VAT
EXEMPT & ZERO-
RATED SUPPLIES
EXEMPT SUPPLIES
OVERVIEW
A supply of goods or services on which VAT (either at the standard
rate or zero rate) may not be charged.
The making of exempt supplies is specifically excluded from the
definition of an ‘enterprise’ as outlined in section 1 of the VAT Act.
Therefore, if a business provides any of these exempt supplies, they
are involved in the making of non-taxable supplies (💣
Apportionment)
An Exempt supply is thus a non-taxable supply on which no output
tax is levied. Furthermore, an input tax deduction cannot be
claimed in respect of any VAT paid on any expenditure incurred to
produce exempt supplies (i.e. Non-taxable supplies) as the
definition and requirements of input tax are not met.
It follows then that there is no supply, time of supply or value of
supply rules that are applicable to exempt supplies as there are no
VAT consequences attached to these supplies.
The different exempt supplies are broadly outlined in section 12 of
the VAT Act.
, FINANCIAL SERVICES
S12(a) & S2(1) of VAT Act
The supply of financial services constitutes an exempt supply.
❓ often difficult to determine the value of this type of supply for
VAT purposes.
Section 2(1)
The exchange of currency (i.e. rand amount that is exchanged for a foreign
currency is exempt)
The issue or transfer of a cheque or letter of credit
The issue or transfer of a tradable liability
The issue or transfer of an equity share
The provision of any credit and payment of the associated interest
The buying or selling of cryptocurrency
The provision of long term insurance policies
(i.e. The provision of a Life insurance policy is an exempt supply)
The provision of superannuation benefits
(defined in s2(2)(vii) of the VAT Act and includes retirement funds and medical aid schemes.
*The italicised activities will NOT = financial service if the consideration
charged in respect of that supply attracts a fee, commission or similar
charge.
EG: A bank that provides an
overdraft facility to an
individual is providing a
credit facility to that MOCK ANSWERS
individual in exchange for
1. By allowing the customers
bank charges (fee based) asto pay overtime in instalments, the aggregate of which exceeds the
usual purchase price,
well as interest on thethe firm has provided a Financial Service under s2(f). This is an exempt
supply and thus no VAT will be levied on the interest income earned.
RESIDENTIAL ACCOMMODATION
S12(c)
The purpose for which the fixed
property is acquired determines
whether input tax or notional input tax
The supply of residential accommodation
can be claimed on the acquisition of
the property. If the property is acquired
constitutes an exempt supply.
for the supply of residential
à No Output Tax can be claimed on
accommodation under an agreement
for the letting and hiring thereof
the supply of residential
(including residential accommodation
for the employees, directors or
accommodation
shareholders of the company free of
à No Input Tax can be claimed on
charge or at a rent charged to other
tenants), no input tax can be claimed
expenditure incurred with regards to
residential accommodation as the supply of residential
accommodation is an exempt supply.
Included in residential accommodation:
2
EXEMPT & ZERO-
RATED SUPPLIES
EXEMPT SUPPLIES
OVERVIEW
A supply of goods or services on which VAT (either at the standard
rate or zero rate) may not be charged.
The making of exempt supplies is specifically excluded from the
definition of an ‘enterprise’ as outlined in section 1 of the VAT Act.
Therefore, if a business provides any of these exempt supplies, they
are involved in the making of non-taxable supplies (💣
Apportionment)
An Exempt supply is thus a non-taxable supply on which no output
tax is levied. Furthermore, an input tax deduction cannot be
claimed in respect of any VAT paid on any expenditure incurred to
produce exempt supplies (i.e. Non-taxable supplies) as the
definition and requirements of input tax are not met.
It follows then that there is no supply, time of supply or value of
supply rules that are applicable to exempt supplies as there are no
VAT consequences attached to these supplies.
The different exempt supplies are broadly outlined in section 12 of
the VAT Act.
, FINANCIAL SERVICES
S12(a) & S2(1) of VAT Act
The supply of financial services constitutes an exempt supply.
❓ often difficult to determine the value of this type of supply for
VAT purposes.
Section 2(1)
The exchange of currency (i.e. rand amount that is exchanged for a foreign
currency is exempt)
The issue or transfer of a cheque or letter of credit
The issue or transfer of a tradable liability
The issue or transfer of an equity share
The provision of any credit and payment of the associated interest
The buying or selling of cryptocurrency
The provision of long term insurance policies
(i.e. The provision of a Life insurance policy is an exempt supply)
The provision of superannuation benefits
(defined in s2(2)(vii) of the VAT Act and includes retirement funds and medical aid schemes.
*The italicised activities will NOT = financial service if the consideration
charged in respect of that supply attracts a fee, commission or similar
charge.
EG: A bank that provides an
overdraft facility to an
individual is providing a
credit facility to that MOCK ANSWERS
individual in exchange for
1. By allowing the customers
bank charges (fee based) asto pay overtime in instalments, the aggregate of which exceeds the
usual purchase price,
well as interest on thethe firm has provided a Financial Service under s2(f). This is an exempt
supply and thus no VAT will be levied on the interest income earned.
RESIDENTIAL ACCOMMODATION
S12(c)
The purpose for which the fixed
property is acquired determines
whether input tax or notional input tax
The supply of residential accommodation
can be claimed on the acquisition of
the property. If the property is acquired
constitutes an exempt supply.
for the supply of residential
à No Output Tax can be claimed on
accommodation under an agreement
for the letting and hiring thereof
the supply of residential
(including residential accommodation
for the employees, directors or
accommodation
shareholders of the company free of
à No Input Tax can be claimed on
charge or at a rent charged to other
tenants), no input tax can be claimed
expenditure incurred with regards to
residential accommodation as the supply of residential
accommodation is an exempt supply.
Included in residential accommodation:
2
