It's important that you don't confuse exempt supplies and zero-rated supplies. There's a difference between the two and getting it wrong means setting your business up for a SARS audit.
So what's the difference between exempt supplies and zero-rated supplies?
According to the Practical Vat Loose Leaf Service, exempt supplies are supplies that are exempt of tax. There's no output tax, no input tax and no tax invoices. Tax doesn't apply at all in this case.
On the other, hand zero-rated supplies are supplies that output tax is charged on at 0%. This means you can claim input tax for your business and tax invoices issued must show Vat at the zero rate.
Exempt supplies vs. zero-rated supplies – the breakdown
Similar to supplies made by non -Vat vendors, which aren't taxable.
If you make an exempt supply, you can't claim an input tax deduction on related expenses of goods or services.
Don't form part of your taxable turnover.
If you only make exempt supplies, you can't even apply for registration as a vendor as you don't qualify as one.
An exempt supply doesn't need special documentary proof as you won't make any tax claims.
The Complete Guide to Zero-Rated VAT:
46 supplies you can zero rate and the documents you must keep to validate them
Find out more
Taxable supplies that are subject to Vat at a zero rate of 0% instead of the standard rate of 14%.
A non -Vat vendor can't make a zero-rated supply.
You CAN claim input tax deductions on related expenses of goods or services.
Form part of your taxable turnover.
Where you only make zero-rated supplies, you must still register for Vat if the value of your taxable supplies pushes you over the threshold.
For legitimate zero-rating, you must keep detailed documentary proof.
Overall, the important points to remember are zero-rated supplies are more beneficial to your business. This is because you don't charge Vat on the supply, but you can still claim your input tax back. With exempt supplies, input tax is part of your cost and you'll have to pay penalties if you try to make an invalid claim for a refund.
Another important point to remember is that even though you don't declare output tax on zero-rated or exempt supplies, you must show them on your zero-rated and exempt sales on your Vat return. Otherwise you'll get flagged for a SARS' audit.
Let's face it. Zero-rated VAT is complicated!
Take Master Currency for example. They charged VAT at the zero rate because they operated out of the duty free zone in the airport. Sounds correct, right?
And what about De Beers Consolidated Mines? They imported services from London and expected it to be zero-rated, right?
In both cases, SARS demanded their output tax
. This came in excess of R7 million for De Beers alone!
You see, when you charge VAT at the zero rate, you must prove to SARS you're entitled to do so! Because when SARS audits you (not 'if', 'when'), and you don't have proof, it will charge you penalties and interest. And it will deem the amount to include VAT and expect the 14% from you!
But don't be caught unawares.
Find out which items can be zero-rated and how to do it correctly. And what documents you need to keep on hand so SARS doesn't raise an assessment against you. Find out here