What is a VAT refund?
A VAT refund is an amount of VAT that is payable by SARS to a vendor, where:
- the total amount of VAT charged to the vendor on the acquisition of goods and services (input tax) and on the importation of goods (and which are allowed as a deduction) exceeds the total amount of VAT charged on the supply of goods or services by the vendor (output tax), for a tax period, or
- a vendor has made an erroneous overpayment, i.e. the vendor has paid an amount of VAT, exceeding the amount that should have been paid to SARS.
How do VAT refunds work?
If a vendor is entitled to a VAT refund, SARS must pay that VAT refund within 21 business days of receiving the correctly completed VAT return. If the refund is not paid within this time, SARS must pay interest to the vendor. There are a few exceptions where SARS may withhold a refund or suspend the 21-business day period without the payment of interest.
SARS may withhold a refund until –
- SARS is satisfied that a defective or incomplete VAT return submitted by a vendor, does not affect the amount to be refunded or the defect or incompleteness is corrected by the vendor;
- the vendor has provided banking details;
- all outstanding VAT returns have been submitted;
- SARS is satisfied that a refund claimed will be refunded by the vendor to another party where that vendor’s output tax is borne by that other party; or
- a verification, inspection or audit of the refund has been finalised, unless acceptable security has been provided.
Vendors who are selected for verification of their refund claims will be requested to submit supporting documents.
If a refund is due as a result of an erroneous overpayment, a vendor must within 90 days of making the claim provide SARS with their banking details for the claim to be valid.
If a vendor has an outstanding debt, a VAT refund will be set-off against that debt and any balance will be payable to the vendor.
The VAT refund on a return must be claimed within 5 years from the date the VAT return was due and an erroneous overpayment must be claimed within 5 years from the date of the overpayment.
Vendors who are registered for eFiling may view the status of their VAT refund on the eFiling Refund Dashboard.
Interest on late payment of a refund
If a VAT refund is not paid within 21 business days, SARS will have to pay interest, at the prescribed rate, on the amount that is refundable. SARS may, under certain circumstances, re-calculate or suspend the 21-business day period, in which case interest is not payable, unless the 21-business day period which has been re-calculated or suspended, lapses.
SARS will suspend the 21-business day period where it is unable to gain access to a vendor’s books and records. In this instance, the 21-business day period is put on hold from the date the request for access is sent to the vendor to the date the vendor allows access to such books and records.
The 21-business day period will be re-calculated under the following circumstances:
- The VAT return is incomplete or defective;
- Banking details are incorrect;
- Tax returns are outstanding; or
- In the case of a non-resident vendor, a representative vendor has not been appointed or bank account has not be furnished.
May a vendor object or appeal when SARS does not authorise a VAT refund?
A vendor may object to or appeal against a decision by SARS not to authorise a VAT refund.
For more information on the dispute process refer to the Disputes Page.
For more information on refunds refer to the Short Guide on the Tax Administration Act, 2011.
Top Tip: Due to the risk of VAT fraud, the use of third party banking details will only be permitted in two instances, firstly, where the vendor is a foreign company and secondly, where the vendor falls within the ambits of a “group of companies” (i.e. the vendor is either a subsidiary company or a holding company). In both cases, the vendor must supply the necessary authority from the account holder (for example, company resolution) and indemnify SARS against possible losses for any amount that is paid into the third party bank account. The vendor is required to complete a VAT119i form for this purpose.