South Africa: VAT exemption for B2B digital services and rate changes announced

The South African Revenue Service (SARS) published updated guidance and FAQs outlining changes to the VAT system, including new rate increases and a significant update affecting foreign suppliers of B2B digital services. These developments follow announcements made during the 2025 budget speech.

Upcoming VAT exemption for foreign B2B digital service providers

Effective April 1, 2025, foreign suppliers of electronic services will no longer be required to register for or charge VAT in South Africa if they supply services exclusively to VAT-registered businesses in the country.

This new rule introduces the following conditions:

• The exemption applies only when 100% of the supplier’s South African customers are VAT-registered.

• Foreign suppliers must verify and retain proof that all South African recipients are VAT-registered.

• If a single digital service is provided to a non-registered customer, the exemption is lost in full. The supplier must register for VAT and account for all digital services supplied in South Africa.

• These supplies will be included when determining whether the supplier exceeds the ZAR 1 million VAT registration threshold in any 12-month period.

The regulation is part of broader changes to the definition of “electronic services” under section 1(1) of the Value-Added Tax Act, 1991, as set out in Regulation No. 5993, also effective April 1, 2025.

VAT rate increases effective in 2025 and 2026

The guidance also confirms two upcoming VAT rate changes:

1. The standard VAT rate will increase from 15% to 15.5% on May 1, 2025.

2. A further increase to 16% will take effect on April 1, 2026.

Additional compliance requirements include:

• Input VAT must be claimed at the applicable rate for supplies made after each rate change, unless transitional rules apply.

• Time of supply rules will determine which VAT rate is used, although special rules apply in certain cases.

• The revised rates must be reflected in VAT invoices for transactions exceeding the prescribed threshold and in both VAT-inclusive and VAT-exclusive pricing.

• Vendors may not claim additional input VAT on inventory acquired before the rate increases but may adjust prices accordingly.

These updates represent changes to both the VAT framework for digital services and the general VAT rate structure in South Africa.

Source: gov.za, gazettes.africa

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*These rates are only indicative. Please use at your own discretion. Last update: 27/08/2024