Which adviser income is VAT-exempt in South Africa
Which South African adviser and lender income SARS treats as exempt financial services, which fees are standard-rated, and what that means for VAT.
By Achekam · · 5 min read · For Financial services businesses in South Africa
A South African financial services business can earn several kinds of income in one month: interest on a loan book, commission on a life policy, a fee for exchanging currency, an advice fee for a retirement plan. For VAT, those streams may not be treated the same way. Some are exempt, some are standard-rated, and the mix decides whether the business registers for VAT at all, what its invoices must show and how much VAT it can claim back on its costs.
Getting the classification wrong is expensive in both directions: charging VAT that should not be charged, or failing to charge VAT that should. This article sets out what SARS's guide for vendors says about financial services, what follows for invoices and input VAT, and how to record the income in Achekam so the distinction survives into the VAT return. The detail of any particular fee is a question for your tax adviser.
What SARS treats as exempt, and what it does not
SARS's VAT 404 guide for vendors says financial services such as the provision of credit, life insurance policies and dealings in shares and derivatives are generally exempt from VAT. It says that fees charged for services such as currency exchange are standard-rated.
Read against a typical practice's income, that suggests a first sort:
- Generally exempt: interest and similar charges on credit a lender provides; life insurance policies; dealings in shares and derivatives.
- Standard-rated: fee-based services, with currency exchange given by SARS as an example.
- Ask before deciding: advice fees, administration fees, platform fees and commission whose treatment depends on what exactly is being supplied and to whom.
The word "generally" in the guide matters. Exemption for financial services follows the detailed rules in the VAT Act, and the line between an exempt financial service and a fee-based service charged at the standard rate is exactly where disputes arise. Classify each income stream once, in writing, with your tax adviser, and then apply it consistently. The VAT 404 Guide for Vendors explains exempt supplies, tax invoices and input tax in SARS's own words; the version quoted here is Issue 15, up to date as at 17 December 2024.
Only exempt income means no VAT registration
The same guide says a person that makes only exempt supplies may not register for VAT. A lender whose only income is interest on credit it provides, for instance, has nothing to charge VAT on and is not a vendor.
A business with a mix of exempt and taxable income looks at the taxable part alone for registration. SARS says, at the time of writing, that it is compulsory to register where the value of taxable supplies in any consecutive 12-month period exceeded or is likely to exceed R2.3 million, or where a written contract shows taxable supplies in a 12-month period will exceed R2.3 million. That threshold applies from 1 April 2026; check SARS's VAT pages for the current figure. A business below it that has started invoicing is covered in invoicing in South Africa before you register for VAT.
No input VAT on the costs of exempt income
VAT 404 says a registered vendor may not deduct VAT on goods or services acquired to make exempt supplies or for private use. For a practice with both kinds of income, that has a direct cost. The VAT on rent, software and professional fees that serve the exempt side of the business is not claimable, and costs that serve both sides need to be split on a basis your tax adviser agrees.
That is why the classification matters so much: every rand of income that is exempt reduces the input VAT the business can claim.
Tax invoices for the standard-rated part
Where a registered practice charges VAT, its invoices must be proper tax invoices. VAT 404, in Issue 15, says a full tax invoice must be issued where the consideration is more than R5 000 including VAT, an abridged tax invoice may be issued below R5 000 (except for zero-rated supplies), and no tax invoice is needed where the consideration is less than R50. It also says failure to issue tax invoices is a contravention of the VAT Act and an offence, and that without a proper tax invoice or approved alternative document a vendor cannot deduct input tax. Check the current guide for these amounts before relying on them.
Recording it in Achekam, and one limit to work around
A South African business sets each invoice line's VAT to 15% or 0%. South Africa's standard rate has been 15% since 1 April 2018. Standard-rated fees take the 15% line rate.
The limit to know is that the invoice screen does not tell zero-rated and exempt apart. An exempt interest charge and a zero-rated supply both appear as 0% on the line, even though they are treated differently on a VAT return. Two habits keep them separate:
- Separate income accounts. Each business has its own ledger with a standard chart of accounts, and accounts can be added. Add an income account for each exempt stream (for example "Interest income - exempt") and post exempt lines only to those accounts, so the accountant can tell them apart when preparing the return.
- Clear line descriptions. Describe the supply on each line in words that show its nature, so anyone reading the invoice can see why no VAT was charged.
On the other side, supplier bills and purchase orders take 15% or 0% VAT per line, and bills post input VAT to the ledger. Agree with your accountant how bills that relate to exempt income are captured, so that VAT the practice cannot deduct is not sitting in the input VAT account waiting to be claimed.
Achekam prints your VAT registration number and titles documents "Tax Invoice" only when a VAT number is entered under Firm Profile in Settings. A practice that is not registered because all its income is exempt should leave the number blank, so its documents are not titled as tax invoices.
More on line rates is in South African VAT on invoice lines, and the Kenyan position is compared in do Kenyan financial advisers charge VAT?
Classify before the next invoice
List every income stream the practice earns, mark each as exempt, standard-rated or "ask", and settle the "ask" items with your tax adviser. Then set up one income account per exempt stream and check that the last month's invoices were posted to the right ones.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
