On 14 March 2025, South Africa published a significant amendment to its VAT regulations on electronic services, set to take effect on 1 April 2025. This revision impacts foreign non-resident suppliers and local businesses relying on cross-border digital services. Notably, the amendment alters the definition of "electronic services" to exclude certain business-to-business (B2B) transactions from VAT obligations.

Key Changes in the Regulations

Exclusion of Certain B2B Transactions

The revised definition of "electronic services" now excludes supplies made by foreign non-residents who supply exclusively to VAT-registered vendors in South Africa. This means that where a foreign supplier provides digital services solely to VAT-registered businesses, they will no longer be required to register for VAT or account for South African VAT on those supplies.

VAT Obligations for Mixed Supplies

If a foreign non-resident supplier provides electronic services to both VAT-registered and non-VAT-registered customers in South Africa, they must still account for VAT on all supplies made. In such cases, the supplier must consider all supplies when determining whether they have exceeded the VAT registration threshold of R1-million in a consecutive 12-month period.

Burden of Proof on Foreign Suppliers

The onus is on the foreign supplier to prove that its South African customers are VAT-registered vendors. Certain entities, such as government bodies, financial service providers, small enterprises, and educational service providers, may not be VAT-registered. Foreign electronic service providers must carefully assess their client base to determine whether they meet the exemption criteria.

Alignment with International Standards

The amendment seeks to reduce the administrative burden on foreign suppliers and local recipients when VAT collection provides minimal fiscal benefits. It aligns, to a limited extent, with the OECD’s recommendations on VAT for digital services and aims to simplify compliance for non-resident suppliers without a physical presence in South Africa.

Implications for South African Businesses

South African businesses benefiting from this VAT exclusion must still assess their VAT obligations under the imported services provisions of the VAT Act. If the recipient is not entitled to a full VAT deduction, they may still have to account for VAT on these imported services. Companies should carefully review their VAT recovery position to ensure compliance.

Next Steps for Businesses and Foreign Suppliers

Foreign suppliers should implement robust customer verification processes to determine VAT registration status before relying on the exemption. This should include an initial step of consulting a tax attorney to assess the supplier’s obligations, and eligibility to rely on the new exemption.

South African businesses utilising cross-border electronic services should evaluate whether they have any outstanding VAT obligations under the imported services rules.

Accountants and tax professionals should closely monitor any further guidance or clarifications from SARS on the implementation of these amendments.

This amendment represents a significant shift in South Africa’s VAT treatment of electronic services and requires careful consideration by both suppliers and recipients to ensure compliance with the evolving regulatory landscape.

Written by Darren Britz, Partner and Head of Legal at Tax Consulting SA; and Micaela Paschini, Team Lead: Tax Legal at Tax Consulting SA