Guide to Value-Added Tax (VAT) in South Africa

South Africa’s regulatory landscape can be a complex and time-consuming place to navigate. From registering the business with the Companies and Intellectual Property Commission (CIPC) to ensuring that all other industry-specific regulations are followed, it can be a lot for small to medium-sized enterprises (SMEs). One other complex regulation is Value-Added Tax (VAT). VAT is compulsory for registration and needs to be done at the South African Revenue Service (SARS). By not registering for VAT, SMEs run the risk of becoming non-compliant, which can lead to hefty fines and interruptions in business operations. Compliance is not an option for any business operating in South Africa. SMES must build a comprehensive compliance framework within the foundations of the business to avoid any disturbances. In this guide, we take a deep dive into VAT in South Africa, the compliance requirements and also how to deregister for VAT.

VAT is an indirect consumption tax applied to the value added to goods and services at each stage of production and distribution, from raw materials to the final sale. Because VAT is an indirect tax, the responsibility is placed on the consumer. However, they don’t pay it directly, like they would with a direct tax like income tax and taxes on assets.

VAT Regulations and Compliance

In South Africa, VAT is governed by the Value-Added Tax Act. It is administered by the South African Revenue Service (SARS). There are also critical administrative procedures that are governed by the Tax Administration Act.

Like other regulations, there are various key thresholds to VAT.

VAT Registration

Registration for VAT becomes mandatory when the total value of taxable supplies exceeds R1 million in any consecutive 12-month period. Also, businesses must register for VAT if they have a written contract indicating that your taxable turnover will exceed this R1 million mark within the upcoming 12 months. VAT registration is done on the SARS eFiling system by filing out the VAT101 form.

Voluntary Registration

SMEs can choose to register voluntarily for VAT if their annual taxable turnover exceeds R50 000. Voluntary registrations are beneficial if the business receives significant VAT on expenses. Voluntary registration means the business can claim tax back from SARS, lowering operational costs.

VAT on Electronic Services

On 14 March 2025, the National Treasury published amendments to the value-added tax (VAT) regulations. The updated regulations expand on the definition and use of the word “electronic services” to be used in the original Value-Added Tax Act (No. 89 of 1991). The new exclusion means that foreign suppliers who make supplies solely to South African customers who are registered vendors are no longer required to be registered for VAT in South Africa. However, the exclusion only applies where the foreign suppliers supply electronic services solely to VAT-registered South African customers. If they supply electronic services to customers who are vendors and non-vendors, the foreign suppliers will still be required to remain VAT registered and to account for VAT on supplies made to all South African customers.

Domestic Reverse Charge

This regulation regarding VAT on the domestic reverse charge (DRC) relating to valuable metal amends the definition of “valuable metal” to delete primary gold producers and contractors to primary gold producers from the exclusion of the definition. This means that primary gold producers, such as gold mines, and contractors to such primary gold producers, are no longer excluded from the application of the DRC regulations, and they are now required to account for VAT on the supply of their gold-containing material in accordance with the DRC regulation.

VAT Rates

It’s important to clearly classify your goods and services. South African law categorises supplies into three groups.

Standard Rate

Most goods and services attract the standard VAT rate of 15%. When selling standard-rated items, businesses add 15% to the selling price and pay the collected amount to SARS.

Zero-Rated Supplies

There are certain essential goods and services that are taxable at a rate of 0%. This includes basic foodstuffs (like brown bread, milk powder, and eggs), fuel, certain agricultural products, and exported goods. While businesses don’t charge customers VAT on these items, they can still claim back the VAT paid on business expenses related to producing or selling the item.

Exempt Supplies

Exempt supplies are not subject to any VAT. Common examples include residential rental accommodation, specific educational services, and most fee-exempt financial services. Businesses cannot claim back any VAT on expenses incurred to provide them.

South Africa’s VAT system is designed to tax only the value added at each stage of the supply chain. This is managed through input and output tax calculations. This is how it works: Output VAT Output VAT is the tax that the business calculates and charges on the sale of its own goods or services. For example, if a product is sold for R100 (excluding VAT), the business would add R15 as output VAT, making the total price of the product R115. Input VAT Input VAT is the tax paid on business purchases. If a business buys office equipment, raw materials or rents a commercial space, the supplier of these items will charge the business VAT.

VAT returns involve regular reporting to SARS of the VAT collected on sales and paid on purchases by a business. These are the steps to filing VAT returns.

Step 1: Gather Relevant Financial Documents

There are some documents you need to have before submitting your returns. Ensure these documents are correct and up-to-date. Key documents include:

• Sales invoices: Collect all invoices issued during the VAT period that have VAT charged on them (output tax)
• Purchase invoices: Gather all purchase invoices that have VAT charged on them (input tax).
• Credit and debit notes: Ensure that credit and debit notes are also updated, as they may influence VAT computations.

Step 2: Work out VAT Responsibilities

Ensure that you have worked out all numbers before submitting your return. Keep the following in mind:

• Output Tax: All VAT that is charged on sales
• Input Tax: All VAT associated with business costs
• Net VAT: The payable VAT to SARS must be subtracted from the refundable VAT

Step 3: Fill out the VAT Return Form

In South Africa, the form used for a VAT return is the VAT201 (vendor declaration). Key steps when filing are:

• Online portal: Log in to the SARS eFiling portal with your login details
• Business details: Fill in the required details for your business, which include VAT registration number, turnover, output tax, and input tax
• Supporting documents: Attach all required supporting documents as per SARS standards

Step 4: VAT Return Submission

Before pressing submit, just double-check the following:

• Review: Review that each detail provided and ensure everything, including documents, is correct
• Portal submission: File the VAT return through the SARS portal
• Arrange payment: Arrange payment with SARS if the net VAT liability is present before the due date

Step 5: Audit Record Retainment

You will need to keep digital and physical document copies of VAT returns, invoices and related documents for at least five years. Note, for eFiling users, the submission and payment deadline is the last business day of the month following the tax period. Manual submissions are due by the 25th of the month.

Deregistering for VAT is not a simple cancellation. When you cancel your VAT number, SARS treats it as if you sold all your business assets and stock to yourself. This is known as deemed disposal. If you deregister VAT, you will be given an “Exit VAT” bill on your final return. This will require you to pay 15% to SARS on:

• Assets and equipment: Any business assets (vehicles, laptops, machinery) where you previously claimed Input VAT. You pay VAT based on the lower of the original cost or the current open market value
• Trading stock: All inventory and stock sitting on your shelves on the date of cancellation

Once you have submitted the VAT124e form, it does not mean you are automatically deregistered. Typically, it can take up to 24 months for SARS to finalise deregistration requests. Note: You are legally regarded as a VAT vendor until SARS officially notifies you of your deregistration date. You MUST continue charging VAT and submitting your VAT201 returns during this entire waiting period.

Steps to Deregistering for VAT

If you want to deregister for VAT, follow these steps.

Step 1: Ensure Compliance

You must make sure any filings that are due are completed before filing for deregistration. SARS will reject your VAT cancellation if you have any outstanding VAT201s, missing IT14s, or any unpaid debt.

Step 2: Prepare form VAT123e

Ensure that you fully complete the VAT123e form. On the form, you must state the exact reasons for cancellation and the specific date you stopped trading or fell below the threshold.

Step 3: Submission and Verification

Submit the completed VAT123e form via SARS eFiling, email to a SARS branch, or book a virtual appointment. If you want, you can also do it via a verified Tax Practitioner’s portal. You must ensure that you are sure and have completed all requirements, as SARS may reach out and inquire about your cancellation.

Step 4: Final Return

Once your cancellation has been approved, you must submit a final VAT201 return. This includes your normal trading plus the output tax on your remaining assets and stock.