South Africa

Overview

South Africa introduced VAT in 1991. It is levied on the supply of goods and services by vendors as well as on the importation of goods and certain services into South Africa.

South Africa introduced its first ESS rules in 2014. It amended the definition of ‘enterprise’ in the Value Added Tax Act No 89 of 1991 (VAT Act) 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:

To a recipient at a business address, residential or postal address in South Africa
Where that recipient is a resident of South Africa
Where any payment originates from a bank registered or authorised in terms of South African law

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Key provisions applicable to VAT on ESS
Registration and compliance
Invoicing
VAT on costs

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Release date: April 2024

Key provisions applicable to VAT on ESS

Table 1

Note that the budget tax proposals made on 21 February 2024 refer to excluding B2B suppliers from the ESS provisions. Further information will only be available later in 2024.

2014 VAT Regulation prescribing electronic services

The scope of electronic services was limited to a predefined list of electronically supplied services set out in a regulation (the 2014 Regulation) published by the minister of finance.

The 2014 Regulation did not distinguish between B2B and B2C supplies but effectively attempted to capture B2C electronically supplied services. Foreign suppliers that provided electronic services listed in the 2014 Regulation were required to be registered as a VAT vendor where the consideration for supplies to South African recipients exceeded the annual threshold of ZAR 50,000 (approximately USD 2,500). This was regardless of whether the supply was made to a business or consumer recipient.

2019 VAT Regulation prescribing electronic services

The 2014 Regulation was amended with effect from 1 April 2019 and the definition of electronic services was broadened. This was achieved by removing the predefined list of electronically supplied services and replacing it with the following definition:

“Electronic services include any services supplied by means of an electronic agent, electronic communication or the Internet for any consideration.”

Due to its broad application, guidance was published to clarify the policy intention, that is, to subject to VAT those services that are provided using minimal human intervention. The revenue authority also confirmed the policy intention by indicating that electronic services are services the supply of which:

Is dependent on information technology
Is automated, and
Involves minimal human intervention

Examples of electronic services

Electronic services covered by the regulations include:

Educational services, such as distance teaching programmes, educational webcasts, courses or education programmes and webinars (excluding educational services that are specifically excluded)
Games and games of chance, such as electronic games, interactive games, electronic betting or wagering
Auction services
Online advertising or the provision of advertising space
Online shopping portals
Web-based broadcasting
Access to or downloading of e-books, audiovisual content, still images, music and films
Access to blogs, journals, magazines, newspapers, games, publications, social networking, webcasts, webinars, websites, web applications and web series
Website hosting, data warehousing and application hosting
Downloads of or access to software
Software applications (apps) downloaded by users on mobile devices
Software applications allowing users to provide sharing services such as ridesharing and accommodation
Supplies of electronic services where the nonresident company supplies procured services to the resident company and the non-resident and resident company form part of the same “group of companies”
Online booking services
Online automated maintenance of programmes

The scope includes any service supplied electronically and the above list is not exhaustive

Excluded from the Regulation:

Telecommunications
Educational services provided by a person regulated by an educational authority
Certain intercompany transactions

In addition, the legislation was amended to allow for “intermediaries” to account for the VAT in certain circumstances, as well as an increase in the VAT registration threshold from ZAR 50,000 (approximately USD 3,000) to ZAR 1 million (approximately USD 50,000), which is in line with the domestic VAT registration threshold.

Intermediaries

The intermediary rules state that electronic services supplied by an intermediary will be deemed to be made by such intermediary and not the principal where the principal is a non-vendor foreign supplier of electronic services.

An intermediary is a person who facilitates the supply of electronic services by a foreign electronic services supplier in circumstances where that person is responsible for the issuing of invoices and collecting payment in respect of the supply of electronic services.

The phrase “facilitating the supply” may include a range of services in addition to being responsible for issuing invoices and collecting payment, as mentioned above. For example, it could include advertising or listing the electronic services for sale on a platform or electronic marketplace with or without making it known that the sale of the electronic services is being made on behalf of the principal. However, a person cannot qualify as an intermediary if that person is not responsible for the issuing of invoices and collecting payment.

Where a non-vendor foreign principal supplies electronic services to South African residents and has a South African intermediary, the South African intermediary will be required to pay the VAT on electronic supplies to the South African Revenue Service (SARS).

Registration and compliance

Effective 1 April 2019, every person conducting an enterprise in the context of electronic services that has made taxable supplies in excess of ZAR 1 million in any consecutive 12-month period is required to obtain a VAT registration and account for VAT at the rate of 15% on the supply of electronic services.

The registration process for foreign suppliers of electronic supplies can be done via email. The following information, translated into English, will need to be submitted (and, thus, attached to the email):

The completed VAT registration form (VAT 101)
The certificate of incorporation of the foreign entity
Proof of registration with a foreign tax authority
The ID or passport of the tax representative and/or director
Copy of a recent bank statement for a South African or foreign bank account, whichever is applicable

A non-resident electronic service entity or a nonresident intermediary is not required to appoint a representative vendor in South Africa. Further, a nonresident electronic service entity or a non-resident intermediary is not required to open a South African bank account. It should be noted that this may change in the near future, given recent budget tax proposals released on 21 February 2024.

Although a South African bank account is not required for VAT registration, difficulties arise in the unusual occasion that an ESS VAT vendor requires a VAT refund from SARS.

Once registered for VAT under the ESS Regulation in South Africa, the non resident electronic service entity will be required to complete and submit monthly or bi-monthly VAT returns. VAT returns must 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. All VAT payments to SARS must 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 must be in ZAR.

SARS 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 value of the consideration for the supply in the currency of any country. If ZAR 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

In principle, where a non-resident company electronic service entity incurs South African VAT on its expenditure for purposes of supplying electronic services, it is entitled to claim the input tax credit provided it is in possession of the valid supporting documentation.

Particulars	Description
Scope	Non-residents supplying electronic services to South African individuals (B2C) or businesses (B2B)
Liability to remit VAT	By the non-resident supplier, unless intermediary provisions are applicable
VAT rate	15%
Taxable value	The price payable by the recipient of the supply
Effective date	1 April 2019
VAT registration threshold	ZAR1 million
Tax invoice	Tax invoices are required to be issued

Download publication (pdf - 4.20mb) VAT in Africa Digital Services

This report is a special edition of our annual VAT Guide in Africa, focusing on new rules and measures that have been introduced to tax the digital economy unilaterally by countries in Africa.

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