VAT Types Explained

Overview#

VAT is an abbreviation for the term Value-Added Tax.

According to the South African Revenue Services: VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain traders (vendors), that carry on an enterprise to register for VAT.

• Subject to certain conditions, the vendor must then charge VAT on supplies of goods and services made by it (output tax).
• VAT is only charged on taxable supplies made.
• Taxable supplies are supplies for which VAT is charged at either the standard rate (currently 15%) or zero rate (0%).
• Only a limited range of goods and services is subject to VAT at the zero rate or exempt from VAT.

For more information: SARS' complete guide on VAT in South Africa.

What are VAT Types?#

• VAT Types are the codes used to deal with VAT in accounting records. They help organisations generate a VAT Report to fill in their VAT Returns.
• In BOS Professional you can enter the VAT Type on every transaction.

The main VAT Types are:

• Standard: Currently 15% in South Africa.
• Zero-rated: Goods or services that are subject to VAT but at the rate of 0%.
• Exempt: Goods or services that are exempt from VAT.
• VAT Only: Mostly applicable to VAT Payments and imports where you pay the VAT on the goods imported.
• No VAT: Organisations that are not registered for VAT.

Who Must Register for VAT?#

The following applies in South Africa under the legislation active in May 2025.

• Any organisation that runs a business and has revenue exceeding a million rand a year (or likely to exceed a million rand) must register for VAT and charge VAT.
• An organisation that has taxable supplies exceeding R50 000 per year, may voluntarily apply to register for VAT.

Other inclusions and exclusions are beyond the scope of this guide. (Refer to the VAT Guide).

Key takeaway: Many of your customers and suppliers are not registered for VAT, and do not need to be.

When to Charge VAT if you are Registered for VAT#

It does not matter whether your customers are registered for VAT or not.

• You must charge VAT to South African businesses or individuals at the Standard Rate unless you supply goods that are Zero-Rated (see page 17).
• You must charge VAT to foreigners who are in South Africa (They may claim the VAT back on goods they take out of the country at the airport.)
• You must charge VAT to foreigners if the goods you supply are going to be consumed in South Africa.
• You might be able to charge VAT at 0% if the goods are being exported to a foreign client.
• You might be able to charge VAT at 0% if you offer a service to a client who is not in South Africa when you offer the service.

Factors to consider:

• You may not display a VAT Exclusive amount more prominently than a VAT Inclusive amount in your advertising material, or on your invoice.
• Consumers who typically are not registered for VAT are more interested in the VAT inclusive amount as that is their cost (they cannot claim the VAT back).
• Businesses who are registered for VAT are more interested in the VAT exclusive amounts as they mostly can claim the VAT portion back.

What VAT Types to use?#

• You include 15% VAT on all your items: Standard.
• You charge VAT at 0%: Zero-rated.
• You supply a mix of zero-rated and standard items: Select a VAT Type for each item (either Standard or Zero-rated).

Exempt Supplies#

Printing and manufacturing businesses, seldom make exempt supplies.

However, certain businesses, like Financial Services, could be registered for VAT and make Exempt supplies.

They use the VAT Type: Exempt.

Why must you not confuse Exempt and Zero-Rated in South Africa?

• An organisation may claim all their input VAT credits against zero-rated goods sold.
• An organisation may NOT claim any input VAT against Exempt Supplies.

When to Claim VAT#

You may only claim VAT if you have a valid Tax Invoice.

(May 2025) For goods over R5 000, a valid Tax Invoice:

• Must say Tax Invoice.
• Must have the Name, Address and VAT Registration Number of both the supplier and Customer (your organisation).
• Must include a sequential Tax Invoice Number.
• Must have a full and proper Description of the goods, including Quantity and Unit Prices, if applicable.
• Must show the Price and VAT Amount or VAT % with a clear indication of whether the price includes VAT or not.

(May 2025) For goods under R5 000:

• All of the above, except your details, do not have to appear on the invoice.

What VAT Types to use?#

• If you are charged VAT: Standard
• If you are not charged VAT: No VAT
• If you must pay VAT to a shipping company for the release of imported goods: VAT Only
  • VAT Only is part of Standard VAT, but because the entire transaction consists of VAT, the VAT Only code is used.

When Not to Claim VAT#

In some cases, you may have a valid Tax Invoice but are not allowed to claim VAT.

In South Africa, you may not claim VAT on:

• Goods purchased for personal use.
• Entertainment, Staff Meals and Refreshment Expenses (unless you have a business where you charge for these goods).
• Membership fees or Subscriptions of Clubs, Associations or Societies of a Sporting, Social or Recreational Nature (you may claim for professional memberships).
• Buying a Motor Vehicle (there are exceptions e.g. delivery vehicles, trucks or single cab bakkies).
• Goods or Services acquired by Medical Schemes or Benefit Funds.

What VAT Type to use?#

• No VAT

Other VAT Types#

Certain VAT Transactions must appear separately on the VAT 201 Form. It is best to create a new VAT Type for each of these items, to make it easier to fill in the form.

• VAT on Capital Goods (Standard Rate)
• VAT on Bad Debts (Standard Rate)
• VAT on Second-hand Goods (Special calculations apply – consult your accountant)
• VAT on Accommodation (Special calculations apply – consult your accountant)

Disclaimer#

• This document cannot be relied upon for legal advice. It only provides examples of scenarios businesses encounter.
• Always consult your accountant, or SARS for your specific situation.