Did you know that you regularly pay Value Added Tax without realizing it? Basically, almost every good or service transacted in South Africa has an indirect tax charged on it by the SARS (South African Revenue Service). As a business, there are several benefits to be enjoyed from acquiring a VAT number, but prior to that, you must be knowledgeable about the VAT registration requirements as specified by the SARS.
The VAT rate in South Africa has faced several increments over the years since its introduction in 1991. Initially, it was levied at a statutory rate of 10% in 1991. Two years later, it was increased to 14%, and it remained that way until 2018 when new changes were introduced. As of April 1st, 2018, the new rate was set at 15%, and it remains the same in 2021. There are questions arising on regulations surrounding registration and the filing process. What has changed? How will this new rate impact my business? Does that mean products and services will cost more?
Below, we will look into all these questions in detail to help ease your confusion.
What is VAT in South Africa?
Value Added Tax is a tax levied by the government on goods and services at each point of sale. This basically means that every time a product exchanges hands through any form of production or distribution process, VAT is charged. It happens right from the initial manufacturing stage to the final consumer stage.
As previously mentioned, up until March 31st, 2018, the VAT rate in South Africa on products was 14% but it has since increased to 15%. This additional amount goes to SARS. However, there are few products that have been exempted from this indirect tax. These are referred to as zero-rated products, and they include basic food items like maize meal and vegetables.
How does VAT work in South Africa?
To put it simply, every time a good or service is transacted or distributed, VAT is charged on it. It is normally proportional to the price charged against the said product or service at the time of sale. It is really simple to calculate the amount to be charged or paid back by SARS, especially if yours is a small business.
Since VAT is set as an additional percentage to the actual price of a product, the burden of this tax always falls upon the consumer. So, as a business or vendor, you do not have to worry that it will be deducted from your operational costs.
Who needs to register for VAT?
Now that you understand what VAT is and how it is charged, let’s get into registration. There are two types of registration:
Mandatory VAT registration
Once your company exceeds R1 million in annual sales, you are legally required to register for VAT at SARS. Businesses that fall into this category are referred to as vendors. Upon registration, you are permitted to add the extra charge to the total price of your products and services. New vendors are required to complete and submit the VAT 101 form- Application for registration at SARS centers, no later than 21 days after surpassing the R1 million sales mark.
Voluntary VAT registration
If you have a new company, you can voluntarily register for a VAT number for your business. That is if your annual sales fall below R1 million.
As of March 1st, 2010, the minimum threshold for voluntary VAT registration was R50,000 in sales accrued over a period of 12 months. However under the new changes, if you earn more than R4 200 a month (for at least 2 months), you are eligible to apply for a number.
These companies are mainly micro-businesses that may include individuals, partnerships or cooperatives. Normally, these micro-businesses are subject to a turnover tax that’s why they are not mandated to register separately. It is really up to you and how you decide to scale your business operations.
What are the benefits of registering for VAT in South Africa?
- Your business will be listed as a licensed service provider.
This means potential clients and customers view you as a reliable and trustworthy business.
- Eligibility to apply for tenders and contracts.
To be eligible to vie for tenders especially with the government, your business needs to have a VAT number.
- Business advantage.
Large companies prefer to deal with businesses with a verifiable VAT number when sending quotes and invoices.
- Refund of Input Tax.
Once you are registered, and you buy products from another company that adds this tax, you are eligible for a tax refund from SARS.
How do I register for a VAT number in South Africa?
You can register for this number in one of two ways. It can either be manually or electronically via the SARS eFiling system. If you choose to do it manually, you can download a VAT 101- Application for a Registration Form from the SARS website. After successfully completing it, submit it to a SARS branch near you.
The manual submission of the VAT 101 form and other supporting documents has to be in person or by a registered tax practitioner. No hard copies are accepted via faxing or photocopying. This is to ensure safety from fraud for all parties involved.
Upon registration, vendors are given a unique VAT vendor number that will need to be included in all future invoices, receipts, quotations, and correspondence with SARS. Once you are registered, you can make payments through the various SARS branches, eFiling site, debit orders or any of the major banks.
How can I register via the SARS eFiling system?
The new VAT registration on the eFiling website is simple, fast and free. Plus, you get to enjoy a variety of benefits such as submission of tax returns, making relevant payments and other related services. This is a simple three-part process:
- Visit the SARS eFiling website at sarsefiling.co.za.
- Click on Register form the top menu.
- Complete the easy 6 step process:
Step 1: Read and Accept the Terms and Conditions.
Step II: Create your User ID and secure password.
Step III: Add in the personal information for authentication.
Step IV: Provide details on your organization as well as employer details.
Step V: Select the VAT tax type.
Step VI: You are now registered.
Once successful, the unique User ID and access code which you were assigned are for your eyes only and not to be shared. You are free to change and personalize your access code.
There are several advantages of filing VAT returns via the eFiling service such as receiving an extension of final submissions. As of 2012, vendors can now submit their VAT declarations on the 25th of the month without fear of penalties or fines.
What documents are needed to register for VAT?
There are several VAT registration requirements to be met before registering for a VAT number for your business in South Africa.
- The business must be a registered company.
This means your business must be registered with the CIPC (Companies and Intellectual Property Commission).
- A business bank account.
A bank account specifically for your business’ transactions, devoid of personal transactions.
- Proof of trading.
Normally, invoice(s) of previous transactions would suffice.
- Proof of address.
Once you meet these requirements, you must take a completed VAT 101 form along with the following supporting documents to the nearest SARS center.
Below are the documents required to complete the registration process:
- Copy of Certificate of Incorporation
- Copy of Trust Deed And Authority Letter
- Copy of Original ID
- Original banking statements (going back three months)
- Original letter from your banker / Original stamped statement from the bank
- Latest month invoices as proof of trading
- A recent copy of the business municipal account/ Rental agreement as proof of business address
How long does VAT registration take in South Africa?
If you registered via the SARS eFiling system, your profile will be activated within 48 hours. If it takes any longer, you are advised to contact SARS.
Otherwise, via manual registration, it takes anywhere from 10 days
After successful registration, you will receive notice through:
- The eFiling system
a) Log onto the eFiling system.
b) Key in your credentials/VAT number.
c) View your status and update it if necessary.
- The email address provided upon registration
- SMS through a registered mobile phone number
Before your number is issued, you are free to continue business operations as you wait for it.
What is a VAT number?
It is a unique 10 digit number that starts with the number 4. This number is typically assigned to businesses that meet the requisite conditions for registration. For example, a typical number is 4330182355 and is usually accompanied by a matching registration name.
When your application is successful, you are issued with this unique identifying number that you can search and check for on the SARS eFiling website.
Once issued, this unique identifying number is expected to be indicated on all your valid tax invoices.
How do I search/ check my VAT number status?
You can do either a partial or exact VAT vendor search depending on whether you are a registered eFiler.
- Simply key in the VAT Number and the Vendors Trading Name
- Click search
- Depending on the User type, registered or not, the results will yield either a partial or exact business match respectively.
Conducting a vendor search is necessary when filing for input tax returns with SARS or just to confirm whether a certain company is indeed registered.
With the required documents and well-filled-in forms, it is very easy to complete the registration without any trouble. If you are unable to follow the VAT registration requirements appropriately, it is best to seek the help of a certified tax practitioner. The good news is that the eFiling system has made this registration process such a hustle free affair. You can now handle it right from the comfort of your home or office.
DISCLAIMER: This article is intended for general informational purposes only and does not address individual circumstances. It is not a substitute for professional advice or help and should not be relied on to make decisions of any kind. Any action you take upon the information presented in this article is strictly at your own risk and responsibility!