Can You Claim VAT on Client Gifts In South Africa?
Giving gifts to clients is a common practice for many businesses in South Africa. It can help build relationships, show appreciation, and promote your brand. But when it comes to claiming VAT on those client gifts, the rules aren’t always clear.
This blog post will discuss whether and when you can claim VAT on client gifts in South Africa.
What Constitutes a Gift for VAT Purposes?
First, let’s clarify what counts as a gift regarding VAT rules. The South African Revenue Service (SARS) defines a gift as voluntarily giving without expecting anything in return. If you hand out company-branded pens or calendars to clients around the holidays, those would generally be gifts.
However, there are some exceptions. If you give a gift to a client and explicitly require something in return — like requiring them to place an order first — then that doesn’t count as a gift for VAT purposes. The gift can’t have any strings attached.
General Rule: No VAT Claims on Gifts
The general rule in South Africa is that you cannot claim input VAT on gifts supplied to clients, customers, suppliers, employees, or others.
Section 17(2) of the VAT Act prohibits VAT vendors from claiming input tax paid on goods or services acquired to supply to another person for no consideration. Since gifts are, by definition, supplied for no consideration, input VAT paid on gifts cannot be claimed.
So, if you buy R500 worth of gift baskets to hand out to clients over the December holidays, you typically cannot claim back that R70 in VAT you paid to acquire those gift baskets.
Exceptions: Some Gifts under R100
There are some exceptions where you can claim VAT on gifts under a certain value. If gift packages supplied to individual clients, customers, or contacts are less than R100 per person per year, you may claim input VAT on those gifts. Any gifts valued at R100 or more do not qualify for input VAT claims.
Claiming VAT on Internal Employee Gifts
Another exception is for internal employee gifts. If you supply gifts only to employees that cost less than R3,000 per employee per year, you can claim VAT input tax.
So, providing a holiday gift or reward to employees under that R3,000 annual threshold allows VAT claims, even though gifts to external contacts like clients and suppliers do not.
But you cannot claim VAT input tax if an employee gift exceeds R3,000 — like taking your whole team on an expensive dinner cruise.
Promotional Items with Logo
What about promotional giveaways branded with your company logo? Can you claim VAT on those?
The key determination depends on whether the promotional item serves as an advertising function rather than just a gift. If the item prominently displays your logo and serves to promote your brand, then you can claim VAT input tax.
Some examples include t-shirts, caps, pens, or notepads with your logo that help expose your brand and advertise your business.
But the SARS still advises caution here. There is no firm cap on the value of promotional items, but input tax will likely get rejected if the items seem excessively nice where they no longer serve just an advertising purpose. So promotional branded gifts cannot just be expensive items given away solely for building relationships with contacts.
Making Tax-Deductible Donations
If you want to distribute more valuable gifts and still get a tax benefit, another option is making an official tax-deductible donation.
Rather than directly gifting something to someone, you donate goods or services to an approved public benefit organization, school, charity, municipality, or other approved body.
Not only can you claim input VAT on purchases used to make donated goods, but you may also qualify for an additional tax deduction on the total market value of donated items. This can provide more sizable tax savings than gifting items directly.
Just follow all the rules and reporting requirements to claim charitable donation deductions successfully.
Summary
Claiming VAT on client gifts in South Africa can be tricky, but hopefully, this breakdown gives you a better understanding of the general rules. Remember that any gift valued at R100 or more supplied to external contacts typically does not allow input tax claims, while cheaper gifts and employee gifts may qualify under given thresholds. And instead of gifting something directly to clients, you can get better tax savings by formally donating items to approved public benefit organizations.
Consult a tax professional if you have additional questions or situations not fully covered. The key is keeping detailed records of gifts provided to justify claims during a SARS audit.
The VAT treatment varies depending on the situation, so reference the above details when providing gifts. And feel free to use our VAT Calculator to easily calculate VAT owed or eligible for claims on purchased items. Reach out with any other questions!
Frequently Asked Questions
Can I claim VAT on employee gifts if I exceed the R3,000 limit?
No, if you supply gifts to employees exceeding R3,000 per employee annually, you cannot claim any input VAT paid on those gifts. The R3,000 threshold is a hard cap.
What if I gift something to a client worth R150?
You cannot claim the input VAT paid for any gifts exceeding R100 in value supplied to clients, customers, or external contacts. So, for a R150 gift basket, for example, the VAT cannot be claimed.
Do promotional giveaways require our logo under the advertising exception?
Yes, SARS typically requires that promotional merchandise serve to advertise your business brand when claiming input VAT. So, items would need to display your company logo, name, or other branding.
Can I claim VAT on a bulk order of small gifts worth R3,000?
The R100 threshold on client gifts applies per person annually. If you buy R3,000 worth of small branded gifts but supply each contact something under R100, then you can still claim the VAT.
What records do I need to keep for claimed employee gifts?
Ensure to keep invoices showing the acquisition and exact value of any employee gifts you claim VAT, along with internal records verifying delivery of those gifts under the R3,000 annual limit per employee. Proper documentation is key.
