What Is The Difference Between Exempt And Zero-Rated for VAT?

By Tevait Feanle •  Updated: 01/23/24 •  5 min read

While the basics of VAT in South Africa are reasonably simple, a lot of confusion arises around the idea of VAT-exempt and zero-rated goods. However, it is critically important to understand what each of these two distinctly separate categories means, and how it will impact your business if you operate with either. 

- ADVERTISEMENT -

Exempt Vs Zero Rated: Some Basics

While these two classes of goods and services seem very similar at first glance, they are handled very differently under VAT legislation, and knowing which category you fall into will impact whether or not you can even register as a VAT vendor, what you can charge the end consumer, and whether or not you can claim any portion of your VAT expenditure back from SARS.

Of course, some businesses offer VAT-exempt or zero-rated goods and services alongside those that attract standard VAT. In these cases, you will be required to handle these items differently from the VAT-taxable items you produce when you file your VAT returns.

Which Items Are Exempt From VAT?

Always remember that zero-rated and exempt from VAT do not mean the same thing. Goods and services that fall under the VAT-exempt category in South Africa are those on which VAT is not charged at all. This means that the selling price of these items does not include any VAT, and businesses engaged in the sale of exempt items are not allowed to claim input VAT credits on their purchases. Common examples of items that are exempt from VAT are:

The critical thing to understand about businesses that deal in goods or services that are fully exempt from VAT is that they cannot register as VAT vendors at all, and can claim no input VAT from their supply chain.

What Are Zero-Rated Items?

In contrast, zero-rated items have VAT applied, but at the rate of 0%. Zero-rated items in South Africa include nineteen basic food items most used by the poor. They also include illuminating paraffin and fuels which are already subject to the fuel levy, international transport services, and some basic types of medication. Additionally, government grants, the sale of going concerns, and some farming inputs are zero-rated.

Unlike VAT-exempt businesses, services, and goods, those making zero-rated goods can still claim their input VAT and are required to be VAT-registered if they have met the taxable turnover threshold.

- ADVERTISEMENT -

How Are Zero-Rated And Exempt From VAT Similar?

While exempt and zero-rated items differ greatly in the wider VAT ecosystem, they do share certain similarities:

However, while the two types of goods and services do have some similarities, it is smart not to conflate them too much. They are handled differently under tax regulation, and it is important to understand those differences- far more so than their similarities!

What Is Taxable, Exempt, And Zero Rated?

Taxable items are those on which the standard rate of VAT is applied. The current standard rate in South Africa is 15%, and businesses selling taxable items charge this rate on their sales. Businesses with taxable transactions can claim input VAT credits on their purchases, offsetting the VAT they collect on sales.

Exempt items are not subject to VAT at all. While this benefits consumers by reducing the cost of certain goods and services, businesses dealing with exempt items are classed as outside the VAT system and cannot claim input or output VAT.

Zero-rated items are subject to a VAT rate of 0%. While consumers do not pay a separate VAT charge, businesses selling zero-rated items can claim input VAT credits on their purchases.

Can You Claim VAT If You Are VAT-Exempt?

No. If you are classed as a VAT-Exempt business, or solely produce VAT-exempt goods or services, you cannot register as a VAT vendor with SARS. This means you cannot claim input or output VAT expenditure and essentially operate as a non-VAT-qualifying entity, even if you technically meet the taxable turnover for VAT.

Hopefully, you now understand this tricky area of VAT legislation much better and feel confident handling both VAT-exempt and zero-rated goods. 

- ADVERTISEMENT -

Keep Reading

How is VAT Calculated in South Africa?

How is VAT Calculated in South Africa?

In this extensive guide, we'll delve into the workings of VAT calculation in South Africa, providing insights into subtracting VAT from an amount

How to Do A VAT Registration On eFiling

How to Do A VAT Registration On eFiling

There are different methods you can consider to register for VAT. This guide explains how you can do a VAT registration on eFiling. 

What is the Difference Between TAX and VAT?

What is the Difference Between TAX and VAT?

There are two main characters in the tax story that individuals and businesses meet quite often - income tax and VAT.

How to Claim Back VAT in South Africa

How to Claim Back VAT in South Africa

How to Claim Back VAT in South Africa. Read on to learn how to claim back value-added tax in South Africa.   

Does Gross Invoice Amount Include VAT?

Does Gross Invoice Amount Include VAT?

This article aims to clarify whether the gross invoice amount includes VAT in South Africa, explain the concept of the gross value of an invoice

Can You Claim VAT On Accommodation In South Africa

Can You Claim VAT On Accommodation In South Africa

This comprehensive guide will delve into the VAT nuances related to accommodations, such as whether VAT applies to stays surpassing 28 days

What Are the Products On Which No VAT Is Charged?

What Are the Products On Which No VAT Is Charged?

Let's delve into the products exempt from VAT in South Africa and compare zero-rated and exempt supplies.

How Does VAT Work with Mortgage Bonds?

How Does VAT Work with Mortgage Bonds?

This guide provides insights into how VAT interacts with mortgage bonds in the South African context.

How to Register for VAT Online

How to Register for VAT Online

Today, we look in-depth at the VAT registration process, how to do it online, and everything else you need to know

How To Get A VAT Exemption Certificate

How To Get A VAT Exemption Certificate

Today, we will break down the idea of VAT exemption further and bring some clarity to this often-confusing area of VAT payments in South Africa.

Why Do We Pay VAT?

Why Do We Pay VAT?

Why Do We Pay VAT? Today we dig deeper into why VAT exists, what it does, and who it most affects. 

What Is The Penalty For Late Payment Of VAT In 2025?

What Is The Penalty For Late Payment Of VAT In 2025?

Today we are looking at what to do in the event of penalty for late payment of VAT. 

What Is A VAT Reconciliation In South Africa?

What Is A VAT Reconciliation In South Africa?

What is Deferred VAT?

What is Deferred VAT?

Deferred VAT in South Africa pertains to the provision extended to Customs clients who are duly registered or licensed

Can a South African Sole Proprietor Register for VAT?

Can a South African Sole Proprietor Register for VAT?

This comprehensive guide will address this question and provide insights into VAT registration for sole proprietors