In short
- Zero-rated supplies are taxable, at a rate of 0%.
- Exempt supplies are outside the VAT system altogether.
- You can generally claim input tax on costs incurred to make zero-rated supplies. You generally cannot for exempt supplies.
- Zero-rated supplies count toward the registration threshold. Exempt supplies do not.
- SARS, Value-Added Tax
Zero-rated and exempt supplies both mean no VAT is added to the price, which is why they get confused. The difference is what happens to the VAT you paid on your own costs.
Zero-rated and exempt supplies: the distinction
| Standard-rated | Zero-rated | Exempt | |
|---|---|---|---|
| VAT charged | 15% | 0% | None |
| Is it a taxable supply? | Yes | Yes | No |
| Counts toward the R2.3m threshold | Yes | Yes | No |
| Input tax on related costs | Claimable | Generally claimable | Generally not claimable |
A business making only zero-rated supplies can still register, still charges nothing, and can still claim back the VAT on its inputs. A business making only exempt supplies is outside the system and carries the VAT on its costs as an expense.
Common categories
Zero-rating in South Africa covers certain basic foodstuffs, exports, and some specified supplies. Exemption covers categories such as certain financial services, residential accommodation and some educational and public transport services.
The lists are set out in the VAT Act and there are conditions attached to most items. Do not assume a category applies to your particular supply because it sounds similar. This is one of the areas where SARS applies the wording precisely, and where getting it wrong is expensive in both directions.
Why it matters to your invoicing
- A zero-rated supply still appears on a tax invoice with the VAT shown as R0,00.
- Mixing standard-rated and zero-rated lines on one invoice is normal, and each must be identifiable.
- If you make both taxable and exempt supplies, your input tax has to be apportioned, which is a calculation worth getting advice on.
- Charging 15% on something that should be zero-rated overcharges your client. Charging nothing on something standard-rated leaves you owing SARS the VAT.
Common questions
Is zero-rated the same as VAT-free?
In effect for the customer, but not for you. Zero-rated is a taxable supply and keeps your input tax claim alive.
Do zero-rated supplies count toward the R2.3 million threshold?
Yes. They are taxable supplies at 0%. Exempt supplies do not count.
Can I claim input tax on exempt supplies?
Generally not. Where a business makes both, apportionment applies.
Quote to Invoice shows VAT on each line so standard-rated and zero-rated items stay identifiable.
Create a VAT-ready invoice- Value-Added Tax Act 89 of 1991
Disclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
