Overview
In 2014, South Africa introduced the first Regulation stipulating various VAT rules applicable to electronically supplied services. This Regulation included a defined list of specific services that fell within its scope.
At the same time, the definition of ‘enterprise’ in the Value Added Tax Act No 89 of 1991 (“VAT Act”) was amended to include the supply of ‘electronic services’ as defined in the VAT Act, by a person from a place outside South Africa, where at least two of the following criteria exist:
- The recipient has a business address, residential, or postal address in South Africa,
- The recipient is a resident of South Africa
- Where any payment originates from a bank registered or authorised in terms of South African law.
Intermediaries
Section 54(2B) of the VAT Act deems a VAT registered intermediary to be the principal when supplying electronic services to a South African recipient, on behalf of another person who is the principal for the purpose of that supply. Currently, the intermediary and the principal must agree in writing for section 54(B) to apply, however legislative amendments are expected, and parties will have to agree in writing for section 54(2B) not to apply, once the amendment is passed.
If the parties agree that the intermediary rules should apply, the intermediary will be the accountable person for the VAT in respect of supplies made and not the principal. The principal will not have any reporting obligations in respect of supplies made via an intermediary and in terms of section 54(2B).
In the South African context, an intermediary must facilitate the supply of ESS and be responsible for invoicing and payment collection.
Key provisions applicable to VAT on ESS
| Particulars | Description |
| Scope | Non-residents supplying electronic services to South African individuals (“B2C”) or businesses (“B2B). With effect from 1 April 2025, B2B supplies (where non-resident’s services are supplied solely to registered VAT vendors) are excluded from the ESS provisions. |
| Liability to remit VAT | By the non-resident supplier, unless intermediary provisions are applicable. |
| VAT rate | 15% |
| Taxable value | Price payable by the recipient of the supply. |
| Effective date | 1 April 2025 |
| VAT registration threshold | The compulsory VAT registration threshold for electronic services increased to R2.3 million with effect from 1 April 2026. |
| Tax invoice | Tax invoices are required to be issued |
Registration and compliance
Effective 1 April 2019, every person conducting an enterprise in the context of electronic services, which has made taxable supplies exceeding R1 million in any consecutive 12-month period, is required to obtain a VAT registration in the following month after exceeding the threshold and account for VAT at 15% on supplies. Effective 1 April 2026, the threshold increased to R2.3 million.
| Registration Process | The registration process for foreign suppliers of electronic services can be completed via email. The following information, translated into English, will need to be submitted (and, thus, attached to the email):
|
| Local representative vendor | A non-resident electronic service supplier or intermediary is not required to appoint a representative vendor in South Africa. |
| Local bank account | A non-resident electronic service entity or a non-resident intermediary is not required to open a South African bank account. From a practical perspective, as a South African bank account is not required for the VAT registration, this may cause difficulties especially in the unusual occasion where an ESS VAT vendor will require VAT refunds from SARS. |
| VAT returns submission | The non-resident electronic service entity will be required to complete and submit monthly or bi-monthly VAT returns. VAT returns are required to be submitted by the last business day of the month following the end of the VAT return period (calendar month). Where there are no sales to reflect in a month, the non-resident is required to file a nil VAT return. |
| VAT payments | All VAT payments to the South African Revenue Service (SARS) are required to be made by the last business day of the month. |
Invoicing
A tax invoice must be issued within 21 days of the date of a taxable supply, and the currency reflected on the invoice must be South African rand.
The Commissioner has issued a regulation on the requirements for tax invoices for electronic services, which must include the following information:
- The name and VAT registration number of the electronic services supplier
- The name and address (physical, postal or email address) of the electronic services recipient
- An individual serialised number
- The date of issue
- A description of the electronic services supplied
- The consideration in money for the supply in the currency of any country. If the ZAR currency is used, the amount of the VAT charged or a statement that it includes a VAT charge and the rate at which the VAT is charged must be reflected. If another currency is used, the amount of the tax charged in ZAR, converted at the prescribed exchange rate, or a separate document, must be issued by the electronic services supplier reflecting the amount of tax charged in ZAR
- The exchange rate, at the prescribed rate, used.
Electronic invoicing is generally accepted, provided the above requirements are satisfied.
VAT on costs
A non-resident company registered for VAT under the ESS Regulation is entitled to recover input tax incurred on domestic expenses, provided it was incurred as part of its VAT enterprise and subject to supporting documentation (i.e. valid tax invoice).
In practice, where the recovery of input tax results in a refund due, the amount cannot be refunded to the ESS supplier. This is due to the fact that ESS suppliers are not required to provide a South African bank account when applying for its VAT registration and due to exchange control regulations, SARS will not pay any amount due into a foreign bank account. Any refund due may be set off against future payments due and a mechanism has been introduced to refund amounts due upon de-registration. At this stage, however, it remains unclear how this mechanism will be applied in practice.
VAT on cryptocurrency
The VAT Act was amended with effect from 1 April 2019 to include the activity of issuing, acquiring, collecting, buying, selling, or the transfer of any cryptocurrency as financial services, which is an exempt supply for VAT purposes. Importantly, where a commission or fee is charged in relation to cryptocurrency transactions, this commission or fee is excluded from the financial service activities and thus subject to VAT at either the standard or zero rate (where applicable).
Kindly note that there is very little guidance issued by SARS on cryptocurrency.
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