Every South African entrepreneur needs to understand how their tax works – and VAT is an essential part of that equation.
One of the intricacies of registering a new company in South Africa is whether or not you need to register for VAT (Value Added Tax). Don’t despair! Here are the necessary facts to determine if VAT registration needs to be on your To Do List.
When to register for VAT?
Any business that earns more than R1 million (total value of taxable goods or services) in 12 months has to register for VAT – as does any business that expects to exceed this amount in the coming year.
A business can also voluntarily register for VAT if the income earned over the last 12 months is more than R50,000.
Why register for VAT?
The short answer is so that you can participate in the VAT system. The long answer? By registering as a VAT vendor, you’re essentially collecting VAT on everything you sell, and paying VAT on everything you buy. But it is possible to claim back a certain amount of this VAT on your expenses. The main reason many smaller companies register for VAT is quite simple: a positive image. If you want to be taken seriously by large corporations, you need to be VAT registered. And if you’re doing business with other VAT registered companies, they’re going to expect you to be VAT registered too.
What is VAT?
VAT is a standard rate of 14%, indirectly taxed on the consumption of all goods and services in South Africa (take a look at any recent till slip and you’ll see it there). Unlike in the USA, where each state decides on the amount of tax levied, South Africa has a standard 14% on all goods and services. There are certain (limited) goods and services that are exempt from VAT, like basic food items (brown bread, samp, lentils etc).
What is VAT compliance?
Once you’re VAT registered, you need to make sure you comply with VAT regulations. Essentially, this means that for any sales over R50, you have to create a tax invoice with the words ‘tax invoice’ clearly printed on it, and specific details included (the value of what you are selling, with and without VAT, the full details of the customer, and your full details, including VAT registration number).
While it might seem confusing at first, being VAT registered is just another necessary box to tick for South African entrepreneurs wanting to do big business. Are you going to voluntarily register for VAT?
Company Worx offers a pre-completed Value Added Tax (VAT) Application Form and includes all step-by-step instructions to be completed once R50,000 in sales have been achieved. What are you waiting for? Get your Start-up Package today.