As a small-business owner or entrepreneur, you’ll know that South African businesses have certain tax obligations to the South African Revenue Service (SARS), including value-added tax (VAT). You are required to add VAT correctly on your goods and services and pay the accumulated VAT to SARS every month.
Here’s a useful explainer
Value-added tax
You must register your business for VAT if the total value of your goods and services in any consecutive 12-month period exceeds or is likely to exceed R1 million.
- You can choose to register your business voluntarily for VAT if your income earned in the past 12 months exceeded R50,000.
- If your business is registered as a micro business, with annual income of less than R1 million, you may also register for VAT and choose to submit returns and payments every 4 months, on the last day of June, October and February.
- A person can only register for VAT if they are carrying on an enterprise. A ‘person’ in this sense is legally defined in the VAT Act and can mean you as an individual, or a company, partnership, trust fund or municipality. An ‘enterprise’ is also defined in the Act – it refers to any activity carried on continuously or regularly by any person in or partly in South Africa who supplies goods or services to another person for a consideration, whether or not this is for profit. Anything done to start or terminate an enterprise is also included as conducting an enterprise for VAT purposes.
- Exemptions from VAT for activities that SARS does not consider ‘carrying on an enterprise’ include providing financial services, residential accommodation or public transport, as well as the following categories
- An employee earning a salary or wage from an employer (excluding an independent contractor). If you are a non-executive director of a company, SARS classifies you as an independent contractor and not an employee.
- Hobbies and private recreational pursuits not conducted in the form of a business.
- Private occasional transactions – for example, the sale of household goods, personal effects or a private motor vehicle.
- If your business includes non-resident suppliers of certain electronic services, these are liable for compulsory VAT registration at the end of the month in which the total value of taxable goods supplied exceeds R1 million. If you’re an intermediary on behalf of such a supplier, you’re allowed to register and account for VAT on those supplies, on behalf of your non-resident supplier.