People and businesses who are commercially active cannot avoid using a bank’s services. Therefore, banks are the only institutions that have relationships with people who receive, spend, save, or borrow money. In light of this, people are generally concerned about the quality of their banking experience and about the tax they need to pay.
As part of this, it is necessary to understand VAT rates, VAT registration, and how it is applied to bank charges. The most common question people ask is: do South African bank charges have VAT? So let’s take a closer look at the answer.
Key Points to Know About VAT
Your accountant will assist you in calculating your VAT owed to SARS if your business supplies products and services to the public. In regards to VAT, the following points are important to keep in mind:
- If you’re a business owner, you’re required to include 15% on all prices. The South African Revenue Service (SARS) will get this percentage.
- The VAT incurred while running your business can, however, be claimed back. This is called input VAT.
- It is generally necessary to file a VAT return every two months, summarizing both the VAT that has been collected and the input VAT that has been paid.
- Businesses with a turnover exceeding R1 million in 12 months must register with SARS and pay VAT. Voluntary registration is available for businesses with turnovers below R1 million for 12 months but greater than R50 000. A business with a turnover under R50 000 over 12 months is not required to register for VAT.
- To calculate the VAT owed to SARS, you must add the VAT that you added to your invoices and subtract the input VAT that you paid for purchases, rent, water, and electricity.
Do Bank Charges Include VAT in South Africa
In South Africa, the majority of goods and services are subject to value-added tax (VAT). However, there are a few exceptions, including banking services. This means that bank charges are not subject to VAT. This is fantastic news for customers since it means they can reduce the cost of banking services. However, it is vital to emphasize that this exemption only applies to the real charges imposed by banks. Other fees, such as those for ATM withdrawals, remain subject to VAT.
Key Points To Take
Charges for specific services: Fees for activities like stop payments, account inquiries, or international transactions often attract VAT, typically at the standard rate of 15%. These are considered explicit “supplies” by the bank.
Interest and loan charges: Generally, interest charged on loans and overdrafts is exempt from VAT. These are viewed as part of the core financial service, not individual “supplies.”
Account maintenance fees: These fees, charged for general account upkeep, usually do not attract VAT. They fall under the umbrella of exempt financial services.
What Documentation Do You Need To Claim A VAT Refund?
You must provide an original tax invoice that includes the seller’s name, address, VAT registration number, your name, and full postal address, a complete description of the item/s purchased, invoice number, the cost of the item/s in Rand with VAT reflected separately, or the cost including VAT with a statement that the price includes VAT.
You must have a foreign passport that shows your country of residence/citizenship as other than South Africa.
NOTE: Carbon copies, photostat copies, and facsimiles of the original tax bills are not accepted. When acquiring an item, insist on proper documentation.
How To Pay Your VAT?
There are several ways to make VAT payments:
- Make your payment electronically. The SARS website or your nearest SARS office can provide more information.
- You can pay with cash or a cheque at any SARS office.
- Send your return along with a cheque in the reply envelope provided. Cross your cheques and make them payable to the South African Revenue Service. Posting cash is not a good idea.
- First National Bank branches accept VAT payments. The SARS office can provide you with a brochure containing more information.
Is it possible to register for VAT online?
The SARS eFiling portal allows businesses to register for VAT online. In addition, businesses can apply for VAT101 at their nearest SARS office by completing and submitting the VAT101 application form.
Can loan charges be claimed for VAT?
VAT will never be charged on interest, regardless of whether you are a Financial Service Provider. Consumers are liable for VAT if they purchase goods and services. Because interest is a penalty for late payments, rather than a service or good, it is not eligible for VAT to be levied.
In South Africa, what does VAT-free mean?
The VAT applies to all fee-based financial services, but not to interest. In addition, residential rent, non-international passenger transportation by road or rail, and educational services are exempt.
Do I have to pay tax if I make both taxable and exempt supplies?
Your registration requirements will remain the same, but you will only be registered for taxable supplies. As a result of this interpretation, the VAT is still only charged on the taxable supplies and does not apply to the exempt supplies.
How do you know when you have to register for VAT?
It is necessary to register for VAT if your income from the sale of goods or fees earned from the provision of services exceeds R300 000 per year, or is reasonably expected to exceed this amount. The form VAT 101 must be completed and submitted to your local SARS office within 21 days of becoming liable. Registrations of this type are known as compulsory registrations.
The basic rule in South Africa is that bank charges for core financial services are exempt from Value-Added Tax. However, certain non-core services supplied by banks may be subject to VAT. Individuals and organizations should stay updated about any changes in tax legislation and seek professional guidance if they have specific questions concerning the VAT consequences of bank charges.