South Africa VAT on digital services non-residents; B2B reverse charge

Consultation on introduction of reverse charge on B2B sales by non-residents 1st April 2025

The South African National Treasury has opened a consultation until 31 August 2024 on ending the obligation on non-resident providers and digital platforms to charge VAT on digital services to VAT-registered businesses. VAT has been due on foreign provided digital services for B2C and B2B since 2014.

Instead, the reverse charge would apply, leaving the reporting to the South African customer, and no VAT charged by the supplier or marketplace. This change was proposed in the recent budget and will come into effect from 1 April 2025.

South Africa is one of the very few jurisdictions not to apply the reverse charge rule on B2B digital services provided from outside of the county. The obligation was introduced in 2014. The result would be that non-residents providing B2B digital services could close their South African registration.

Over 120 countries levy VAT on digital services.

Mar 2024: Fiscal representation requirement for foreign providers of electronic services withdrawn

The South African 2024 budget has proposed removing the fiscal representative requirement of non-resident providers of digital or electronic services to consumers. This obligation to appoint a local agent, who shares their foreign clients South African VAT liabilities, is widely seen as an impediment to the provision of low-cost services to the public.  The authorities will retain the right to impose this obligation still on a case-by-case situation.

April 2023 update to VAT compliance rules for foreign providers of digital services

South African Revenue Service (SARS) has introduced simplifications for foreign suppliers of electronic services and Foreign Intermediaries, by introducing an exception when calculating the R1 million threshold. The exception being, if a non-resident of electronic services or a Foreign Intermediary exceeds the R1 million threshold, in any consecutive period of 12 months, solely as a consequence of abnormal circumstances of a temporary nature, such Foreign Supplier of electronic services of Foreign Intermediary shall not be liable to register for SA VAT .

Feb 2023 VAT obligations on electronic services; invoicing rules updated 2022

South Africa introduced Value Added Tax collections role on non-resident providers and intermediary marketplaces for digital or electronic services in June 2014. There is VAT registration threshold of R1million, after which a provider must notify Commissioner for the South African Revenue Service (SARS). There is no requirement to appoint a Fiscal Representative. Unusually, South Africa imposes VAT on B2B digital services provided by non-residents – instead of using zero-rating and the reverse charge.

The obligations for invoicing was changed for 2022 (see below).

See VAT Calc’s global VAT and GST on digital services tracker to follow global trend for taxing digital services.

What digital services are subject to South African VAT?

Income from the following supplies are considered taxable:

• Downloading and streaming music or videos
• E-books, publications and images
• E-learning
• Gaming
• Gambling
• Auctions
• Subscriptions to membership sites, including dating sites

(From 1 April 2019) Services supplied by means of an electronic agent, electronic communication, or the internet

The following services from non-residents are excluded:

1. Educational services provided by recognised educational establishments in their country of residence
2. Supplies to companies with either side owning 70%+ shares of the other, and the services are supplied exclusively to the South African resident customer
3. Telecoms

Determining South Africa place of supply

Any non-resident must determine if their customer is within the South African VAT net. This is based on the following specific rules for establishing the place of supply:

1. Electronic services are supplied in South Africa
2. Payments are made from a South African bank
3. Businesses with South African address, or for consumers a residential address

Marketplace liabilities

Foreign intermediary electronic marketplaces will be considered responsible for the VAT of the non-resident. This applies where the vendor is not resident and its marketplace intermediary acts as the contract principal. This marketplace liability was introduced in April 2019.

In this case, the marketplace must VAT register if over the registration threshold.

B2B digital services liable to VAT

Since 1 April 2019, South Africa has imposed VAT obligations on non-resident providers of digital or electronic services to resident businesses. Almost all other countries use the reverse charge.

2022 invoicing requirements

Since 2022, invoices must include:

• B2B invoices must include the VAT number of the customer. Previously the name, address and contact details was sufficient.
• A full and proper description of the services must now be added.
• The VAT must be stated in SAR’s currency
• New FX rules

VAT registration and compliance

Vendors must produce VAT invoices with basic transaction details. There is a simplified electronic services business VAT registration process, available online with SARS.  South African VAT returns are completed monthly. Returns are due by the last businesses day of the month following the reporting period.

Africa & Middle East VAT on digital services