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VAT 404 – A SARS Guide for Vendors, version 15, and Registration for VAT

A person can only register for VAT if they are carrying on an enterprise. A “person” is defined in the VAT Act and includes, but is not limited to, an individual, company, partnership, trust fund and municipality.

“Enterprise” is a defined term in the VAT Act. It includes any activity carried on continuously or regularly by any person in or partly in South Africa where goods or services are supplied to another person for a consideration, whether or not for profit. Anything done to start or terminate an enterprise is also included as conducting an enterprise for VAT purposes.

The activities or supplies of the following persons are specifically included in the definition of “enterprise”:

  1. Public authorities as notified by the Commissioner.
  2. Welfare organisations.
  3. Share block companies (subject to certain conditions).
  4. Implementing agency of a foreign donor-funded project.
  5. Intermediaries and non-resident suppliers of electronic services.

The following are some examples of when you are not regarded as carrying on an “enterprise”:

  1. Making exempt supplies, for example, the supply of financial services, residential accommodation, public transport, etc.
  2. An employee earning a salary or wage from an employer (excluding an independent contractor). Note that a non-executive director of a company is considered to be an independent contractor and not an employee.
  3. Hobbies or any private recreational pursuits not conducted in the form of a business.
  4. Private occasional transactions, for example, the sale of domestic/household goods, personal effects or a private motor vehicle.
  5. Supplying “commercial accommodation” in circumstances where the total value of those supplies made or reasonably expected to be made does not exceed R120 000 in any consecutive period of 12 months.
  6. It is compulsory for a person to register for VAT if the value of taxable supplies made, or to be made, is in excess of R1 million in any consecutive 12-month period.

An application for a compulsory VAT registration must be made within 21 business days from the date the R1 million is or will be exceeded.

Non-resident suppliers of certain electronic services are also liable for compulsory VAT registration at the end of the month in which the total value of taxable supplies exceeds R1 million. An intermediary is also allowed to register and account for VAT on behalf of supplies made by the non-resident supplier of electronic services.

Now on to the subject of a vendor and VAT.

A “vendor” is a business registered with SARS to charge Value-Added Tax on sales. This includes any person who is registered or is required to be registered for VAT. However, where the Commissioner has determined the date from which a person is a vendor, a person shall be a vendor from that date.

The SARS guide is a lengthy 176-page document complete with explanations and examples. This is the start of a series of articles dealing with vendors and VAT, starting with the most important principles to keep in mind.

TEN IMPORTANT PRINCIPLES

  1. All prices charged, advertised or quoted by a vendor must include VAT at the applicable rate (currently 15% for standard-rated supplies).
  2. Vendors are charged with the responsibility of levying VAT and paying it over to the State after deducting permissible VAT inputs and other deductions – please make sure that you pay it over on time; otherwise, penalties and interest will be charged.
  3. VAT charged on supplies made (output tax) less VAT paid to your suppliers (input tax) and other permissible deductions = the amount of VAT payable/refundable.
  4. You need to be in possession of documentary proof prescribed by or which is acceptable to the Commissioner to substantiate any input tax and/or other permissible deductions which you want to make. You must also keep records of all your documentary proof and other records of transactions for at least five years.
  5. Goods exported to clients in an export country (any country outside of the Republic) may be charged with VAT at 0%. However, if delivery takes place in the Republic, you must charge VAT at the standard rate to your client, unless the goods are supplied under Sections A and B of Part Two of the Export Regulations, which allow the zero rate to be applied, subject to certain requirements, at the discretion of the supplier. This discretion may only be applied when the goods are to be exported via road or rail or are delivered to a harbour or an airport from where the goods will be exported. If VAT is charged at the standard rate and your client is a vendor, your client may deduct the VAT charged as input tax. If your client is not a vendor, and the goods are subsequently removed from the Republic, a claim for a refund of the VAT may be submitted to the VAT Refund Administrator (the VRA), subject to certain requirements being met.
  6. You may not register for VAT if you only make exempt supplies. If you are registered, because you make both taxable and non-taxable supplies, you may not deduct any VAT charged on goods or services acquired to make exempt supplies or for private use or other non-taxable purposes. Also, as a general rule, any VAT incurred to acquire a motor car or goods or services acquired for purposes of entertainment may not be deducted, even if used for making taxable supplies.
  7. You are required to advise the South African Revenue Service (SARS) within 21 days of any changes in your registered particulars, including any change in your representative, business address, banking details, or trading name, or if you cease trading.
  8. If you have underpaid VAT as a result of a mistake, report it to SARS as soon as possible, rather than leaving it for the SARS auditors to detect. You can make a request for correction on eFiling if you file your returns electronically. Otherwise, approach your nearest SARS office for assistance.
  9. You can pay your VAT electronically by using eFiling or by making an electronic funds transfer (EFT) through internet banking. You may also pay at certain banks.
  10. Report fraudulent activities to SARS by calling the Fraud and Anti-Corruption Hotline on 0800 00 28 70. You may report an incident anonymously if you wish.

PREFACE

The SARS VAT 404 Guide is a basic guide where technical and legal terminology has been avoided wherever possible. Although fairly comprehensive, the guide does not deal with all the legal detail associated with VAT and is not intended for legal reference.

All references to sections are to sections of the Value-Added Tax Act 89 of 1991 (VAT Act), unless the context indicates otherwise. The Tax Administration Act 28 of 2011, the Income Tax Act 58 of 1962 and the Customs and Excise Act 91 of 1964 are referred to as the “TA Act”, “Income Tax Act” and “Customs and Excise Act”, respectively. The terms “Republic”, “South Africa” or the abbreviation “RSA” are used interchangeably in this document as a reference to the sovereign territory of the Republic of South Africa, as set out in the definition of “Republic” in section 1(1). You will also find a number of specific terms used throughout the guide which are defined in the VAT Act and the TA Act listed in the Glossary in a simplified form for easy reference.

The information in this guide is based on the VAT Act and the TA Act as at the time of publishing and includes the latest amendments contained in the Taxation Laws Amendment Act, 17 of 2023, the Tax Administration Laws Amendment Act, 18 of 2023, and the Rates and Monetary Amounts and Amendment of Revenue Laws Act, 19 of 2023. These Acts were all promulgated on 22 December 2023 as per Government Gazettes (GGs) 49894, 49947 and 49948, respectively.

The following guides have also been issued and may be referred to for more information relating to the specific VAT topics:

  • Vendors and Employers: Trade Classification Guide (VAT / EMP 403)
  • Guide for Fixed Property and Construction (VAT 409)
  • Guide for Entertainment, Accommodation and Catering (VAT 411)
  • Guide for Share Block Schemes (VAT 412)
  • Guide for Estates (VAT 413)
  • Guide for Associations Not for Gain and Welfare Organisations (VAT 414)
  • Guide for Municipalities (VAT 419)
  • Guide for Motor Dealers (VAT 420)
  • Guide for Short-Term Insurance (VAT 421)
  • VAT Rulings Process Reference Guide

Before delving into the extensive detail of VAT 404 and vendors, it is necessary to list a glossary of necessary terms and their definitions.

GLOSSARY

ASSOCIATION NOT FOR GAIN

An “association not for gain” is essentially a religious institution or other society, association or organisation (including an educational institution of a public character) which is not carried on for profit and is required to use any property or income solely in the furtherance of its aims and objects. An association not for gain could also qualify as a “welfare organisation” if it conducts certain activities. The VAT 414 – Guide for Associations Not for Gain and Welfare Organisations deals specifically with associations not for gain and welfare organisations.

COMMERCIAL ACCOMMODATION

There are three types of commercial accommodation, namely:

  • Lodging or board and lodging together with domestic goods and services in any house, flat, apartment, room, hotel, motel, inn, guesthouse, residential establishment, holiday accommodation unit, chalet, tent, caravan, campsite, houseboat or similar establishment. This must be supplied regularly and systematically, excluding a “dwelling” supplied for letting or hiring thereof [as this is an exempt supply under section 12(c)].
  • Lodging or board and lodging in a home for the aged, children, or physically or mentally handicapped persons.
  • Lodging or board and lodging in a hospice.

CONNECTED PERSON

The term includes but is not limited to family relatives, partnerships, trust beneficiaries, branches of the same legal entity, and companies with substantially the same shareholders. This term describes and identifies the relationships between different persons. The term is important because if persons are connected in terms of the definition, it may be necessary to apply special time and value of supply rules where the supplier may be required to charge VAT on the OMV of the supply, rather than on the amount of consideration received.

Other examples include the following (amongst others):

  • Natural persons who are related by blood or marriage.
  • A company and any subsidiaries of that company.
  • Any CC and its members.
  • A natural person and a company where that natural person owns more than 10% of the shares or voting rights in that company.

CONSIDERATION

This is generally the total amount of money (incl. VAT) received for a supply. For barter transactions where the consideration is not in money, the consideration will be the OMV of goods or services (incl. VAT) received for making the taxable supply. Section 10 determines the value of supply or amount of the consideration for VAT purposes for different types of supplies.

Any act of forbearance, whether voluntary or not, for the inducement of a supply of goods or services will constitute consideration, but it excludes any donation made as an unconditional gift to an association not for gain. Also excluded is a “deposit” which is lodged to secure a future supply of goods and held in trust until the time of the supply.

DOMESTIC GOODS AND SERVICES

This includes the following when they are supplied together with commercial accommodation:

  • Cleaning and maintenance
  • Electricity, gas, air conditioning or heating
  • Use of a telephone, television set, radio or other similar article
  • Furniture and other fittings
  • Meals
  • Laundry
  • Nursing services
  • Water

The list is not exhaustive.

When a person stays for longer than 28 days in any hotel, guesthouse, inn, boarding house, retirement home, or similar establishment, only 60% of an all-inclusive charge for accommodation and domestic goods or services will be subject to VAT. Should the charges for domestic goods and services not form part of the all-inclusive charge, these separately itemised supplies will attract VAT at the standard rate on the full value.

Donation This is where a gratuitous payment (donation) is voluntarily made to any association not for gain for the carrying on or the carrying out of the purposes of that association and in respect of which no identifiable direct valuable benefit arises or may arise in the form of a supply of goods or services to the person making that payment. The term also includes not only cash payments but also the value of goods or services donated. This term is dealt with in more detail in the VAT 414 – Guide for Associations Not for Gain and Welfare Organisations.

DWELLING

This is any building, premises, structure, or any other place or part thereof used predominantly as a place of residence or abode of any natural person (or which is intended for this purpose), including any fixtures and fittings belonging thereto and enjoyed therewith.

ENTERPRISE

Any business activity in the broadest sense. It includes any activity carried on:

  • continuously or regularly;
  • by any person;
  • in or partly in the RSA;
  • in the course or furtherance of which goods or services are supplied for a consideration to another person, that is, some form of payment;
  • whether or not for profit.

Special inclusions:

  • Public authorities – certain government departments and provincial authorities
  • Municipalities
  • Welfare organisations and FDFPs (foreign donor-funded projects)
  • Share-block companies
  • Non-residents supplying certain electronic services (this includes the activities of local and non-resident intermediaries) where at least two out of three of the following circumstances apply, namely:
    1. The electronic services are supplied to a South African resident.
    2. Payment originates from the RSA, or 3. The recipient has an address (that is business, postal or residential) in the RSA.

The following activities are not “enterprise” activities and will therefore not attract VAT:

  • Services rendered by an employee to an employer, for example, salary/wage/remuneration earners. This must, however, be distinguished from a private independent contractor who is not excluded.
  • Supplies by a branch or main business permanently located outside the RSA (must be separately identifiable and maintain its own system of accounting).
  • Private or recreational pursuits or hobbies (unless carried on like a business).
  • Private occasional transactions, for example, occasional sale of domestic/household goods, personal effects or private motor vehicles.
  • Any exempt supplies (listed in section 12).
  • The supply of commercial accommodation of a value of less than R120 000 per annum.

ENTERTAINMENT

The term “entertainment” means the provision of any food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind by a vendor, whether directly or indirectly, to anyone in connection with an enterprise carried on by that person. As a general rule, expenses relating to entertainment may not be deducted as input tax. There are, however, some exceptions to the rule.

Examples of entertainment include the following:

  • Staff refreshments such as tea, coffee and other beverages and snacks and other ingredients purchased in order to provide meals to staff, clients and business associates.
  • Catering services acquired for staff canteens and dining rooms, including own equipment, furniture and utensils used in kitchens, canteens and staff dining rooms.
  • Christmas lunches and parties, including the hire of venues.
  • Golf days for customers and clients.
  • Beverages, meals and other hospitality and entertainment supplied to customers and clients at product launches and other promotional events.
  • Entertainment of customers and clients in restaurants, theatres and nightclubs.
  • Capital goods such as hospitality boxes, holiday houses, yachts and private aircraft used for entertainment.

The list is not exhaustive.

EXEMPT SUPPLY

An exempt supply is a supply on which no VAT may be charged (even if the supplier is registered for VAT). Persons making only exempt supplies may not register for VAT and may not recover input tax on purchases to make exempt supplies. Section 12 contains a list of exempt supplies.

Exempt supplies include:

  • certain “financial services” as defined;
  • supplies by any “association not for gain” of any donated goods or services or any other goods made or manufactured by such an association if at least 80% of the value of the materials used in making or manufacturing such other goods consists of donated goods;
  • rental of accommodation in any “dwelling”, including employee housing;
  • certain educational services;
  • services of employee organisations, for example, trade unions;
  • certain services to members of a sectional title, share block or old age scheme funded out of levies (not applicable to timeshare schemes);
  • public road and railway transport of fare-paying passengers and their luggage; and
  • childcare services in a crèche or after-school care centre.

GOODS

The term “goods” includes:

  • corporeal (tangible) movable things, goods in the ordinary sense (including any real right in those things);
  • fixed property, land and buildings (including any real right in the property, for example, servitudes, mineral rights, notarial leases);
  • sectional title units (including timeshare);
  • shares in a share block company;
  • postage stamps;
  • electricity; and
  • second-hand goods.

The term “goods” excludes:

  • money, that is, notes, coins, cheques, bills of exchange (except when sold as a collector’s item);
  • value cards, revenue stamps, etc., which are used to pay taxes (except when sold as a collector’s item); and
  • any right under a mortgage bond.

INSTALMENT CREDIT AGREEMENT (ICA)

There are two types of ICAs, namely, an instalment sale agreement and an instalment lease agreement. These agreements are characterised by a suspensive condition as to the passing of ownership of the goods or services supplied. The agreement will normally provide for the payment of the purchase price, including finance charges at a fixed or determinable charge, and the recipient accepts the risks attached to those goods insofar as loss or damage is concerned. In the case of an instalment lease agreement, the term of the agreement must be at least 12 months.

INPUT TAX

This includes, amongst others, the tax paid by the recipient to the supplier of goods or services, the VAT paid on the importation of goods and the notional input tax on second-hand goods. Input tax may only be deducted by the recipient vendor if the goods or services are acquired for making taxable supplies and if the vendor is in possession of the relevant documentary proof under section 16(2)(a) to (e). Under section 16(2)(g), a vendor may, in certain circumstances, deduct input tax based on alternative documentary evidence acceptable to the Commissioner in terms of a ruling issued by the Commissioner.

An apportionment of input tax must be made if goods or services are acquired only partly for making taxable supplies.

In the case of an importation, where the bill of entry or other documentation prescribed by the Customs and Excise Act reflects the vendor as the importer, the vendor must be in possession of such document together with the receipt for the payment of the VAT in relation to the importation of the goods and the EDI Customs Status 1 Release Message. Should the vendor not be in possession of the aforementioned documentation, it must, in terms of section 54(3)(b), be in possession of the statement issued by the agent when deducting input tax under section 16(3)(a)(iii) or (b)(ii).

In the case of second-hand goods acquired by the vendor, the vendor must retain a proper record of the details of the transaction on VAT264 Form. Should the second-hand goods acquired constitute fixed property, the

transfer of which requires registration in a Deeds Registry, input tax may only be deducted once the property has been registered in the name of the vendor claiming a deduction and is limited to the extent that the consideration for the property has been paid.

As a general rule, input tax may not be deducted on supplies of “entertainment”, motor cars and club subscriptions. Input tax may also not be deducted where goods or services are acquired for the purpose of making exempt supplies, for private use or for other non-taxable activities.

MOTOR CAR

“Motor car” is a defined term which includes vehicles which have three or more wheels, are normally used on public roads and which are constructed or converted wholly or mainly for carrying passengers. As a general rule, input tax may not be deducted on the acquisition of a motor car, irrespective of the mode of acquisition or whether or not it is used for taxable supplies.

Examples of passenger vehicles on which input tax cannot be deducted include ordinary motor cars, SUVs, double-cab bakkies (LDVs), and microbuses that are capable of carrying passengers.

The following vehicles do not qualify as a “motor car” as defined:

  • Vehicles capable of accommodating more than 16 persons (for example, a bus)
  • Specialised vehicles such as hysters, graders, tractors, mobile cranes, and earthmoving vehicles (seats only 1 person)
  • Ambulances and caravans
  • Vehicles with an unladen mass of 3500 kg or more
  • Single cab bakkies (LDVs) /Trucks/ Lorries/Delivery Vehicles)
  • Hearses and game viewing vehicles

OFFICIAL PUBLICATION

This means a binding general ruling, interpretation note, practice note or public notice issued by a senior SARS official or the Commissioner. Guides which SARS issues from time-to-time for information purposes only do not fall within the meaning of “official publication”.

OUTPUT TAX

The tax (VAT) charged by a vendor on a taxable supply of goods or services.

PERSON

This term refers to the entity which is liable for VAT registration and includes the following:

  • Sole proprietor, that is, a natural person
  • Company/CC
  • Partnership/joint venture
  • Deceased/insolvent estate
  • Trusts
  • Incorporated body of persons, for example, an entity established under its own enabling Act of Parliament
  • An unincorporated body of persons, for example, a club, society or association with its own constitution
  • Municipalities
  • Public Authorities

PUBLIC NOTICE

This means a notice issued by the Commissioner and published in the Government Gazette. The TA Act and VAT Act include the regulations and public notices issued thereunder, which will have the status of subordinate legislation.

RELEVANT MATERIAL

The information-gathering powers of SARS may only be used to obtain relevant material. Relevant material is information, documents, or things that are foreseeably relevant for tax risk assessment, assessing and collecting tax, or for determining compliance with a tax obligation.

SARS OFFICIAL

‘SARS official’ is a defined term in the TA Act and means:

  • the Commissioner;
  • an employee of SARS; or
  • a person contracted by SARS for purposes of the administration of a tax act and who carries out the provisions of a tax act under the control, direction or supervision of the Commissioner.

SECOND-HAND GOODS

Second-hand goods are goods (including fixed property) that have been previously owned and used. The term excludes certain things; for example, animals, gold, gold coins, and “old order” mining rights. Vendors trading in goods containing gold which are sold in substantially the same state as when those goods were acquired may be entitled to a deduction of notional input tax in certain circumstances.

SERVICES

The term “services” is very broad and includes:

  • the granting, assignment, cession, or surrender of any right;
  • the making available of any facility or advantage; and
  • certain acts which are deemed to be services under section 8.

The term excludes:

  • a supply of “goods”;
  • money; and
  • any stamp, form or card which falls into the definition of “goods”.

Examples:

  • Commercial services – electricians, plumbers, builders
  • Professional services – doctors, accountants, lawyers
  • Advertising agencies
  • Intellectual property rights – patents, trademarks, copyrights, know-how
  • Restraint of trade
  • Cover under an insurance contract

SUPPLY

This definition is very wide and includes all forms of supply (including the expropriation of fixed property), irrespective of where the supply is effected, and any derivative of supply is construed accordingly.

TAX INVOICE

This is a special document which is required to be held by a vendor to deduct input tax. The term is dealt with in section 20, which prescribes that where the consideration is R5 000 or more or is a zero-rated supply, a full tax invoice must be issued with the following information reflected thereon:

  • The words “tax invoice”, “VAT invoice” or “invoice”
  • Name, address and VAT registration number of the supplier
  • Name, address and VAT registration number of the recipient
  • Serial number and date of issue
  • Full and proper description of goods and/or services supplied
  • Quantity or volume of goods or services supplied
  • Price and VAT

Where the amount (including VAT) is less than R5 000, an abridged tax invoice may be issued which has the same requirements as above, except that the name, address and VAT registration number of the recipient and the Quantity or volume does not need to be specified.

In certain cases, a tax invoice is not required to be issued, and there are also some special rules which apply in other cases. For example, the requirements for tax invoices in respect of electronic services supplied by non-residents are prescribed in GN 1594 in GG 45324 dated 10 December 2021.

TAX PERIOD

There are five different tax periods as follows:

  • Category A – two-monthly (ending at the end of every odd month). For example, Jan, Mar, May, and July.
  • Category B – two-monthly (ending at the end of every even month). For example, February, April, and June.
  • Category C – monthly (taxable supplies greater than R30 million in any consecutive period of 12 months).
  • Category D – six-monthly (certain farmers and micro-businesses – taxable supplies less than R1.5 million in any consecutive period of 12 months).
  • Category E – annually (only in exceptional circumstances for connected persons with only one transaction per consecutive period of 12 months).

TAXABLE SUPPLY

This is a supply (including a zero-rated supply) which is chargeable with tax under the VAT Act. A taxable supply does not include any exempt supply listed in section 12, even if supplied by a registered vendor.

There are two types of taxable supplies, namely:

  • those which attract the zero rate (listed in section 11); and
  • those on which the standard rate must be charged.

VENDOR

This includes any person who is registered or is required to be registered for VAT. However, where the Commissioner has determined the date from which a person is a vendor, a person shall be a vendor from that date.