How To Claim VAT Refunds For Gifts in South Africa
Exchanging gifts is a common tradition in South Africa. This not only fosters relationships or a business’ brand visibility but also helps the economy grow. Value-added tax (VAT) applies to the purchase of gifts. You can add or remove VAT to estimate the net price of your purchased gifts.
In the following blog post, I will explain the comprehensive guide to claiming VAT refunds for gifts and mention all the necessary documents for the process.
Understanding the role of gifts in Business
Corporate gifts offer significant purposes in the business environment. They work as perks that encourage employees, employers, and potential customers to feel valued.
- Strengthening relationships: Gifts are crucial to strengthening ties with employers clients and stakeholders. This adds value and morale to a business. Moreover, If given thoughtfully it enhances customer loyalty and engagement.
- Fostering brand awareness: Promotional gifts are one of the best marketing tools to reach a wider audience. Adding logos or slogans with the gifts can be effective in enhancing brand visibility and awareness.
- Building cultural practices: Gift-giving is a popular tradition in South African culture. By exchanging gifts South African people show humanity towards one another. Some of the popular gift-giving events in South Africa are weddings, Kalahari Christmas cards, etc.
How to claim VAT on gifts in South Africa
- Step 1: If you are an existing customer, you are eligible to claim input VAT. In this scenario, you must provide gifts to someone with whom you have an established relationship. Your business needs to be VAT-registered as per the SARS regulations. If the business is new, you can learn all the processes necessary for VAT registration from scratch.
- Step 2: VAT claims depend on the current market value of the gifts. If the gift’s price is less than R500, the VAT paid on it is refundable. If its price exceeds R500, SARS will scrutinize your claim.
Necessary documents for claiming VAT
- A business needs to have tax invoices to submit applications for VAT claims. A VAT invoice must contain a valid VAT registration number, date of issue, a brief description of the purchased gifts, and total VAT amounts. If your business does not have tax invoices, you can generate them using accounting software.
- Another important document required is the VAT refund application. Along with it, you must have proof of payments.
- Some supporting documents may be important during the claim submission process. These documents include agreements and delivery notes.
- It is necessary to maintain proper records of gift transactions. If any discrepancy is found, your claim will be denied.
- You require an IRP5 certificate to validate the legitimacy of your claim.
Types of gifts eligible for VAT claims in South Africa
- Gift baskets: Gift baskets or hampers are popular during festivities such as Christmas Eid or Diwali. These gifts are usually given to VIP customers and high-profile clients. These gifts include wine, mugs, chocolate, cookies, picture frames, baked items, etc. If you follow the SARS guidelines. You can claim input VAT charged on the gift baskets.
- Gift vouchers and Cards: Gift vouchers and cards are given to the loyal customers. The nature of these gifts is prepaid and it is prevalent in restaurants and popular stores. The VAT paid on these gifts is deductible.
- Low-value gifts: Gifts of modest value are provided to customers or employers on various occasions such as farewell etc. The category of these gifts contains bouquets or tokens of gratitude. According to the latest updates of SARS, gifts with a market value of less than R500 are redeemable.
- Promotional gifts: Promotional gifts are the most common type of gifts worldwide. These gifts are mugs, pens, USB drives, bags, office combo kits, and calendars. These gifts are given to clients or employees at various events like trade fairs or exhibitions.
- Gifts for incentive: Gifts given away for incentive purposes are essential to retain clients and employees. This kind of gift is provided on a regular basis and qualified for VAT refunds.
Criteria for VAT claims on gifts in South Africa
- Under section 17(2) of the VAT Act, it is stated that a VAT vendor can not claim input VAT on gifts given to customers, employees, or stakeholders. This is because gifts are provided under “no consideration”.
- If you buy a gift worth R100, you can claim input VAT. However, if your gift’s market value crosses the threshold of R500, It does not qualify for VAT claims. So, the price value is considered an important criterion for VAT refunds.
- If the gifts are given to internal employees within an organization, you can easily claim VAT on them. However, there is a condition here. The price of these gifts should not exceed R3000.
- You will get tax benefits if you donate gifts to charities, non-profit organizations, municipalities, and schools. You can apply for VAT deductions on the donated items.
Wrapping up
To conclude, claiming back VAT, especially on gifts in South Africa is tricky. If you follow SARS guidelines and keep records regularly, the process will be much easier for you. I have mentioned various categories of gifts qualified for VAT claims. If you find it difficult to deduct VAT on gifts, you can take advice from your tax consultants.