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Must I Register for VAT?

Frequently Asked Questions About VAT

Source:

Many franchise owners are eager to register as a VAT vendor in the hopes that they may be eligible for ‘special deals’ – when buying certain motor vehicles for the company, for example – or that they may get money back from the taxman. If you’re thinking about registering – or have been told you should – read on…

What is VAT?

VAT stands for Value Added Tax. Says the South African Revenue Service (SARS), it’s an indirect tax on the consumption of goods and services in the economy. By requiring certain businesses to register and charge VAT on the so-called taxable supplies of goods and services

  • At each stage of their production and distribution process, as value is added, hence the name
  • The government is able to raise money for the National Treasury.

What are ‘Taxable Supplies’?

There are two types of goods and services – those which are taxable (i.e. those to which taxes are applied) and those which are tax-exempt (i.e. to which taxes may not be applied). Taxable supplies, then, are those goods and services you sell which are taxable. VAT is applied to these goods and services, currently at a rate of 14%. Certain goods and services are zero-rated (i.e. taxed at 0%), including, amongst other things, exports; basic food items; illuminating paraffin and certain government grants. Tax-exempt goods and services include non-fee related financial services; educational services provided by an approved educational institution and public road and rail transport. See the National Treasury for further information.

Must I Register for VAT?

If your franchise makes taxable supplies in excess of R1 million in any twelve month consecutive period, says SARS, it’s mandatory to register for VAT. In addition, you may voluntarily register for VAT if your franchise’s taxable supplies exceed R50 000 in the past twelve month period. In addition to these SARS requirements, your franchisor may stipulate in the franchise agreement that you must register. Above these requirements, there can also be an advantage to being VAT-registered, in that you may be able to ‘claim VAT back’. In other words, if the VAT you have paid out (output tax) is more than the VAT you have charged on your taxable supplies (input tax), SARS will refund you the difference. On the other hand, you may also owe them money when the reverse is true. Then, there is the considerable administrative burden involved in ensuring all your VAT affairs are above board – this is why it often makes more sense for small businesses not to register.


 
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