For companies established in South Africa, VAT returns are essential for financial management and legal compliance. As a Value Added Tax (VAT) vendor, a business is obligated to charge VAT on supplies made (output tax) and claim VAT on business purchases (input tax); subsequently, the net of VAT payable or refundable is settled with the South African Revenue Service (SARS). All businesses in South Africa, regardless of their size, must know what VAT returns are to ensure deadlines are met and operations run efficiently.
This article seeks to elaborate on VAT returns in South Africa, discuss the applicable VAT rates, and clarify who must register for VAT. We will also describe filing frequency and deadlines, provide detailed instructions for filing VAT returns, as well as outline invoicing rules, deductible VAT, ways to recover VAT, and other specific provisions emanating from the imports, exports, and digital services.
What is a VAT Return in South Africa?
A VAT return is an official document that businesses registered under VAT in South Africa must submit periodically to SARS. It accounts for the VAT that has been collected on sales (output tax) and the VAT paid on purchases (input tax). The difference between these amounts determines whether the business owes SARS money or is eligible for a refund.
Purpose of VAT Return
Statutory Compliance:
VAT returns serve as evidence that helps your business prove compliance with South African VAT regulations to help avoid incurring fines.
Finance:
They help capture the VAT transactions made by your business which is important for internal bookkeeping as well as external auditing.
Tax Refunds:
If your input tax exceeds your output tax, you may be eligible for a VAT refund per SARS regulations.
Understanding VAT returns is imperative for keeping precise financial records and having your business tax-compliant.
Current VAT Rates in South Africa.
South Africa imposes a standard VAT rate of 15% on most goods and services. However, there are exceptions:
Zero-Rated Supplies:
Exports, certain agricultural products, and basic food items may be zero-rated.
Exempt Supplies:
Most financial services, residential accommodation supplies, and public transport services do not attract value-added tax.
All businesses have to be careful in how they classify their goods and services if they want to determine the right rate of VAT. If they are careless, they may submit wrong returns that will attract penalties.
Who Needs to Register for VAT in South Africa?
A business operating in South Africa that has a particular turnover may be required to register for VAT as a vendor. These criteria are as follows:
Mandatory Registration:
Businesses that have an annual turnover that exceeds ZAR 1 million are required to register for VAT.
Voluntary Registration:
Businesses with a turnover that is above ZAR 50,000 but less than ZAR 1 million may register voluntarily, which is helpful to claim input tax refund as well as enhance the credibility of the business.
Non-Resident Suppliers:
Non-resident suppliers of electronic services whose taxable supplies exceed ZAR 1 million in any 12 months are required to register for VAT.
Your business is now part of the VAT system, meaning that you will charge, collect, and remit VAT on taxable supplies with the aid of these criteria.
How Often Must VAT Returns Be Filed in South Africa?
In South Africa, the threshold for the business’s annual turnover dictates the frequency of VAT returns:
- Monthly Filing: Businesses with a turnover greater than ZAR 30 million are required to file VAT returns monthly.
- Bi-Monthly Filing: Companies with a turnover between ZAR 1.5 million and ZAR 30 million must file VAT returns every two months.
- Four-Monthly Filing: For businesses with a turnover of less than ZAR 1.5 million, VAT returns are filed every four months.
- Six-Monthly Filing: In the farming sector, if the turnover is less than ZAR 1.5 million, VAT returns must be submitted every six months.
A higher frequency of filing indicates a higher intensity of business activity, so that SARS can be informed accurately and promptly of VAT collections as well as payments.
VAT Return Deadlines in South Africa
VAT return deadlines are one of the most important deadlines that taxpayers must comply with SARS regulations. While all deadlines have their distinctive characteristics, the only deadline all taxpayers need to know is that regardless of how one needs to file, VAT payments ought to have been settled by the 25th day of the month following the conclusion of the VAT period.
Key Deadlines:
Monthly Filers:
VAT returns and payments are due on the 25th of the following month.
Bi-Monthly, Four-Monthly, and Six-Monthly Filers:
As always, the deadline is still the 25th of the month succeeding the conclusion of the reporting timeframe.
Missing deadlines may result in penalties, fines, or heightened surveillance from SARS. This makes planning and setting reminders important for timely submission.
How to File VAT Returns in South Africa
There are multiple steps required for filing a VAT return in South Africa, some of which are outlined below to help you go through the entire procedure without any hassles.
Step 1: Gather Relevant Financial Documents
- Sales Invoices: Collect all invoices issued during the VAT period which has VAT charged on them (output tax).
- Purchase Invoices: Collect all purchase invoices that have VAT charged on them (input tax).
- Credit and Debit Notes: Make sure you hold on to any credit or debit notes that may influence the VAT computations.
Step 2: Work Out Your VAT Responsibilities
- Output Tax: All VAT is charged on sales.
- Input Tax: All VAT associated with business costs.
- Net VAT: The payable VAT (to SARS) is subtracted from the refundable VAT.
Step 3: Fill out the VAT Return form
- Online Portal: Visit the SARS eFiling portal and sign in.
- Business Details: Enter the required details for your business, which include VAT registration number, turnover, output tax, and input tax.
- Supporting Documentation: Attach any supporting documents that are required per SARS standards.
Step 4: VAT Return Submission
- Review: Review each detail provided and ensure everything is correct.
- Portal Submission: Files the VAT return through the SARS portal.
- Payment Arrangement: Arrange payments if the net VAT liability is present before the due date, the 25th of the following month.
Step 5: Audit Record Retainment
Document Maintenance: Digital and physical document copies of VAT returns, invoices, or related documents must be kept for five years.
Outlined instructions will assist in filing VAT returns properly and timely without incurring penalties or fines.
VAT Invoicing Requirements in South Africa
For VAT requirements to be met proper invoicing must take place. A South African VAT invoice must have a listed set of specific details to qualify as valid:
Business Information: Add your business’s name, VAT registration number, and address.
Invoice Number and Date: A distinctive sequential number along with the date must be present on each invoice.
Customer Details: The name and address of the customer must be provided.
Description of the Goods or Services: Write detailed explanations of the goods or services provided.
Taxes: Specify the VAT applied in the amount with the standard rate(15%) or zero-rated.
Total Amount Due: The comprehensive amount due, including VAT.
Fulfillment of these requirements on invoices is crucial for the substantiation of input tax credits and for conflicts with SARS.
What VAT Can Businesses Deduct in South Africa?
In South Africa, a business can deduct input tax from collected output tax, so long as the VAT was incurred from goods or services that were used for business purposes. This is especially useful to know because here’s what is deductible:
Deductible Input Tax:
Office supplies, professional services, raw materials, and other expenses that a business incurs are all sources from which the VAT can be deducted.
Documentation Requirements:
All invoices and receipts that show the VAT paid should be maintained in case they need to be produced later.
Restrictions:
The deductive claim cannot exceed expenses made against taxable supplies, therefore, the VAT incurred on non-direct expenses is not deductible.
Common Examples:
Utilities, business travel, and rent expenses usually pass the test for input tax deductions and can be claimed so long as all relevant conditions are satisfied.
These are important considerations when determining your VAT liability. However, note that following all the proper steps is important.
How to Recover VAT Credits and Refunds in South Africa
Refunds are possible if your business’s input tax is greater than its output tax. Other buyers, including nonresidents and foreign companies, are also able to take advantage of this system where they are allowed to use the South African VAT refund mechanism and get paid back for VAT they have already paid.
Steps to Claim a VAT Refund:
Corporate documentation: Proofs and receipts filed under respective invoices should be produced so that a claim form can be completed.
Submit a Claim: You can file a VAT refund claim at SARS either through the eFiling portal or via a professional service provider.
Review: SARS has to verify your refund claim, and if it’s accepted, then the VAT will be refunded at the standard rate, which is currently 15%.
Timeliness: Refund processing is different for individuals and businesses, and having an expert on your side is likely to get you results faster.
Understand that knowing how to reclaim any excess VAT paid by your business, along with proper documentation, is extremely important.
VAT On Imports and Exports of South Africa
South Africa applies VAT differently to local and international transactions. The following are the key aspects that South Africans should be aware of for compliance:
VAT on Imports:
Import VAT: This is VAT charged on goods imported into the country, which is set at a standard rate of 15 percent.
Payment Upon Entry: The importer is required to pay this VAT upon entry and reclaim as input tax from the VAT return provided the goods purchased are for taxable supplies.
VAT on Exports:
Zero-Rated Exports: Exports are usually zero-rated, meaning there is no VAT charged on goods that are exported outside the South African border.
Documentation: It’s essential to maintain documentation, such as shipping documents and export declarations, to claim zero-rating for VAT purposes.
Comprehending these rules enables businesses to effectively manage their cash flow while mitigating the risk of over or underclaiming VAT on international transactions.
Reverse Charge Mechanism for VAT in South Africa
The reverse charge mechanism transfers the liability to pay VAT from the supplier to the buyer of services in some cases. This mechanism is often used in international transactions and some internal dealings.
Key Points Of The Reverse Charge:
Scope of Applicability:
A reverse charge is applicable where a South African business receives foreign services or the other way around, where the supplier is not a VAT-registered taxpayer in South Africa.
Compliance:
The recipient of the service will need to assume the liability of reporting and paying the output VAT as if it were provided by the service supplier.
Determining when and how to apply the reverse mechanism requires a good understanding to ensure that there is no double taxation or breach of compliance with VAT.
VAT Obligations for Digital Services
Some digital services like software subscription, advertising, or selling specific content have a unique treatment of VAT in South Africa. A foreign supplier of digital services not located within South Africa must register for VAT after the taxable supplies within South Africa for that particular service exceed a certain figure over a year.
Important Things To Note For Digital Service Providers:
Provisions For Registration For VAT
Non-resident suppliers will be charged VAT if their sales cross a defined amount, and must charge VAT at the standard rate.
Specific Conditions For Receiving Payment
Verification for digital services must have a description of the service provided, and VAT amount, and the total VAT included in the payment.
Compliance:
Digital service providers have to comply with VAT rules that they must comply with, for example, filing returns or payments, making sure that the necessary documents are available, or properly recording information.
VAT Penalties and Compliance Risks in South Africa
Not adhering to the VAT rules in South Africa has indirect and direct consequences, some of which include:
Penalties And Fines:
Not paying or paying late brings a lot of issues, including being fined, having to pay interest, and even being brought to court, depending on how late the payment is.
Extra Monitoring:
Non-compliance brings the possibility of being audited by the SARS, which means longer waiting times as services move slower meaning they are under more pressure and expected to deliver more.
Operational Restrictions:
Completely avoiding compliance will stop you from gaining VAT returns and stop deducting input taxes, which will badly impact many aspects of your business.
Consequences on Reputation:
The company’s loss of credibility would impact investors’ and partners’ trust due to non-compliance.
A company would need to ensure that there is an effective system in place for compliance with an audit, automated reminders, and a designated person to manage supervision to avoid falling into these risks.
Simplify Your VAT Registration and Filing with Commenda
In South Africa, VAT returns are complicated and lengthy processes. Well, that’s where Commenda comes into play, to help relieve the workload with their expertly tailored services.
Commenda’s Services:
Professional Help:
Our dedicated experts make sure South Africa VAT regulations are followed and guide you through registration, filing, and even audits.
Easier Filing:
Commenda automates the preparation and submission of your VAT returns so you don’t have to worry about compliance and deadlines ever again!
Regular Compliance Checks:
Our compliance tools remind you of filing deadlines so your records are always up to date, so you never miss an important date again.
Personal Assistance:
We ensure every single query sent gets answered by our trained customer support team along with proper guidance throughout the whole process.
When you opt for Commenda, your VAT registration and filing will be more straightforward while ensuring you remain compliant with South African VAT policies, relieving time that could be spent on your actual business activities.
Book a demo with Commenda today to get started with hassle-free VAT compliance and filing support in South Africa!
Conclusion
For a business in South Africa, staying VAT compliant is necessary for keeping the business functioning smoothly. Filing your VAT returns accurately on time guarantees the business complies with regulations while also ensuring that the company avoids harsh penalties and disruptions.
Commenda knows how to meet your South Africa VAT registration and filing effortlessly. Contact us today to assist you in securing your business’s compliance and enabling smooth financial operations.
FAQS
Q1: What is VAT Return in South Africa?
A: VAT Return means a periodic submission of the amounts collected on sales for output tax and the amount paid on purchases as input tax, determining the net VAT amount payable or refundable to SARS.
Q2: Who Needs Registration for VAT in South Africa?
A: Businesses with annual turnover exceeding ZAR 1 million must register; however, companies with turnovers above ZAR 50,000 but below ZAR 1 million can register voluntarily.
Q3: When must VAT returns be made?
A: Here is the turnover-dependent applicable return filing frequency: monthly for businesses exceeding ZAR 30 million, every two months for those ZAR 1.5 million to ZAR 30 million, every four months for those under ZAR 1.5 million, and every six months, especially for some agricultural businesses.
Q4: What is the VAT percentage that is standard in south Africa?
A: The standard VAT rate is 15%, while zero rating or exemption from some goods and services might be applicable.
Q5: How do I file VAT returns in South Africa?
A: The returns are filed online at the SARS eFiling portal, and accurate schedules or aggregates of sales and purchases must be submitted, along with supporting documents, by the entity.
Q6: What happens to me if I miss my VAT return date?
A: The outcome of such a missed deadline may include a penalty, fine, and an audit from SARS. Hence, be time-conscious to avoid getting into such issues.
Q7: How does the reverse charge mechanism work in South Africa?
A: Under the reverse charge mechanism, it shifts the liability for VAT accounting from the supplier to the recipient of goods or services for particular cross-border transactions.
Q8: Can I claim VAT refunds?
A: Yes, where input tax exceeds output tax, one is entitled to a VAT refund, subject to meeting SARS standards and submitting all relevant documentation.
Q9: How can Commenda help with VAT compliance?
A: Commenda provides end-to-end VAT registration and filing services, from document prep, automated compliance monitoring, and expedited processing, all ensuring your VAT returns are filed accurately and on time.
Q10: Which records must be maintained for VAT compliance?
A: For example, maintain detailed records, invoices, credit/debit notes, and the rest of the relevant documents as source documents for VAT returns for at least five years in case audits are required.
