Understanding VAT Rules in South Africa: Standard Rate, Zero Rate, and Exempt Supplies
As accountants, we are frequently asked by clients to clarify the various VAT rules in South Africa and how they apply to different types of businesses. Understanding the distinction between standard-rated, zero-rated, and exempt supplies is essential for ensuring compliance and optimising VAT recovery.
Types of VAT in South Africa
Standard Rate
The standard rate of VAT is the default rate that applies to most goods and services. In South Africa, the standard VAT rate is currently 15%. This means that when you sell goods or services that are subject to the standard rate, you must charge your customers 15% VAT on top of the selling price. You can also reclaim the VAT you pay on business expenses related to these sales.
Example: If you sell office supplies for R1,000, you would charge an additional R150 (15%) as VAT, making the total amount R1,150.
Zero Rate
Zero-rated supplies are goods and services that are taxable but at a 0% VAT rate. This means that while you do not charge VAT on these sales, you can still reclaim the VAT you paid on business expenses related to these supplies.
Typical zero-rated items include:
Basic foodstuffs (e.g., brown bread, milk powder, samp, pilchards)
Fuel
Eggs
Exports
Certain agricultural products
Example: If you export goods worth R10,000, you will charge 0% VAT, so the total amount remains R10,000. However, you can still reclaim the VAT on expenses incurred to produce these goods.
Exempt Supplies
Exempt supplies are goods and services that are not subject to VAT at all. This means you do not charge VAT on these sales, nor can you reclaim the VAT you paid on business expenses related to these supplies.
Common exempt supplies include:
Certain financial services
Educational services
Specific healthcare services
Example: If you provide educational courses worth R5,000, you do not charge VAT, so the total amount remains R5,000. However, you cannot reclaim the VAT on expenses related to providing these courses.
Input VAT Claims and Mixed Supplies
If your business provides a mix of standard-rated, zero-rated, and exempt supplies, VAT treatment becomes more complex. You may need to apportion input tax according to SARS guidelines.
Zero-rated supplies: You can claim input VAT on related expenses.
Exempt supplies: You cannot claim input VAT.
It is advisable to seek professional guidance if your business deals in a combination of supply types. Book a consultation with Anlo Financial Solutions to ensure compliance and avoid costly errors.
VAT Registration Requirements
Businesses must register as VAT vendors with the South African Revenue Service (SARS) if their value of taxable supplies exceeds ZAR 1 million in any consecutive 12-month period.
Registration Criteria:
Compulsory: Turnover exceeds ZAR 1 million
Voluntary: Turnover of ZAR 50,000 in 12 months
Applies to non-resident businesses, including foreign suppliers of electronic services rendered to South African consumers
How to Register for VAT in South Africa
Determine VAT Liability
Includes taxable supplies made within South Africa or rendered to non-residents.Choose Your Registration Channel
Compulsory registration: SARS eFiling or SARS branch appointment
Voluntary registration: SARS branch only
Prepare Required Documentation
CIPC registration or equivalent
Proof of address
Bank confirmation letter
Certified ID/passport of the representative vendor
Financials or invoices showing output tax, input tax, etc.
Understand VAT Obligations
Issue a tax invoice for all taxable supplies
The invoice must be in South African Rand and detail the amount of VAT, date, and vendor details
Submit a normal VAT return every two months, unless directed otherwise
Cross-Border and Import Considerations
VAT is payable on most imports of goods into South Africa
Exports may be zero-rated depending on the date of export and whether services are rendered to non-residents
VAT is charged on imported goods and is payable on the importation
Tip: Claiming a VAT refund requires proper documentation. The VAT refund administrator may reject claims if the tax invoice is issued incorrectly or falls outside the correct tax period.
Requirements for a VAT Invoice
To claim input VAT, a valid tax invoice is required. The tax invoice must include:
The words “Tax Invoice”, “VAT Invoice”, or “Invoice”.
The name, address, and VAT registration number of the supplier.
The name, address, and whether the recipient is a vendor, the recipient’s VAT registration number.
A serial number and the date of issue of the invoice.
An accurate description of the goods and/or services supplied.
The quantity or volume of goods or services supplied.
The value of the supply, the amount of tax charged, and the consideration for the supply (value and the tax).
Value of the supply, amount of VAT charged, and total consideration
All amounts must be in South African Rand
When Are These Rates Effective?
The application of these VAT rates depends on the nature of the goods or services you provide.
It's essential to correctly classify your supplies to ensure compliance with VAT regulations. Here are some key points to consider:
Standard Rate: Applies to most goods and services unless specifically classified as zero-rated or exempt.
Zero Rate: Applies to specific goods and services listed in the VAT Act, such as exports and basic foodstuffs.
Exempt Supplies: Applies to goods and services explicitly exempted by the VAT Act, such as financial and educational services.
Do You Need Help With Your VAT?
Understanding the VAT system and your obligations as a South African VAT vendor can be complex. For tailored advice on registration, VAT invoicing, or claiming a refund, and to ensure you remain compliant with all relevant VAT rules in South Africa, book a consultation with Anlo Financial Solutions.
