South Africa

Value-added tax (VAT)

VAT is an indirect tax that is largely directed at the domestic consumption of goods and services in South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. It is levied at two rates, namely a standard rate (currently 15%) and a zero rate (0%). 

Under the VAT system, vendors generally levy and account for VAT on taxable supplies made and are entitled to a deduction of the VAT incurred on expenses paid for purposes of making such taxable supplies. Only the ‘added value’ is therefore ultimately taxed.

Practically, VAT is a self-assessment tax, and vendors are required to submit periodic VAT returns. The two main tax periods are either monthly (generally for large vendors) and bi-monthly (which is the standard tax period issued by the SARS).  

The amount of input tax that the vendor is entitled to for the specific tax period is set off against the output tax due to the SARS, and the net amount is either due and payable to or refundable by the SARS.  

Very few business transactions carried out in South Africa are not subject to VAT. The tax is generally collected by businesses that are registered with the SARS as vendors on all taxable supplies throughout the production and distribution chain. Sales or supplies by non-vendors are not subject to VAT.

VAT registration and administration

Compulsory registration 

All suppliers of goods and services having an annual turnover exceeding ZAR 1 million must register as a vendor and charge VAT on taxable supplies made in the course or furtherance of their enterprise. 

In addition, where a person expects that its taxable turnover will exceed ZAR 1 million in the next 12 months in terms of a written contractual agreement, such person is also required to register as a vendor and levy VAT on the taxable supplies made in the course or furtherance of their enterprise.

Non-resident suppliers of electronic services are required to register for VAT once the value of taxable supplies has exceeded ZAR 1 million in any consecutive 12-month period. 

Voluntary registration 

A person may elect to register as a VAT vendor if their annual taxable turnover exceeds ZAR 50,000.

Notwithstanding this, where the turnover does not exceed this amount, there are some specific rules to consider in order to register voluntarily, as follows: 

• Where a person is carrying on an enterprise and the total value of taxable supplies made or to be made by that person has not yet exceeded ZAR 50,000 but can be reasonably expected to exceed this amount within 12 months from the date of registration, the person may register on a voluntary basis under certain circumstances. These circumstances are set out in the applicable regulations and mainly deal with when the SARS will accept that the afore-mentioned threshold will reasonably be expected to be exceeded. 

• If a person is likely to make taxable supplies only after a period of time, the person may register if the activities are of a nature set out in the applicable regulations. These activities are also set out in the applicable regulations and include, for example, construction or mining type activities.

Taxable supplies

Standard-rated and zero-rated supplies are known as taxable supplies. Other supplies are known as either exempt supplies or non-supplies (i.e. supplies that are not subject to VAT).

Goods and services

‘Goods’ are corporeal movable things, fixed property, and real rights in such things and property. ‘Services’ are very broad and encompass not only traditional services like consulting or legal advice but includes the granting, assignment, cession, or surrender of any right or the making available of any facility or advantage.

Electronic services

‘Electronic services’ are defined quite broadly and include any supply of services by means of an electronic agent, electronic communication, or the Internet for a consideration. Further changes to these regulations are expected in the near future.

A non-resident supplier of electronic services will be regarded as conducting an enterprise in South Africa if two of the following criteria are applicable: 

• The recipient has a residential address in South Africa. 

• The recipient has a business address in South Africa.

• Payment is received from a South African bank account.

Imports

Goods are subject to VAT on importation into South Africa. However, the VAT Act has a schedule setting out the specific goods that are exempt from VAT on importation.

Services imported by any person and used or consumed otherwise than for making taxable supplies is subject to VAT in South Africa. However, services imported wholly for taxable purposes is not subject to VAT in South Africa.

Zero-rated supplies

The VAT Act sets out supplies of goods or services that may be taxed at the zero rate. As VAT is a destination-based tax, exported goods and services may be zero-rated.  

Special provision is also made to zero rate the following (amongst others):

• Certain basic foodstuffs. 

• Fuel products subject to the fuel levy.

• Specified goods utilised for farming purposes.

• The sale of an enterprise as a going concern,  

Under a zero-rated supply, a vendor charges VAT at 0% on the value of the supply and obtains a credit for the VAT paid on taxable supplies utilised in the making of the zero-rated supplies.

Exempt supplies

The VAT Act sets out specific supplies of goods or services that are exempt from VAT. Examples of exempt supplies include financial services, residential rentals, non-international passenger transport by road or rail, and educational services. However, all fee-based financial services are subject to VAT at 15%. 

No VAT is deductible on expenses incurred for the purpose of making exempt supplies.

Customs duties

Customs duties are charged on importation of goods into South Africa at rates ranging between 3% and 45%. In addition, import duties may also include anti-dumping and countervailing duties of up to 150%. No customs duties are charged on trade between South Africa and Botswana, Lesotho, Namibia, and Swaziland, as these five countries constitute the Southern African Customs Union.

The Agreement establishing the African Continental Free Trade Area (AfCFTA) came into effect on 1 January 2021 with the aim to boost intra-African trade. On 31 January 2024, South Africa launched the start of preferential trade under the Agreement, and the following countries are now eligible to trade with South Africa under the Agreement: Algeria, Cameroon, Egypt, Ghana, Kenya, Rwanda, and Tunisia. For other African countries (excluding South African Development Community [SADC] countries, which trade under the SADC Trade Protocol), preferential trade under AfCFTA is only possible once the tariff schedules have been negotiated.

Excise duties

Excise duty is levied on certain locally manufactured goods as well as their imported equivalents. A specific duty at a pre-determined amount is levied on tobacco and liquor products, and an ad valorem duty (calculated as a percentage of price) on certain luxury goods and automobiles. Relief from excise duty is available for exported products and for certain products produced in the course of specified farming, forestry, and (limited) manufacturing activities.

Property taxes

Local municipalities levy rates on land. These rates are based on a percentage of the municipal valuation of land and improvements and vary from municipality to municipality. Generally, a higher rate is levied on properties zoned for business use.

Transfer duty

Transfer duty levied on the sale of immovable property is payable by the person acquiring the property within six months from the date of acquisition at the following rates:

Transfers of immovable property subject to VAT are exempt from transfer duty.

Securities transfer tax (STT)

STT is levied at a rate of 0.25% of the taxable amount in respect of the transfer of a security. The taxable amount is usually the consideration for which the security is purchased or the market value of the security if the consideration declared is less than the market value or if no consideration was paid. STT is payable by the company that issued the securities in question. However, the company can recover the tax from the person acquiring the shares. Slightly different rules apply in the case of listed securities.

Payroll taxes

Employers are liable to withhold pay-as-you-earn (PAYE) on behalf of their employees. PAYE is payable to SARS on a monthly basis, calculated on the remuneration paid to an employee. The rates vary depending on the employee’s remuneration.

Skills Development Levy (SDL)

SDL is a compulsory levy to fund education and training. It is payable by an employer and cannot be deducted from the remuneration payable to an employee. Small employers with an annual payroll of less than ZAR 500,000 are exempt from the levy. SDL is levied at the rate of 1% of payroll. It is payable monthly, together with income tax that the employer has withheld on its employees’ salaries.

Unemployment Insurance Fund (UIF) contributions

Employers are required to contribute on behalf of their employees on a personalised basis to the UIF. The rate of contributions is 1% of gross remuneration payable to an employee, with a monthly cap of ZAR 177.12 per employee. Another 1%, subject to the same cap, is payable by the employee and withheld by the employer.

Compensation for Occupational Injuries and Diseases Act (COIDA) fund

Employers are liable for making annual contributions to the COIDA fund. COIDA contributions are a payroll cost that cannot be deducted from the employee’s salary, with a maximum salary cap per employee of ZAR 506,473 per annum. The rates vary depending on the employer’s industry.

Donations tax

Disposals of assets below an adequate consideration are a deemed donations and subject to donations tax. Donations tax is payable by resident companies at a rate of 20% of the value of property donated to the extent that this value does not exceed ZAR 30 million, and at a rate of 25% of the value of property disposed of that exceeds ZAR 30 million. An annual exemption of ZAR 10,000 is available for companies.

Public companies, comprised of mostly listed companies, are exempt from donations tax. An exemption is also available for donations made to certain charities and other non-profit organisations.

Vehicle emissions tax

An environmental levy is levied on passenger motor vehicles at a rate of ZAR 146 per gram of CO2 produced per kilometre over the first 120g of CO2 per kilometre, and at a rate of ZAR 195 per gram of CO2 produced per kilometre over the first 175g of CO2 per kilometre (in the case of double cab passenger vehicles). These rates are applicable from 1 April 2024.

Fuel levy

A fuel levy is included in the price of petroleum fuel sold. The general fuel levy for 2024/25 is 394 cents per litre of petrol and 380 cents per litre of diesel. From 3 April 2024, a carbon tax levy of 11 cents per litre (petrol) and 14 cents per litre (diesel) apply. A full or partial refund of the diesel general fuel levy may be claimed in certain industries, such as agriculture, fishing, mining and, temporarily, for manufacturers of foodstuffs.

Electricity levy

To support energy efficiency, the government has implemented a levy on electricity generated from non-renewable sources at 3.5 cents per kWh. The levy is paid at source by the electricity producer and recovered in the price charged to the consumer.

Tyre levy

A tyre levy is applicable at a rate of ZAR 2.30/kg.

Sugar tax

A tax on sugar-sweetened beverages, in the form of the Health Promotion Levy on Sugary Beverages, was introduced on 1 April 2018. The base on which the levy is applied is the sugar content of the beverage. The current levy is 2.1 cents per gram for sugar content in excess of 4g/100ml.

Air passenger tax

Passengers departing on international flights must pay air passenger tax at the rate of ZAR 100 on flights to Botswana, Lesotho, Namibia, and Swaziland, and ZAR 190 on other flights. The tax is added to the price of the ticket.

Carbon tax

With effect from 1 June 2019, carbon tax is levied on entities that conduct activities in South Africa and that have 'scope 1' greenhouse gas (GHG) emissions exceeding a certain threshold. Generally, the threshold is thermal capacity of 10MW, but the exact threshold is determined with reference to the activity conducted by the entity.

The tax is levied in respect of the sum of the GHG emissions of a taxpayer in respect of a tax period (i.e. every calendar year, with the exception of the first tax period, which commenced on 1 June 2019 and ended on 31 December 2019).

Generally, scope 1 GHG emissions comprise direct emissions, being emissions from owned or controlled sources (as opposed to scope 2 or 3 GHG emissions, which are indirect emissions).

Carbon tax returns are required to be submitted (and any carbon tax due must be paid) in July of the year following the relevant tax period.

The first phase of carbon tax has been extended by three years for the period 1 January 2023 to 31 December 2025. The transitional support measures afforded to companies in the first phase (e.g. tax-free allowances and revenue-recycling measures) will continue over this period. 

The tax rate for carbon tax for 2024 is ZAR 190 per ton of CO2-equivalent emissions. The rate trajectory increases steeply from 1 January 2025 onwards (i.e. 2025 - ZAR 236, 2026 - ZAR 308, 2027 - ZAR 347, 2028 - ZAR 385, 2029 - ZAR 424, and 2030 - ZAR 462).

Tax-free allowances are currently available to reduce the carbon tax liability to a maximum of 95% of taxable emissions. Taking into account the allowances, the effective tax rate is currently much lower and ranges between 5% and 40% of the statutory rate. Allowances will likely decrease over time.