VAT Registration for South African Government Tenders

When VAT Registration Is Compulsory

Under Section 23 of the Value-Added Tax Act 89 of 1991, VAT registration is compulsory when a business's taxable supplies in any 12-month period exceed or are expected to exceed the mandatory registration threshold of R1 million. This threshold has remained at R1 million for some time but should be confirmed via the SARS website as it may be adjusted by the Minister of Finance in the annual budget. Any business consistently bidding on government contracts and winning work will quickly reach this threshold.

Voluntary registration is available to businesses whose taxable supplies are below the R1 million threshold but exceed R50,000 per year. Voluntary registration can be advantageous because it allows the business to claim input tax credits on VAT paid to suppliers, reducing overall procurement costs. However, once registered — compulsory or voluntary — the business must comply with all VAT Act obligations including submission of VAT201 returns, issuing valid tax invoices, and maintaining VAT records for five years.

• Compulsory registration threshold: R1 million in taxable supplies per 12 months
• Voluntary registration available for businesses exceeding R50,000 per year
• Register at SARS eFiling or at a SARS branch office
• Registration effective from the date SARS approves the application
• VAT201 returns due monthly or bi-monthly depending on your VAT category
• Standard VAT rate in South Africa: 15% (effective 1 April 2018)

VAT and Government Tender Pricing

When pricing a government tender, all amounts in the bid must be stated exclusive of VAT (ex-VAT), with VAT shown separately. Government departments — as organs of state and registered VAT vendors — may claim input tax credits on VAT paid to registered suppliers. If your business is not VAT-registered, you cannot charge VAT on your invoice, which means your effective price includes your full costs and profit. VAT-registered businesses can reclaim input VAT on their own procurement, giving them a competitive cost advantage when bidding.

Standard Bidding Document SBD 3.3 (Pricing Schedule) requires tenderers to indicate whether their prices include or exclude VAT, and to state their VAT registration number. Government procurement officers verify VAT registration status on the SARS VAT vendor search before processing payments. Submitting an invoice claiming VAT when you are not registered is a criminal offence under the VAT Act and the Prevention and Combating of Corrupt Activities Act.

• Tender prices must be quoted ex-VAT with VAT shown separately
• Include your VAT registration number on all tender documents and invoices
• VAT-registered vendors claim input VAT on qualifying business expenses
• Non-VAT vendors must price without VAT — their full cost is the tender price
• SBD 3.3 requires declaration of VAT registration status
• Issuing a VAT invoice without registration is a criminal offence

VAT Invoicing Requirements for Government Contracts

Once a government contract is awarded and work is performed, the supplier must issue a valid tax invoice to the procuring department before payment can be processed. A valid tax invoice under Section 20 of the VAT Act must include: the words 'Tax Invoice', the supplier's name, address, and VAT registration number, the recipient's name and address, a unique invoice number, the date of issue, a description of the goods or services, the quantity or volume, the VAT-exclusive price, the VAT amount, and the VAT-inclusive total. Any invoice that omits a required element can be rejected by the finance department and payment withheld.

Government finance departments apply strict invoice compliance under National Treasury's Accounting Standards and the Public Finance Management Act (PFMA). Invoices are matched against purchase orders (three-way match: purchase order, delivery note, and invoice) before payment is authorised. Late or incorrect invoices delay the standard 30-day payment term. The PFMA requires organs of state to pay valid invoices within 30 days of receipt, but this clock only starts once a valid, compliant invoice is received.

• Tax invoice must include supplier VAT number and all prescribed elements
• Unique invoice number and date must be clearly stated
• VAT-exclusive price, VAT amount, and VAT-inclusive total all required
• Match invoice to purchase order and delivery note for faster payment
• PFMA: government must pay within 30 days of receiving a valid invoice
• Keep copies of all tax invoices for five years as required by the VAT Act

Frequently Asked Questions

Related Guides

• Tax Clearance Certificate for Tenders
• SARS Compliance for Tender Eligibility
• CSD Compliance Requirements
• VAT Registration Step-by-Step Guide