South Africa

Rates and scope

The standard VAT rate of 15% applies to all supplies of goods or services (which do not qualify for the zero rate, an exemption or another exception), the importation of goods by any person, and (in certain instances) the importation of services. There is no higher VAT rate or any reduced VAT rate (except for the zero rate).

VAT is levied on ‘taxable supplies’, which are supplies of goods or services made by a ‘vendor’ (a person registered or required to be registered as a VAT vendor with SARS) in the course or furtherance of an enterprise carried on by the vendor wholly or partly in South Africa.

The concept of ‘goods’ includes corporeal movable goods, immovable (fixed) property, and electricity. The concept of ‘services’ includes anything done or to be done, the granting, assignment, cession or surrender of any right, or the making available of a facility or advantage.

Money and tax stamps are neither goods nor services. The issue, acquisition, collection, buying or selling or transfer of ownership of any cryptocurrency is considered to be a ‘financial service’ and not money or currency.

A ‘supply’ includes performance in terms of a sale, rental agreement, instalment credit agreement, and all other forms of supply, whether voluntary, compulsory or by operation of law.

VAT registration

Compulsory registration

The registration threshold is ZAR 1m (± USD66,500). If a person’s total annual value of taxable supplies has exceeded this threshold during the past 12 months, or there are reasonable grounds to expect that the threshold will be exceeded during the following 12 months (there is a contractual obligation in writing motivating that this threshold will be exceeded), the person must apply for registration.

A ‘person’ includes natural persons, legal persons (e.g. companies), bodies of persons (e.g. partnerships and joint ventures), public authorities, municipalities, estates, and trust funds.

Registration is not required where the threshold will be exceeded solely as a consequence of the cessation of, or substantial and permanent reduction in, the size or scale of an enterprise, the replacement of capital assets or abnormal circumstances of a temporary nature.

Provisions have been introduced, where foreign suppliers of electronic services are required to register where supplies are made to residents of South Africa, or recipients who have a business, residential or postal address in South Africa, or payment is made from a South African bank account, and the value of these supplies has exceeded ZAR 1m (± USD66,500). At least two of these three provisions should be satisfied.

Voluntary registration

A person may apply for voluntary registration if:

• their taxable supplies have exceeded ZAR50,000 in a preceding 12-month period

• they carry on an enterprise that can be expected to result in taxable supplies in excess of ZAR50,000 during a 12-month period due to its nature

• they buy a business as a going concern if the previous owner made taxable supplies in excess of ZAR50,000 in a 12-month period

• the entity falls within a category specified by the legislation, including but not limited to welfare organisations, share block companies, foreign donor-funded projects, municipalities etc., even if the ZAR50,000 requirement has not been met.

Group and branch registration

Non-residents

Application for registration

A person must complete form VAT 101 and submit it to the local office of SARS. The application for registration must be accompanied by the following documents:

• a copy of the identity document (ID) of the individual, or of the two most senior partners or directors, shareholders, members of trustees

• a copy of the certificate of incorporation or constitution

• a letter of authority if the application is submitted by a registered tax practitioner

• the banking details as required by SARS

• a copy of the ID or passport of the fiscal representative

• a copy of the municipal account of the business and representative

• copies of the past three months’ bank statements for purposes of determining the value of the business’ taxable supplies.

There are no penalties for late registration or for failing to do so. However, output tax plus penalties and interest will be due on supplies that have not been declared at the time the business should have been registered for VAT purposes.

The registration number of resident and non-resident businesses consists of ten digits, starting with a ‘4’, for example, 499 9999 999.

Application for an electronic services registration

The registration process for foreign suppliers of electronic supplies can be done via email. The following information, translated into English, will need to be submitted (and, thus, attached to the email):

• the completed VAT registration form (VAT 101)

• the certificate of incorporation of the foreign entity

• proof of registration with a foreign tax authority

• the ID of the person responsible for the compliance

• copy of a recent bank statement for a South African or foreign bank account, whichever is applicable.

Deregistration

A vendor whose taxable supplies do not exceed the ZAR 1m limit has the option to deregister. A vendor must apply for deregistration if their taxable supplies did not exceed the annual ZAR50,000 voluntary registration limit, or when they cease to carry on an enterprise. SARS may deregister a vendor who voluntarily registered if they no longer have a fixed place of business, a bank account or proper accounting records.

Upon deregistration the vendor must pay output tax on all assets of the enterprise held by them immediately prior to their deregistration.

Output tax

Calculation of VAT

Exempt supplies

Supplies of the following goods or services are exempt:

• certain financial services, such as long-term insurance, interest and the provision of credit, exchange of currency, transactions involving letters of credit, equity securities, debt securities shares, derivatives and cryptocurrency

• donated goods or services supplied by an association not for gain

• residential accommodation in a dwelling

• leasehold land that is or will be used to erect a dwelling

• land (including existing improvements) situated outside South Africa

• management services supplied by bodies corporate of sectional title property schemes, share block companies, housing development schemes for retired persons, homeowners’ associations and body corporates

• passenger transport by road or railway

• educational services

• crèche and after-school services

• services supplied by employee organisations against payment of membership contributions

• goods supplied in South Africa by a person who is not a resident of the country, and is not a vendor, if the goods have not been entered for home consumption (unless approval is obtained to zero-rate the supply)

• goods or services by a bargaining council against payment of membership contributions

• goods or services by a political party against payment of membership contributions.

Zero-rated supplies

Supplies of the following goods or services are zero-rated, provided that all documentary and procedural requirements have been met.

Zero-rated goods

• exportation of goods

• leasing of goods for exclusive use in an export country

• supply of an enterprise (or separately registered branches) as a going concern

• unmanufactured gold supplied to the South African Reserve Bank, the South African Mint Company or a registered bank

• certain gold coins

• certain agricultural products supplied under prescribed circumstances

• fuel levy goods and petroleum oil

• goods transferred to a foreign branch

• basic foodstuffs such as brown bread, brown wheaten meal, maize meal, samp, mealie rice, dried maize, beans and lentils, pilchards or sardinella, rice, vegetables, fruit, vegetable oil, milk, cultured milk, milk powder, dairy powder blend, eggs, edible legumes, cake wheat flour and white bread wheat flour

• illuminating paraffin (kerosene) used for illuminating or heating

• movable goods (excluding a motor car) sold to a registered vendor in a customs-controlled area (CCA) (in an industrial development zone), if the goods are physically delivered to the CCA recipient by the supplier or their cartage contractor

• certain mining rights

• goods associated with animal disease grants

• goods supplied by a vendor to a person who is a non-resident and non-vendor, but delivered to a vendor-recipient who will use the goods wholly for taxable supplies

• supply of goods by an inbound duty- and tax-free shop

• supply of goods in a licensed customs and excise storage warehouse, if the goods have not been entered for home consumption (if approval has been obtained to zero-rate instead of exempting the supply)

• sanitary towels (pads).

Zero-rated services

• international transport of passengers or goods — outside, to or from South Africa

• local leg of international carriage by aircraft

• local leg of international transport of goods

• certain services rendered to a foreign branch

• services relating to land and improvements outside South Africa

• certain services relating to goods outside South Africa, foreign-going ships or aircrafts, goods temporarily admitted, goods exported or a foreign-operated railway train

• services rendered elsewhere than in South Africa or to a registered vendor in a CCA

• services supplied to a non-resident, if not directly in connection with movable or immovable property in South Africa (with certain exceptions) or to any person who is in South Africa at the time that the services are rendered

• the granting of, and other services relating to, intellectual property rights to the extent that the rights will be used outside South Africa

• services rendered by welfare organisations, to the extent that the services are funded by national or local government

• certain services funded by government grants

• services funded by international donor funds

• vocational training of employees of non-resident, non-vendor employers

• housing subsidies

• certain warranty services

• municipal property rates

• horse-race winnings

• certain services supplied to international telecommunications service providers (as contemplated in the International Telecommunication Union Regulations) in certain circumstances.

Input tax

Input tax allowed

Input tax incurred on goods or services acquired for the purpose of consumption use or supply in the course of making taxable supplies (including zero-rated supplies) is generally deductible as input tax, provided all documentary requirements are met and the deduction is made in time (generally speaking within five years).

VAT incurred in the making of exempt (without credit) supplies cannot be deducted as input tax.

Input tax expressly denied

The deduction of VAT incurred is expressly denied as input tax in the following circumstances:

• to the extent that goods or services are acquired for purposes of entertainment (i.e. the provision of food, beverages, accommodation, entertainment, amusement, recreation or hospitality), except —

  • where a vendor carries on an entertainment business

  • where the entertainment expenses are incurred for personal subsistence for business purposes (subject to requirements)

  • where entertainment forms part of a taxable transport service

  • where food and drinks are included in the fee for a seminar

  • where the entertainment is supplied by a municipality in providing sports or recreational facilities or amenities to the public

  • where a welfare organisation incurs entertainment expenses (must relate to the carrying out of the welfare’s aims and objectives)

  • where entertainment is provided to an employee at a medical care facility

  • where a meal or refreshment is supplied to a crew member of a ship or vessel

  • where entertainment is provided as a prize in a competition if the entry fees were subject to VAT

• motor cars, unless acquired by a motor dealer or rental firm for resale or rental purposes or as demonstration model, or where the motor car is awarded as a prize (conditions apply)

• membership fees relating to sports, social or recreational activities.

Partial exemption

Where goods or services are acquired for making both taxable supplies and exempt (without credit) supplies, an apportionment of VAT incurred must be made.

The standard method for calculating the apportionment is the turnover-based method. If the turnover-based method does not give a fair result, or if the vendor wants to apply another method, SARS’ written approval must be obtained.

If the intended use of goods or services acquired is more than 95% taxable supplies, the VAT incurred may be deducted in full.

Adjustments

When the application or use of goods or services is changed subsequent to the acquisition thereof, the amount of VAT that was originally deducted as input tax may no longer be equitable and appropriate in view of the subsequent application of the goods or services.

Adjustments must be made to the vendor’s output tax where:

• goods or services acquired for making taxable supplies are subsequently applied wholly for non-taxable purposes. Output tax, calculated on the open market value of the goods or services, must be accounted for in the tax period in which the non-taxable application occurs

• the extent of taxable use or application of capital goods and services (costing more than ZAR40,000) has decreased by more than 10%. Output tax, which is calculated as [15/115 x lesser of cost or open market value x % of decreased taxable use], must be accounted for in the tax period in which the last day of the vendor’s income tax year of assessment falls

Adjustments must be made to the vendor’s input tax where:

• goods or services acquired for non-taxable purposes are subsequently applied for making taxable supplies. The deduction is calculated as [15/115 x lesser of cost or open market value x % of taxable use] and may be made in the tax period in which the taxable application occurs

• the extent of taxable use or application of capital goods or services (costing more than ZAR40,000) has increased by more than 10%. The deduction is calculated as [15/115 x lesser of cost or open market value x % of increased taxable use] and may be made in the tax period in which the last day of the vendor’s income tax year of assessment falls.

Pre-registration and post-deregistration VAT

Under certain circumstances, a company can claim input tax on goods and services acquired by a person on behalf of the company before incorporation.

A person who has incurred VAT on the acquisition of goods or services prior to their VAT registration date, and who will use the goods or services subsequent to their registration as a VAT vendor, may make a deduction. It is calculated as [15/115 x lesser of cost or open market value x % of taxable use] in the tax period in which the taxable application occurs.

When a vendor is deregistered, VAT is payable on all assets of the business on the date of cancellation of registration. VAT incurred after deregistration cannot be recovered as input tax.

International trade

Imports

Goods

VAT is payable on the importation of goods, except where a specific exemption applies.

Where goods are imported from a Southern African Customs Union (SACU) country, namely Botswana, Lesotho, Namibia or eSwatini, the VAT payable on importation is calculated as 15% of the customs value of the goods.

Where goods are imported from outside the SACU region, the VAT payable on importation is calculated as [customs value of goods + 10% thereof + customs and excise duties] x 15%.

Regular importers may apply to SARS for access to a VAT deferment account, which allows for a credit facility for the customs duty and VAT payable on the importation of goods.

Services

A reverse-charge rule applies when a non-resident (being a non-vendor) provides recipients in South Africa with services which would be neither exempt nor zero-rated if made by a VAT vendor in South

Africa to the extent that the services are acquired for purposes other than making taxable supplies.

If the South African recipient is a VAT vendor, it must account for the VAT on its normal VAT return, otherwise VAT must be accounted for by way of a separate declaration and payment must be made to SARS. VAT on imported services is not payable if the value in respect of the supply does not exceed ZAR100 per invoice.

Exports

Goods

Where the supplying vendor sells and consigns or delivers movable goods to a customer at an address outside South Africa, the export is regarded as a ‘direct export’. The vendor may zero-rate the sale if all documentary and procedural requirements are met.

Where the recipient from outside South Africa removes or arranges for the removal of goods purchased in South Africa, the export is regarded as an ‘indirect export’. The supplier must generally charge VAT at 15% but may elect (subject to certain requirements) to zero-rate the supply where the supplier accepts the responsibility to ensure that the goods are delivered to a designated commercial port from where they will be exported by the purchaser.

If the supplier levies VAT at 15% on these exports, the foreign purchaser may be entitled to claim a VAT refund.

Services

Services physically rendered outside South Africa are zero-rated. Services supplied to a non-resident are zero-rated, except where the services are:

• rendered directly in connection with land in South Africa

• supplied directly in connection with movable property in South Africa, except where the property is exported after the services have been rendered, or the services are rendered in connection with movable property supplied by the non-resident to a vendor in South Africa

• supplied directly to the non-resident or any other person who is in South Africa when the services are rendered

• in connection with a restraint of trade relating to an enterprise in South Africa.

Refunds to foreigners

Place, time and value of supplies

Place of supply

In line with the destination-based principle, the VAT Act aims to tax only consumption within South Africa by allowing zero-rating for exports of goods and services rendered to non-residents.

As the VAT Act contains limited place-of-supply rules, uncertainties and disputes have arisen as to when foreign enterprises making supplies in South Africa, for example by way of local agents, must be registered as vendors in South Africa.

Provisions have been introduced that foreign suppliers of electronic services are required to register if they supply electronic services to any person resident in South Africa. The definition of an ‘electronic service’ has been revised with the issue of a new Regulation (Regulation No.429 published in Government Gazette No. 42316 dated 18 March 2019) effective 1 April 2019, which has widened the scope of electronic services.

‘Electronic services’ is defined as any services supplied by means of an electronic agent, electronic communication or the internet for any consideration, with the exception of certain educational services, telecommunications and specific services supplied between companies in the same group of companies.

Time of supply

The time of a supply generally determines the tax period in which output tax must be accounted for and input tax may be claimed, and the vendor’s VAT accounting basis (invoice basis or payments basis) may also affect the timing of accounting for VAT.

The general rule is that a supply takes place when an invoice is issued or any payment of consideration (excluding a deposit) is received, whichever is earlier. Various special time-of-supply rules apply, for example:

• rental agreements and service agreements providing for periodic payments — when each payment becomes due or is received, whichever is earlier

• goods supplied progressively or periodically and construction services — when each payment becomes due or is received, or an invoice is issued, whichever is earlier

• instalment credit agreement — when the goods are delivered or any payment is received, whichever is earlier

• fixed property — when registration of transfer is effected in the deeds office, or any payment is made, whichever is earlier

• temporary letting of fixed property — in the tax period when the agreement for the letting and hiring of the accommodation in a dwelling comes into effect 

• coin-operated machines — the time of supply for the supplier is when the coin or token is taken from the machine, while time for the recipient is when the coin or token is inserted into the machine

• goods supplied under an agreement (other than instalment credit agreement or rental agreement) for which the whole consideration is not determined — when and to the extent that any payment is due or received, or an invoice is issued, whichever is earlier

• supplies between connected parties — particular time-of-supply rules and provisions apply.

Value of supply

The general rule is that the value of a supply is the consideration (price) paid for the supply. As all prices must include VAT, ‘consideration’ is a VAT-inclusive concept.

Consideration = Value + 15% VAT

VAT = Consideration x 15/115

Various special rules apply, for example:

• supply to a connected person for less than the open market value of the supply or the consideration cannot be determined at the time where, had a market-related price been paid, the recipient would not be entitled to a full input tax deduction — value is the open market value of the supply

• cancellation of vendor’s VAT registration — value is the lesser of the cost or the open market value of all assets at deregistration

• instalment credit agreement — value is the cash value (i.e. cash price, excluding finance charges)

• application of goods (which were acquired for taxable purposes) for non-taxable purposes — value is the open market value of the goods

• supply of certain residential accommodation for an uninterrupted period exceeding 28 days — value is 60% of the all-inclusive charge

• supply of temporary letting of residential property — value is the consideration of the adjusted cost to the vendor of the construction, extension or improvement of the fixed property or the portion of the fixed property supplied

• exportation of second-hand goods — value is the purchase price to the supplier

• fringe benefits — value is the cash equivalent of the benefit for income tax purposes

• supply of entertainment if input tax was denied on the goods or services acquired to supply the entertainment — value is nil

• no price is paid and no special rule applies — value is nil.

VAT compliance

Accounting basis and tax period

Tax periods are periods of one, two, six or twelve months, depending on the vendor’s circumstances:

• one month — compulsory for vendors with annual taxable turnover in excess of ZAR 30m, other vendors may apply

• six months — agricultural, pastoral or other farming enterprise with annual taxable turnover not exceeding ZAR 1.5m may apply

• 12 months — companies and trusts letting goods and providing administrative services to related persons on annual basis may apply

• two months — all other vendors.

Returns and payment of VAT

VAT returns must be filed by the 25th day after the end of the tax period. The return may be filed electronically, in which case the time limit for filing the return is the last business day of the month.

VAT payments can be made by way of the SARS e-filing payment facility, at a branch of an approved bank (but not at SARS offices), and by way of electronic funds transfer (EFT).

VAT payments must be made to SARS by the 25th day after the end of the tax period (or the last preceding business day).

When using the e-filing and e-payment options, payment must be made by the last business day of the month.

Interest and penalties

Interest and penalties are levied in the case of the following:

• late payment by a vendor — penalty of 10% is levied on the outstanding VAT amount

• payment made after the first day of the month in which payment is due — interest is levied on the outstanding VAT due at a rate fixed from time to time by the minister of finance

• understatement of VAT — understatement penalty levied with reference to a table, which takes the seriousness of the behaviour of the taxpayer into account

• evasion of VAT or fraud — criminal prosecution.

SARS may waive interest and penalties in the following circumstances:

• Interest may be waived if the non-compliance was due to circumstances beyond the control of the vendor.

• Penalty may be waived in the case of nominal or first incidence of non-compliance, or if the non-compliance was due to certain exceptional circumstances. These include a natural or human-made disaster, civil disturbance or disruption in services, serious illness or accident, serious emotional or mental distress, an error or delay on SARS’ side, a serious financial hardship, or other circumstances of analogous seriousness.

• An understatement penalty may, in certain circumstances, be waived if the taxpayer made full disclosure to SARS and was in possession of an opinion by a registered tax practitioner that confirmed that the taxpayer’s position is more likely than not to be upheld should the matter proceed to court.

Refunds

Objections and appeals

A person who is aggrieved with an assessment or certain decisions may lodge an objection in the prescribed form within 30 business days. If the person is dissatisfied with SARS’ decision, an appeal may be lodged within 30 business days. Depending on the specific circumstances, an appeal may be dealt with by the following:

• the ‘alternative dispute resolution’ (ADR) process — an informal and cost-effective method of dispute resolution outside the litigation arena

• the Tax Board — an informal and inexpensive process for appeals not exceeding ZAR500,000

• the Tax Court — a formal court process

• the High Court and/or Supreme Court of Appeal — appeal by any party who feels aggrieved by the judgement of the Tax Court.

Time limits

The maximum period for the recovery of VAT by SARS is five years. This limitation does not apply where the VAT has already been assessed during the five-year period; the failure to pay VAT was intentional; the responsible person did not act in good faith; and any assumption as to VAT liability was not based on reasonable grounds but was due to negligence.

Input tax must generally be deducted within five years of the time when the input tax was first claimable. However, if the non-deduction of input tax was in line with the practice generally prevailing, the input tax must be claimed within six months.

VAT records

Tax invoices

A full tax invoice must be issued within 21 days of the date of a taxable supply if the consideration for the taxable supply exceeds ZAR5,000. The tax invoice must be in South African rand and contain the following information:

• the words ‘tax invoice’, ‘VAT invoice’ or ‘invoice’

• individual serialised invoice number

• name, address and VAT registration number of the supplier

• name, address and VAT registration number (if applicable) of the recipient

• date of issue of invoice

• quantity or volume of goods or services

• full and proper description of goods or services supplied

• amount charged excluding VAT, VAT charged, and amount charged including VAT, or amount inclusive of VAT with a statement to the effect that VAT is included, and the rate of VAT charged.

If the consideration for the taxable supply does not exceed ZAR5,000, the supplying vendor may issue an abridged tax invoice instead of the full tax invoice. The abridged tax invoice must contain all the information required for a full tax invoice except the name, address and VAT registration number of the recipient, and the quantity or volume of the goods or services.

A foreign language may not be used on invoices.

Invoicing in a foreign currency is allowed if it is a zero-rated tax invoice. For standard-rated tax invoices, the conversion to South African rand based on prescribed exchange rates must be reflected on the tax invoice.

The Commissioner has issued a regulation on the requirements for tax invoices for electronic services, which must include the following information:

• the name and VAT registration number of the electronic services supplier

• the name and address (physical, postal or email address) of the electronic services recipient

• an individual serialised number

• the date of issue

• a description of the electronic services supplied

• the consideration in money for the supply in the currency of any country. If the ZAR currency is used, the amount of the VAT charged or a statement that it includes a VAT charge and the rate at which the VAT is charged must be reflected. If another currency is used, the amount of the tax charged in ZAR, converted at the prescribed exchange rate, or a separate document, must be issued by the electronic services supplier reflecting the amount of tax charged in ZAR

• the exchange rate, at the prescribed rate, used.

Electronic invoicing is generally accepted provided the above requirements are satisfied. Documents kept electronically should be readily accessible when requested by SARS and should be stored in a format which allows SARS to read and correctly analyse the data. The format used for storage must preserve the integrity of the data. Government Notice 787 issued in Government Gazette 35733 sets out the relevant requirements for electronic document retention. 

Further, these records must be maintained at a place physically located in South Africa (i.e. the computer servers must be in South Africa), unless a senior SARS official grants the person authority to keep the records at a location outside South Africa and subject to various requirements being met.

Credit notes and debit notes 

Credit and debit notes are issued when the initial consideration for the taxable supply must be adjusted. Credit notes and debit notes must contain the following information:

• the words ‘credit note’ or ‘debit note’

• name, address and VAT registration number of supplier

• name, address and VAT registration number of recipient (only if a full tax invoice was issued for the original supply)

• date of issue of credit note or debit note

• reason for issuing the credit note or debit note

• sufficient information to identify the transaction to which the credit note or debit note relates

• amount charged excluding VAT, VAT charged, and amount charged including VAT, and a statement that VAT is included and the rate of VAT charged.

A credit note is not required where the terms of a prompt payment discount are clearly reflected on the face of the tax invoice.

A supplier must increase its output tax for the period in which the debit note was issued, and the recipient (if a registered vendor) may increase its input tax to reflect the debit note. Where a credit note was issued, the supplier has an option to either decrease their output tax or increase its input tax. The opposite applies to the recipient (if registered as a vendor).

The Commissioner has issued a regulation on the requirements for credit or debit notes for electronic services, which must include the following information:

• the name and VAT registration number of the electronic services supplier

• the name and address (physical, postal or email address) of the electronic services recipient

• a brief explanation of the circumstances giving rise to the issuing of the credit or debit note

• the increased or decreased consideration together with the increased or decreased amount of tax. If the ZAR currency is used, the increased or decreased amount of the VAT or a statement that the consideration includes the increased or decreased amount of VAT and the rate at which the VAT was charged. If another currency is used, the increased or decreased amount of the tax in ZAR or a separate document is issued by the electronic services supplier reflecting the increased or decreased amount of tax in ZAR

• the exchange rate used, being the exchange rate used for the tax invoice.

Additional export documentation

Specific documentary requirements have been prescribed by SARS for substantiating the zero-rating of an export, for example:

• the supplier’s copy of the zero-rated tax invoice

• the recipient’s order or the contract between the supplier and recipient

• export documentation as prescribed under the Customs and Excise Act

• proof of payment

• proof that the exported goods have been received by the recipient outside South Africa

• other specific documents, depending on the mode of transport.

Record-keeping

Records must be kept for a period of five years. SARS can perform an unannounced inspection to ensure that records are retained. Records must be kept for inspection in South Africa (unless approval has been granted by SARS for the records to be kept outside South Africa).

The records must be kept or retained:

• in their original form, in an orderly fashion, and in a safe place

• in the form, including electronic form, as may be prescribed by SARS in a public notice

• in another form acceptable and specifically authorised by SARS.

Specific VAT rules

Bad debts

A vendor may claim a deduction if a bad debt has been written off for accounting purposes. If the bad debt is subsequently recovered, output tax must be accounted for.

Bad debt relief cannot be claimed when a vendor transfers accounts receivable on a non-recourse basis. If transferred on a recourse basis, a deduction can be claimed only when the debt is transferred back to the vendor in respect of any part of the debt that was subsequently written off as irrecoverable.

If a vendor who is registered on the invoice basis claims an input tax deduction and fails to pay the invoice within 12 months, it must account for output tax on the outstanding invoice amount (exceptions apply). When the vendor subsequently pays any amount of the invoice value, an input tax deduction can be claimed.

Land and buildings

The sale of land and buildings by a vendor during the ordinary course of its business is subject to VAT, in which case no transfer duty is payable. The sale of fixed property by a non-vendor is subject to transfer duty only (unless an exemption applies).

A vendor may claim an input tax deduction on the acquisition of second-hand fixed property under a non-taxable supply to the extent that payment has been made and transfer of the property was effected by registration in a deeds registry in the name of the vendor making the input tax deduction.

Accommodation

The letting of a dwelling to be used as a residence of a natural person is exempt from VAT.

The supply of short-term accommodation, for example holiday accommodation in hotels and guesthouses, is subject to VAT if the supplier is registered as a VAT vendor in respect of this activity. A person who provides such accommodation qualifies for VAT registration only if they have made (or are expected to make) taxable supplies of such accommodation of more than ZAR120,000 per annum. If such accommodation is provided for an uninterrupted period exceeding 28 days, VAT is charged on only 60% of the charge.

Leasing

If goods are supplied under an instalment credit agreement, the supplier must account for output tax on the total cash value excluding any finance charges when the goods are delivered or the first payment is made, whichever time is the earliest.

If goods are supplied under a rental agreement, output tax is payable on the full amount of each periodic payment. While VAT is also levied on any finance charges included in the rental, VAT is not payable upfront but only when the instalments are paid.

Promotional gifts

Secondhand goods

The supply of second-hand goods by a vendor is subject to VAT. A vendor who has purchased second-hand goods under a non-taxable supply may, subject to certain conditions, deduct ‘notional input tax’ that is calculated as the tax fraction (15/115) of the lesser of the open-market value or the consideration paid.

Where the second-hand goods are fixed property, the notional input tax may be deducted to the extent that payment has been made and the transfer of the property was effected by registration in a deeds registry in the name of the vendor making the input tax deduction.

Tourism industry

The transport of fare-paying passengers by road or railway is exempt, excluding transport by way of a funicular railway or a game-viewing vehicle. The transport of passengers from South Africa to a destination outside South Africa (and vice versa) is zero-rated. The zero-rate also applies to the local leg of an international flight, for example a connecting flight between Cape Town and Johannesburg en route to New York. The supply of accommodation and meals (e.g. in hotels) is subject to VAT at the standard rate.

Travel agency fees charged for arranging a tour package are zero-rated if the tourist is outside South Africa when the tour package is arranged, and standard-rated if the tourist is in South Africa when the tour package is arranged.

Tour operators must keep accurate records to establish which part of the package relates to exempt supplies (e.g. travel in South Africa), zero-rated supplies (e.g. travel to a place outside South Africa) and taxable supplies (e.g. hotel accommodation).

Furthermore, a recent court case judgement reiterated the principle that the full charge of tour packages arranged for foreign tour operators may also be considered standard-rated supplies as the tourists will be in South Africa when the services (e.g. accommodation, food and beverages etc) are rendered, irrespective of whether the foreigner was outside South Africa when the tour was arranged or purchased.

Therefore, the VAT rate applicable will be dependent on the facts and circumstances and where the services will be rendered.

Transfer of a business

The sale of an enterprise (or part thereof) to a registered vendor is zero-rated if the parties have agreed in writing that:

• the enterprise will be sold as a going concern at 0%

• the enterprise will be an income-earning activity on the date of transfer

• the assets that are necessary to carry on the enterprise are disposed of to the purchaser.

If the purchaser of an enterprise that was sold as a going concern at 0% acquires the enterprise partly for non-taxable purposes, output tax must be paid to the extent of the intended non-taxable application (if more than 5% of total application).

Warranty repairs

Reverse charge on valuable metals

Effective from 1 July 2022 National Treasury released Regulations imposing a domestic reverse charge (DRC) on the supply of valuable metals. The main purpose of the DRC is to curb VAT refund fraud that had been prevalent in the second hand gold market. Valuable metals is defined as any goods containing gold in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, granules, in a solution, residue or similar forms, including any ancillary goods or services.  

The DRC applies to standard-rated sales of valuable metal between registered vendors. Under the Regulations, the purchaser (i.e. recipient) and not the seller will be required to declare the VAT charged on the sale of valuable metal to SARS in its VAT 201 return. The recipient will be entitled to an input tax deduction only if the VAT amount levied by the seller has been declared and paid in the recipient’s VAT 201 return. 

The seller must issue a tax invoice to the recipient within 21 days of the date of the supply with additional information such as the supply is subject to the DRC and a statement that the amount of VAT charged must be accounted for and paid (on behalf of the seller) by the recipient. However, where approval is granted, the recipient may issue the tax invoice (i.e. recipient created tax invoice). 

The recipient must notify the supplying vendor in writing by means of a statement within 21 days after the end of the calendar month during which a tax invoice was issued to the recipient vendor. The statement must contain, amongst others, the following particulars:

• the tax invoice number

• the value of the DRC supplies

• full and proper description of the valuable metal as well as the percentage of the gold content contained within the valuable metal

• confirmation that the VAT charged by the supplier was accounted for and paid to SARS by reflecting the applicable tax period and payment reference number (this number is generated by SARS regardless of whether the return for the tax period results in a payment due by or a refund due to the recipient) issued by SARS.

Other indirect taxes

Customs duty

Customs duty is payable on the importation of goods into South Africa at the time of entry for home consumption. The rate of duty is often determined as a percentage of the value of the goods (ad valorem) at a rate ranging from 0% to as high as 60%.

Additional ad valorem customs duties are levied on a range of luxury items.

South Africa is a member of the Southern African Customs Union (SACU) which includes, as other members, Botswana, Namibia, Lesotho and eSwatini (Swaziland). Import duties are not levied on movements of goods between these countries.

Depending on the origin of the imported goods concerned, preferential tariff treatment may be applied. Furthermore, a number of duty relief schemes are available depending on the type of customs-related activities in which an importer or exporter engages.

Excise duty

Excise duty is payable on certain locally manufactured goods, and non-essential products consumed locally with a corresponding customs duty (at the same rate of duty) on imported goods of the same class or kind, for example fuel products, tobacco products, malt beer, traditional African beer, spirits (liquor) products, wine, other fermented beverages, ad valorem products and environmental levy goods. The rate of excise duty is levied on the specific quantity or volume consumed.

Ad valorem excise duty is payable on other locally manufactured non-essential or luxury products with a corresponding ad valorem customs duty (at the same rate of duty) on imported goods of the same class or kind. These include motor vehicles, cell phones, cosmetics and television receivers. The excise duty is assessed on the value of the products consumed locally.

Government has proposed to apply a flat excise duty to both electronic nicotine delivery systems and electronic non-nicotine delivery systems.

Environmental levies

Carbon tax

The Carbon Tax Act No. 15 of 2019 became effective on 1 June 2019. Carbon Tax, at a rate of R159/ per tonne of carbon dioxide equivalent (tCO2e) for the 2023 tax period (1 January 2023 until 31 December 2023), must be levied in respect of the sum of the scope 1, direct greenhouse gas (GHG) emissions of a taxpayer. The GHG emissions resulting from fuel combustion, industrial processes and product use as well as fugitive emissions expressed as a carbon dioxide equivalent will be taxable. A person conducting an activity in South Africa resulting in GHG emissions equal to and/or above the prescribed thresholds, as provided for in Schedule 2 of the Carbon Tax Act, will be subject to carbon tax.      

Taxpayers can leverage tax-free allowances that will reduce their tax obligation. These allowances will be administered as rebates, in terms of Schedule 6 of the Customs and Excise Act. The allowances are as follows:     

• Basic tax free / allowance for fossil fuel combustion – 60%.

• Allowance for industrial process emissions – 0% to 10%.     

• Allowance in respect of fugitive emissions – 0% to 10%.     

• Trade exposure allowance – 0% to 10% (capped at 10%).     

• Performance allowance – 0% to 5% (capped at 5%).

• Carbon budget allowance – 5% (the carbon budget allowance was set to have fallen away from 1 January 2023. However, given the delay in the promulgation of the Climate Change Act encompassing the mandatory carbon budgeting system, the carbon budget allowance is yet to be repealed).     

• Carbon offset allowance – 5% or 10%.     

Multiple allowances can be granted to the same taxpayer. However, the total may not exceed 95%.

The abovementioned carbon tax allowances will remain unchanged until the end of Phase One of the carbon tax regime (Phase One runs until 31 December 2025). Phase 2 of the carbon tax regime is set to commence on 1 January 2026, whereinafter, it is anticipated that the above allowances will be reduced, and the carbon tax rate significantly increased, to bring the rate in line with global carbon prices. 

The Taxation Laws Amendment Act, 2022 (TLAA), has provided the carbon tax rate trajectory for the period 2023 – 2030, the rate increases per the TLAA will be as follows:

• R190/tCO2e for tax period from 1 January 2024 until 31 December 2024

• R236/tCO2e for tax period from 1 January 2025 until 31 December 2025

• R308/tCO2e for tax period from 1 January 2026 until 31 December 2026

• R347/tCO2e for tax period from 1 January 2027 until 31 December 2027

• R385/tCO2e for tax period from 1 January 2028 until 31 December 2028

• R424/tCO2e for tax period from 1 January 2029 until 31 December 2029

• R462/tCO2e for tax period from 1 January 2030 until 31 December 2030.

‘Persons’ and/or ‘Data Providers’ operating in South Africa, who conduct activities resulting in GHG emissions equal to or above the prescribed thresholds, as provided for in Annexure 1 of the National Greenhouse Gas Emission Reporting Regulations (NGER Regulations) as well as Schedule 2 of the Carbon Tax Act, will be considered as taxpayers under the Carbon Tax Act and as a data provider under the NGER Regulations. Persons and/or data providers will be required to submit carbon budgets and adhere to the provisions of the mandatory carbon budgeting system set out in the Climate Change Bill. In terms of the provisions of the Climate Change Bill, persons who exceed their assigned carbon budget will be penalised at a rate of R640/tCO2e, for every tonne, exceeded beyond an assigned carbon budget. The Climate Change Bill is yet to be promulgated which creates a degree of uncertainty. It is, however, recommended that taxpayers opt to adhere to the proposed incoming provisions. 

To comply with the Carbon Tax Act and the NGER Regulations, taxpayers/ data providers must ensure that GHG emissions data are reported by 31 March to the Department of Forestry Fisheries and the Environment and carbon tax returns are submitted to the South African Revenue Service by the penultimate working day of July for the preceding year.

Health Promotion Levy on sugary beverages (sugar tax)

From 1 April 2018, a levy on sugary beverages was introduced to decrease diabetes, obesity and other related diseases and is known as the Health Promotion Levy (HPL) and commonly referred to as sugar tax. The rate is 2.1 cents per gram of sugar content that exceeds 4.0 grams per 100 ml. The first 4.0 grams per 100 ml are exempt from the HPL.

For the purposes of HPL, sugar content means both intrinsic and added sugar and other sweetening matter. This levy is applicable to both identified imported products and locally manufactured products. HPL on imported products is levied when it is cleared for home consumption and HPL on locally manufactured products is payable by the South African manufacturers. HPL is not payable on sugar beverages that are exported or used in the process of manufacture of other dutiable goods.

Transfer duty

Transfer duty is payable on the transfer of immovable property unless the supply of the property is subject to VAT. The person acquiring the property must pay the transfer duty. The following rates apply with effect from 1 March 2021:

• if the value of the property is less than ZAR 1.1m — 0%

• if the value of the property exceeds ZAR 1.1m, but not more than ZAR 1.513m — 3% on the value above ZAR 1.1m

• if the value of the property exceeds ZAR 1.513m but not more than ZAR 2.118m — ZAR 12,375 + 6% of the value above ZAR 1.512m

• if the value of the property exceeds ZAR 2.118m but not more than ZAR 2.723m — ZAR 48,675 + 8% of the value above ZAR 2.118m

• if the value of the property exceeds ZAR 2.723m but not more than ZAR 12.1m — ZAR 97,075 + 11% of the value above ZAR 2.723m

• if the value of the property exceeds ZAR 12.1m — ZAR 1.129m + 13% of the value above ZAR 12.1m.

Securities transfer tax

Skills development levy

Turnover tax

General fuel levy and Road Accident Fund levy

Air passenger departure tax