Requirements for VAT registration of small businesses in South Africa: Complete Guide

Value Added Tax (VAT) is an indirect tax added to the price of goods and services at each stage of the supply chain. It is collected by businesses and paid by the final consumer.

In South Africa, businesses with an annual turnover of more than R1 million are required to register for VAT.

This process can be complex, but it is important for small businesses to understand the requirements and benefits.

By registering for VAT, small businesses can save money and improve their cash flow.

In this blog post, we’ll discuss the various VAT registration requirements for small businesses in South Africa.

We’ll cover the documents required for registration, how to register, and the benefits of VAT registration.

So, whether you’re a small business owner or an entrepreneur looking to start a business, this article will provide valuable information to help you understand the VAT registration process in South Africa.

What’s in store:

Benefits of VAT registration for small business 

As a small business owner, it’s natural to focus on finding ways to save money and improve your cash flow. One effective way to achieve this is by registering for VAT.

Yes, it might involve more administrative work and compliance, but the benefits are well worth it.

Let’s explore these benefits below!

Claim back input tax

Once registered as a VAT vendor, your business becomes obligated to charge VAT (output tax) at a rate of 15% on all goods and services sold to customers or clients. This does not apply if those goods and services are zero-rated or exempt.

This VAT is paid to SARS (the South African Revenue Service) when your VAT return is filed. VAT makes your products more expensive for your non-VAT registered customers.

But your business, as a registered VAT vendor, may claim input tax (the 15% VAT that you pay when purchasing goods or services) on all purchases made by or rendered to the business. As long as these purchases are used to make taxable supplies.

This means that your business can reduce the cost of goods or services purchased by claiming the input tax back from SARS.

This is a significant advantage of being a VAT vendor, as businesses that are not registered for VAT cannot claim input tax, and the VAT paid becomes an expense that the business must carry. 

Compliance

If your business has not registered as a VAT vendor, it cannot charge VAT on the sale of goods or services to customers or clients.

It’s important to note that taxable supplies are goods or services that are subject to VAT at either the standard rate of 15% or the zero-rated rate of 0%.

If your business primarily makes exempt supplies, such as residential rental accommodation, it cannot register as a VAT vendor.

Credibility

As a registered VAT vendor, your business gains credibility in the eyes of other businesses and customers.

It demonstrates that your business is established and reliable, and has complied with the legal requirements for registration.

This can be particularly important when dealing with larger or more established businesses that require vendors to be VAT registered.

Additionally, being a VAT vendor can help your business to access financing or secure contracts.

It shows that your business is financially stable and has the necessary systems and processes in place to handle financial transactions.

Disadvantages of VAT registration

VAT registration can also have a number of disadvantages for businesses, including:

• • Increased costs. 

VAT registration can increase the costs of doing business for a number of reasons.

First, businesses must charge VAT on all of their sales, which can make their products and services more expensive for their non-VAT registered customers.

Second, most businesses must file VAT returns every two months or on a more frequent basis, which can be time-consuming and expensive. Your tax category will determine how frequently you will submit returns.  

Third, businesses may need to hire additional staff to handle VAT compliance, which can further increase costs.

• • Reduced competitiveness. 

VAT registration can make businesses less competitive, particularly if their competitors are not registered for VAT.

This is because businesses that are registered for VAT must charge VAT on their sales, while businesses that are not registered for VAT can avoid charging VAT.

This can make businesses that are registered for VAT less attractive to non-VAT registered customers.

• • Increased compliance burden. 

VAT registration can increase the compliance burden for businesses.

This is because businesses must comply with a number of VAT regulations, including rules on how to charge VAT, how to file VAT returns, and how to claim input tax.

These regulations can be complex and time-consuming to comply with, which can add to the costs of doing business.

Requirements for VAT registration

Small businesses with an annual turnover of more than R1 million in South Africa are required to register for Value Added Tax (VAT) to avoid severe legal and financial consequences. 

To register for VAT, businesses must have a physical presence in South Africa and be registered with the South African Revenue Service (SARS). 

While there are some exceptions for businesses that only sell exempt goods or services, it is important to check that you meet all the requirements to avoid penalties and interest charges.

Once your business is registered for VAT, you will be issued a unique 10 digit VAT registration number, which you must use on all invoices and other relevant documentation.

It’s essential to keep accurate records of all your VAT transactions to ensure that you comply with all regulations and requirements.

Voluntary VAT registration

When it comes to VAT registration, businesses may choose to voluntarily register for VAT even if they are not required to do so by law.

This is typically done when a business has already made taxable supplies exceeding R50 000 in a 12-month period, or when the business expects to exceed the R50 000 threshold within 12 months from the date of registration. 

Although start-ups and small businesses are not obligated to register as vendors until their taxable income exceeds the R1 million threshold, voluntary registration can have its advantages.

One key benefit is improving the credibility of the business and enabling it to claim input tax credits.

In the following sections, we discuss the costs and documents required for VAT registration in South Africa as well as the process.

Cost of VAT registration

The cost of the VAT registration application in South Africa is generally free. This does not include possible associated costs for things like business registrations.

Some businesses may also choose to use the services of a tax consultant or accountant to assist with the VAT registration process, which will come at a cost. 

Once registered, there will be ongoing costs associated with VAT compliance, such as accounting and bookkeeping services, filing VAT returns, and maintaining records.

It’s important for businesses to consider these costs before deciding to register for VAT, as they can add up over time.

Documents required for VAT registration

Each of the documents we’ll look at are essential for the VAT registration process.

Providing accurate and complete information can help to ensure that your application is processed quickly and efficiently.

By registering for VAT, your business can enjoy the benefits of recovering VAT on business expenses, claiming input tax credits, reducing your tax liability, and improving your cash flow.

The specific documents that you need to provide may vary depending on the type of business you operate and the size of your business.

It’s always best to check with SARS to confirm the specific documents that are required for your business.

The following documents are required for VAT registration in South Africa:

• • Business registration certificate: This document proves that your business is legally registered and authorised to operate in South Africa. You can obtain this from the Companies and Intellectual Property Commission (CIPC).

• • Tax clearance certificate: This document confirms that your business has no outstanding tax liabilities and is up to date with its tax payments. To obtain a tax clearance certificate in South Africa, you can apply online through the SARS eFiling system or visit your nearest SARS branch.

• • Proof of address: This document confirms the physical location of your business and helps to verify its legitimacy. This could be a utility bill, a lease agreement, or a bank statement.

• • Proof of identity: This document proves the identity of the business owner or director, and is necessary for security and verification purposes. This could be a valid passport, driver’s licence, green ID book or a smart identity card.

How to register for VAT

There are two ways businesses can register for VAT in South Africa: online or at a SARS branch.

How to register for VAT online

To register for VAT online, you will need to have an eFiling account. If you do not have an eFiling account, you can create one on the SARS website.

Once you have an eFiling account, you can follow these steps to register for VAT:

1. 1. Go to the SARS eFiling website and log in to your account.

2. 2. Click on the “SARS Registered Details” tab.

3. 3. Click on the “Maintain SARS Registered Details” button.

4. 4. Select “I Agree” to confirm that you are authorised to perform maintenance functions of the registered details of the vendor.

5. 5. Select “VAT” under “My tax products” > “Revenue” on the left menu.

6. 6. Click on “Add new product registration” to register new or additional VAT branch registration.

7. 7. Complete the following in the VAT container:

• • Registered particulars, if not pre-populated

• • Trading As name, where applicable

• • Liability Date

• • Select Business Activity Code

• • Select Farming Activity Code, if applicable

• • Select relevant registration option

• • Value of taxable supplies

• • Accounting basis

• • Tax period

• • The following fields if not pre-populated:

• • Contact details

• • Physical Address

• • Postal Address

• • Banking details

8. 8. Click on “Submit” to submit your registration.

Once you have submitted your registration, SARS will review your application and will notify you of their decision within 21 days.

If your application is approved, you will be issued a VAT registration certificate.

Here are some additional tips for registering for VAT online:

• • Make sure that you have all of the required information and documents before you start the registration process.
  • Double-check your information before you submit the registration form.

• • Be patient. It may take up to 21 days for SARS to process your application.

If you have any questions about registering for VAT online, you can contact SARS for assistance.

How to register for VAT at a SARS branch

If you prefer to register for VAT in person, you can visit a SARS branch to complete the process.

This option is especially useful if you need assistance with the registration process or have questions that you want to ask in person. 

In this section, we will provide step-by-step instructions on how to register for VAT at a SARS branch.

1. 1. You can book an appointment at your preferred SARS branch by:

• • Sending an SMS to SARS on 47277 to request an eBooking appointment at a branch, your SMS will read as follows: Booking (Space) ID number/Passport number/ Asylum Seeker number.

• • Using the SARS USSD Channel as follows,

• • Dial 1347277# on your mobile phone.

• • Select the tax service you require from the menu.

• • Enter your ID number, passport number, or asylum seeker number.

• • SARS will verify your identity and provide you with the requested information.

• • Calling the Contact Centre on 0800 00 7277 to make an appointment on your behalf.

2. 2. Bring the following documents to your appointment:

• • Your ID or passport

• • Proof of your business address

• • Proof of your business registration
  • A completed VAT registration form
  • Proof of income (e.g. Bank statements or invoices exceeding R50 000 for the past 12 months). 

3. 3. At your appointment, the SARS official will help you complete the VAT registration process. This will involve providing them with the information on your business, including your turnover, the goods and services you supply, and your employees.

4. 4. Once your application is fully processed, you will receive a Notice of Registration from SARS. This will confirm that you are registered for VAT.

Final thoughts on VAT registration for small business

In conclusion, VAT registration can be a complex and daunting process for small businesses, but it is an essential step to take if you meet the requirements and want to save money or improve your cash flow.

Understanding the registration process and the benefits of registering can help small businesses make informed decisions about whether or not to register.

Fortunately, there are resources and support available to help small businesses through the VAT registration process. Companies like Company Partners offers guidance and support for businesses seeking to register.

And there are also professional advisors and accountants like Lorde Business Solutions who can provide expert advice and assistance.

With your VAT registration sorted you can now focus on growing your small business. Read our article on how to market my small business to learn more!