SARS Updates VAT Zero-Rating Evidence: Are You Compliant?

Why VAT Zero-Rating Compliance Matters to Your Business

For South African businesses engaged in exports, cross-border services, or specialized trades, the ability to apply a 0% VAT rate is a significant financial advantage. It allows companies to remain competitive in international markets while maintaining healthy cash flows. However, zero-rating is not an automatic right; it is a conditional benefit that hinges entirely on the quality of your record-keeping.

SARS recently released Issue 5 of Interpretation Note 31 (IN 31), which serves as the definitive guide for the documentary proof required under Section 11 of the VAT Act. This update is critical because it reflects recent legislative changes and introduces new categories of supplies. If your documentation does not strictly align with these updated requirements, SARS can disqualify the zero-rating, leaving your business liable for the full 15% output tax—often long after the transaction has been concluded.

Key Business Implications of the Update

The latest update to Interpretation Note 31 introduces several practical changes that affect how businesses manage their VAT documentation. Understanding these shifts is essential for maintaining compliance:

• The “Key Office Bearer” Relief: SARS has introduced a formal definition for a “key office bearer” (such as a CFO, Public Officer, or Head of Tax). For businesses providing recurring services to non-residents, this is a major administrative win. Instead of obtaining fresh written confirmation for every single transaction, vendors may now accept an annual declaration from a key office bearer of the recipient.
• New Categories for Goods: The update adds specific proof requirements for several new categories, including the disposal of a going concern between separately registered divisions within the same legal entity, and goods supplied to non-residents for delivery to local customers.
• Testing Services and Consumables: There is now clear guidance for businesses providing testing services to non-residents. This includes zero-rating for the services themselves and the consumable goods that are used or destroyed during the testing process, provided specific commercial records are maintained.
• Airtime Distribution: New provisions cover distribution services for airtime vouchers, requiring specific contracts and pricing records to qualify for zero-rating.
• Sanitary Products: The note confirms that a standard tax invoice is sufficient proof for the zero-rating of sanitary towels.

Compliance and Financial Risks

The most significant risk remains the “90-day rule.” Under the VAT Act, a vendor must obtain the required documentary proof within 90 days of issuing an invoice or receiving payment (whichever comes first). Failure to secure the paperwork within this window triggers an immediate obligation to account for 15% VAT in the next tax period.

While businesses can technically reclaim this VAT within five years once the documents are eventually obtained, the interim period creates a massive cash flow burden. Furthermore, if a SARS audit reveals that your documentation for past zero-rated supplies is incomplete or does not match the specific requirements in the updated Tables A and B of IN 31, your business could face substantial assessments, penalties, and interest charges.

Source: Your Evidence for Zero-Rating Just Got an Update. Are You Ready?