Value-added tax trips up more South African business owners than almost any other compliance obligation. The threshold questions come up constantly: “Do I have to register yet?” and “Should I register even though I don’t have to?” The answers are more nuanced than most people expect.
You must register for VAT once your taxable supplies in any 12-month period — either the preceding 12 months or the next 12 months — exceed R2.3 million. This applies to sole proprietorships, close corporations, companies, and trusts.
SARS measures the 12-month window on a rolling basis. If you hit R2.3 million in taxable supplies between July last year and June this year, you were required to register from the first day of the month following the month in which the threshold was exceeded. The obligation arises whether or not you realised it.
You also have a prospective obligation: if you have reasonable grounds to believe your taxable supplies will exceed R2.3 million in the next 12 months — a signed large contract, for example — you must apply for registration before that threshold is crossed.
Taxable supplies include all supplies made at the standard rate (currently 15%) and the zero rate (0%). They do not include exempt supplies, which have a specific legal definition under the VAT Act. Common exempt supplies include:
If your business provides some exempt services alongside taxable ones, only the taxable portion counts toward the R2.3 million threshold. Zero-rated supplies — such as selling basic foodstuffs or exporting goods — do count toward the threshold, which surprises some business owners in the import/export space.
Missing the registration date has two painful consequences.
First, SARS can backdate your registration to the date you should have registered. From that date, you are treated as if you had been a VAT vendor the whole time — which means SARS can assess you for 15% VAT on all the supplies you made from that date, even though you never added VAT to your invoices and never collected it from your customers. That liability comes out of your pocket.
Second, penalties and interest run from the backdated registration date. We have seen businesses receive backdated VAT assessments that effectively wipe out a year or more of profit. If you are approaching R2.3 million in taxable supplies, track that number monthly and register before you cross the line.
Businesses with taxable supplies of at least R120 000 in the past 12 months (or contracts to make supplies of at least R120 000 in the next 12 months) can register voluntarily.
Voluntary registration makes strong financial sense in specific situations:
If your customers are mainly individuals (consumers), adding 15% VAT to your prices puts you at a direct price disadvantage against competitors who aren’t VAT-registered. A freelancer charging R10,000 for a project who registers for VAT now has to charge R11,500 — and the client can’t reclaim that R1,500. For B2C businesses at the lower end of the market, the input tax saving rarely compensates.
To register for VAT you’ll need an active eFiling profile, a South African bank account in the business’s name, proof of business activity (contracts, invoices, or financial statements), and your business registration documents if you’re a company. SARS processes most VAT registrations within 5 to 21 business days, though this can take longer during peak periods.
Once registered, you’ll be assigned a VAT registration number and a filing period — typically bi-monthly for smaller vendors. VAT201 returns must be submitted by the 25th of the month following the end of each VAT period.
We handle VAT registration, VAT201 submissions, and SARS correspondence for our clients. See our tax compliance services here.