business, 29 Sep. 2014

Tags: scrip lending fees, are scrip lending fees vat exempt, scrip lending

Scrip lending is a transaction where the owner of a share (the lessor) enters an arrangement with another person (the lessee) where the lessor loans a share to the lessee for a fee.

The lessor wants to earn extra income from its share portfolio without affecting the value of the shares or getting rid of them. The lessee would hope the replacement value of the shares is less than the current value. The shares are put in the name of a third party who acquires the share or scrip direct from the lessor.

One question that always crop up regarding this issue is whether or not scrip lending fees Vat exempt.

Read on to find out the answer so you’ll comply with Vat law.

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Before we get to whether or not scrip lending is Vat exempt, here’s some info on scrip lending

Scrip lending is also known as securities lending arrangements.

The lessee can deal with or even get rid of the share, as long as a similar share is given back to the lessor when the contract expires.

For example, FinCo owns 100 shares in MineOp. 

ABC Pty Ltd enters into a scrip lending agreement with FinCo on 1 January 2014. FinCo will give 50 of its MineOp shares to ABC Pty Ltd for two years.

ABC Pty Ltd agrees to return 50 similar MineOp shares to FinCo by 31 December 2016. 

ABC Pty Ltd then sells its 50 MineOp shares to XYZ Pty Ltd on 31 January 2014. While ABC Pty Ltd has sold the shares, it still has to buy 50 similar shares on or before 31 December 2016 to return them to FinCo.

Now let’s look at whether scrip lending fees Vat exempt…

Scrip lending fees aren’t Vat exempt

According to the Practical Vat Loose Leaf Service, if a vendor enters a scrip lending arrangement, the scrip lending fees are payment for the shares. So the fees aren’t Vat-exempt.

The lessor must charge and account for Vat on the fees received from scrip lending transactions.

It’s that simple.

Now that you know scrip lending fees aren’t Vat exempt, account for vat correctly so you comply with Vat law.




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