When must a business register for VAT?
A business in South Africa is legally required to register for Value-Added Tax (VAT) when its total taxable sales exceed R2.3 million in any consecutive 12-month period.
This compulsory threshold was increased from R1 million on 1 April 2026. Once registered, the business must charge 15% VAT on its sales and pay that money over to SARS, while claiming back the VAT it pays on its own expenses.
The rolling 12-month test
The R2.3 million limit is not calculated over a standard financial year or a tax year. The law uses a rolling 12-month window.
At the end of every month, a business calculates its total sales for the preceding 12 months. If that total crosses the R2.3 million mark, the business is legally obligated to apply for VAT registration within 21 days. This rule applies equally to sole proprietors, partnerships, and registered companies.
Turnover, not profit
The registration trigger is based on turnover (gross revenue), not profit. A business operating at a massive net loss is still required to register if its revenue exceeds the limit.
The calculation only includes "taxable supplies". This includes standard 15% sales and zero-rated sales (such as basic foodstuffs or exports).
It strictly excludes exempt supplies. Examples of exempt supplies include residential rental income, child care services, and interest earned on loans. If a property investor collects R3 million a year in residential rent, they do not register for VAT because residential rent is an exempt supply.
Voluntary registration (the R120,000 rule)
A business can register before hitting the compulsory limit, provided it makes at least R120,000 in taxable supplies over a 12-month period (this limit was increased from R50,000 in 2026).
Voluntary registration is often driven by corporate clients. Large companies generally prefer dealing with registered VAT vendors so they can claim back the VAT on their purchases. Being registered also allows a new business to claim back the VAT on its own heavy startup costs or equipment purchases.
How the mechanics work: output vs input tax
Once registered, the business effectively becomes a tax collector for the government.
- Output tax: the business adds 15% to its prices. This collected money belongs to SARS.
- Input tax: when the business buys its own supplies (like computers, trading stock, or office rent), it pays VAT. The business can claim this amount back from SARS.
Every VAT cycle (usually every two months), the business submits a return via eFiling. The calculation is Output Tax minus Input Tax. The business pays the net difference to SARS, or receives a refund if its expenses were higher than its sales.
The impact on everyday pricing
Becoming a VAT vendor forces a shift in pricing strategy.
If a business sells to other VAT-registered companies, adding 15% to the invoice does not hurt the client, because the client claims that 15% back as input tax. The transaction is tax-neutral for the buyer.
If the business sells to everyday consumers, the 15% is a direct price hike. The consumer cannot claim it back. The business faces a choice: become 15% more expensive than unregistered competitors, or absorb the tax by lowering its own profit margins to keep prices flat.
Deregistering and the exit VAT trap
Because the compulsory threshold jumped from R1 million to R2.3 million in 2026, many smaller vendors suddenly found their turnover sitting below the legal requirement.
A vendor can apply to deregister if their expected future turnover falls below the new R2.3 million limit. However, deregistration triggers what is known as "exit VAT".
When a business deregisters, it keeps the assets, vehicles, and trading stock it previously bought. Because the business claimed input tax when it purchased those items, SARS requires the business to pay output tax on the current market value of all those retained assets at the exact moment of deregistration. This sudden cash requirement often keeps businesses registered even if they fall below the threshold.
Terms used on this page
- turnover
- The total sales or revenue a business brings in over a period, before any expenses are taken off.
- zero-rated supply
- A sale that is taxable for VAT but at a 0% rate — such as basic foodstuffs or exports. The vendor can still claim back the VAT it paid on its own costs.
- exempt supplies
- Sales that fall outside VAT entirely — such as residential rent or interest. No VAT is charged, and no input tax can be claimed against them.
- output tax
- The 15% VAT a registered business charges on its sales and collects on behalf of SARS.
- input tax
- The VAT a registered business pays on its own purchases, which it can claim back from SARS.
- eFiling
- SARS's free online platform for submitting returns, viewing auto-assessments and making payments.
Sources
Reviewed July 2026