VAT-registered ESS suppliers must take note of the important changes to the tax invoice requirements to ensure compliance with the law. South Africa imposed VAT on electronic services with effect from June 2014, and subsequently widened the scope of the definition of electronic services, which saw many non-resident entities having to register for VAT in South Africa from April 2019. VAT registered ESS suppliers are required to comply with the requirements of the South African Value Added Tax Act ("VAT Act"), including in relation to the issuing of tax invoices. To this extent, ESS suppliers are required to issue tax invoices that contain the particulars prescribed by the South African Revenue Service (SARS) in a public notice/Regulation. However, the VAT Act also provides that, where it is not possible or impractical to issue tax invoices, but sufficient records are available to establish the particulars of a supply, SARS may direct that some information be omitted from tax invoices issued, or that tax invoices need not be issued.
SARS issued Binding General Ruling 28 (BGR28 or the BGR) in February 2016 to direct the requirements for a valid tax invoice issued by ESS suppliers since it is impractical for non-resident entities, whose accounting systems are not designed to comply with the requirements of South African laws, to issue tax invoices similar to those required for South African VAT registered entities. Consequently, SARS directed that certain information that would ordinarily be required for a document to qualify as a valid tax invoice be omitted. On the basis that SARS has now issued the Regulation, the requirements for a valid tax invoice as set out in BGR28 no longer apply and ESS suppliers must issue tax invoices that comply with the Regulation.
There are two major changes to consider. According to BGR28, the requirements for a valid tax invoice include, among others, that the document contains the name and address of the recipient of the electronic services. The BGR indicates that this could either be a physical, business, or email address and does not require that the recipient's VAT registration number be reflected on the document. The Regulation, however, requires that the recipient's business, residential or postal address as well as their VAT registration number, if they are VAT-registered, must be included on the document. Furthermore, while BGR28 merely required a description of the electronic services supplied, the Regulation requires that the document contain a full and proper description of the electronic services supplied.
Accordingly, under the Regulation, tax invoices issued by ESS suppliers must contain the following:
- The name and VAT registration number of the ESS supplier.
- The name and VAT registration number of the recipient of the electronic service, if that recipient is VAT-registered.
- The business, residential, or postal address of the recipient of the electronic services.
- An individual serialized number.
- The date on which the tax invoice is issued.
- A full and proper description of the electronic services supplied.
- The consideration in money for the supply in the currency of any country and if the consideration is reflected in:
- South African Rand (ZAR): the value of the supply and the amount of tax charged, or a statement that the consideration includes a charge in respect of the tax and the rate at which the tax was charged.
- Any other currency: the amount of the tax charged in the currency of South Africa and the exchange rate used, or a separate document issued by the ESS supplier that reflects the amount of tax charged in ZAR as well as the exchange rate used.
In addition to the above, non-resident ESS suppliers are reminded that the VAT charged on electronic services supplied to South African customers must be converted to ZAR using one of the following exchange rates:
- The daily exchange rate on the date the supply is made.
- The daily exchange rate on the last day of the month preceding the date the supply is made.
- The monthly average rate for the month preceding the month during which the supply is made
- as published by the South African Reserve Bank, Bloomberg or the European Central Bank.
