Zero-rated vs exempt supplies
Both mean the customer pays no VAT, but for the business they work very differently. Here is what SARS says, and why it matters.
From the customer's point of view, a zero-rated item and an exempt item look the same: no VAT is added to the price. For a business, though, the two categories have very different consequences, especially for claiming back VAT on costs (input tax) and for VAT registration. Mixing them up is one of the most common VAT errors.
The short answer
Zero-rated supplies are taxable supplies charged with VAT at 0%. The vendor can generally deduct input tax on costs incurred to make them.
Exempt supplies are not taxable. No VAT is charged, and VAT on costs used to make them cannot be deducted.
SARS explains that taxable supplies are supplies on which VAT is charged at either the standard rate (currently 15%) or the zero rate (0%), and that a limited range of goods and services is either zero-rated or exempt (SARS: Value-Added Tax (opens in new tab)). The same page explains that a vendor may deduct VAT charged to it (input tax) when the VAT is incurred for making taxable supplies, which includes zero-rated supplies.
Zero-rated supplies
A zero-rated supply is still a taxable supply; the rate just happens to be 0%. The SARS VAT 404 Guide for Vendors (opens in new tab) lists the zero-rated categories in its chapter on taxable supplies. They include:
- Certain basic foodstuffs listed in Part B of Schedule 2 to the VAT Act, including brown bread, maize meal, samp, dried mealies and mealie rice, dried beans, lentils, rice, fresh vegetables and fruit, vegetable cooking oil (excluding olive oil), milk, cultured milk, milk powder and dairy powder blend, hens' eggs, edible legumes and pulses, and pilchards in tins or cans.
- Exports of goods, which may be charged with VAT at 0% under certain circumstances.
- Fuel levy goods, the supply of a business as a going concern (when the conditions are met), and certain other specified goods and services described in the guide.
There are conditions. VAT 404 notes that the zero rate does not apply where zero-rated foodstuffs are prepared for immediate consumption, for example a glass of milk served in a restaurant or a pre-packed salad with dressing. The detailed item descriptions in Schedule 2 decide exactly which products qualify.
A vendor must also hold the documentary proof that SARS accepts before applying the zero rate. SARS sets out the required documents in Interpretation Note 31 (opens in new tab). Without that proof, the supply may have to be taxed at the standard rate.
Exempt supplies
An exempt supply sits outside the VAT system. SARS's VAT FAQs on electronic services (opens in new tab) explain that an activity involving the making of an exempt supply does not form part of your enterprise, so no VAT is charged on it at either the standard or the zero rate, you cannot register as a vendor to the extent that you make exempt supplies, and no deduction may be made for VAT on goods or services acquired to make them.
Examples given by SARS on the Register for VAT (opens in new tab) page include:
- Financial services (the FAQs list examples such as the provision of credit and life insurance; fee-based financial services can be treated differently);
- Residential accommodation, for example renting out a dwelling; and
- Public transport.
The VAT 404 guide has a full chapter on exempt and out-of-scope supplies, and the rules for each category have conditions, so check the guide for your specific situation.
Why the difference matters: input tax
Suppose two businesses each buy R115 000 of supplies including R15 000 VAT.
- A business that sells zero-rated goods charges its customers 0% VAT but can generally deduct the R15 000 input tax on costs used to make those sales. It may even receive a VAT refund if its input tax exceeds its output tax.
- A business that makes only exempt supplies charges no VAT and cannot deduct the R15 000. The VAT becomes a cost of doing business.
Businesses that make both taxable and exempt supplies must apportion. VAT 404 explains that VAT on goods or services acquired to make exempt supplies, or for private or other non-taxable purposes, may not be deducted.
Why the difference matters: registration
Zero-rated sales count as taxable supplies, so they count toward the VAT registration thresholds. Exempt supplies do not: SARS lists making exempt supplies as an example of not carrying on an "enterprise" for VAT purposes (SARS: Register for VAT (opens in new tab)). A business that makes only exempt supplies cannot register for VAT. See VAT registration thresholds for the current figures.
Side-by-side comparison
| Question | Zero-rated | Exempt |
|---|---|---|
| Is it a taxable supply? | Yes, at 0% | No |
| VAT charged to customer | 0% | None |
| Can the vendor deduct related input tax? | Generally yes | No |
| Counts toward registration threshold? | Yes | No |
| Examples | Certain basic foodstuffs, exports | Financial services, residential rent, public transport |
Using the calculator for zero-rated items
On the SA VAT Calculator, set the rate to 0 to see a zero-rated line: the VAT is R0.00 and the price is unchanged. For a receipt that mixes standard-rated and zero-rated items, use Line items mode at 15% for the standard-rated lines only, then add the zero-rated lines separately. To take VAT out of a standard-rated price, see the reverse VAT guide.
Sources
All checked on 10 October 2026.
- SARS: Value-Added Tax (opens in new tab)
- SARS: VAT 404 Guide for Vendors (Issue 15, PDF) (opens in new tab)
- SARS: Register for VAT (opens in new tab)
- SARS: VAT FAQs on supplies of electronic services (PDF) (opens in new tab)
- SARS: Interpretation Note 31, documentary proof for zero-rating (PDF) (opens in new tab)