VAT BASICS
Zero-rated vs exempt VAT: what is the difference?
Both zero-rated and exempt supplies may look like “no VAT” to a customer. They are not the same in the VAT system. The distinction can affect whether an activity is taxable, registration considerations and input-tax treatment.
Zero-rated means taxable at 0%
A zero-rated supply is still a taxable supply, but VAT is charged at 0%. SARS guidance gives certain basic foodstuffs as examples, subject to the precise legal descriptions and conditions. A vendor making zero-rated supplies may generally be able to deduct qualifying input tax, subject to the normal requirements and documentary proof.
Exempt means outside the taxable supply base
An exempt supply is exempt under the VAT Act. SARS lists examples that include certain financial services, public passenger transport by road or rail, and residential accommodation under a lease. A person who makes only exempt supplies cannot register for VAT or charge VAT on them.
Do not classify by guesswork
Product names and everyday descriptions can be misleading. The exact supply, customer, place and evidence can matter. A food item, cross-border transaction, fee or bundled service may have rules that change the answer.
Where to confirm
Read the current SARS VAT 404 Guide for Vendors and obtain tax advice for a transaction you need to classify.